Pakistan Power Debt: $4.5bn Loan Deal
- Pakistan's government is turning to Islamic finance to tackle its crippling power sector debt.
- The power sector's liquidity crunch has disrupted supply and discouraged investment, adding pressure to the nation's fiscal situation.
- According to leghari, the Islamic finance facility will not increase public debt.
Pakistan is actively combating its power sector debt by harnessing Islamic finance. A Rs1.275 trillion deal, secured with 18 commercial banks, aims to resolve Pakistan’s critical liquidity issues adn reduce its dependence on conventional loans, providing a crucial step toward economic stabilization. This strategic move,aligned with the goal ofinterest-free banking,also includes a concessional rate. This financing isn’t predicted to balloon the country’s public debt. Banks like Meezan, HBL, and UBL are participating in this pivotal agreement, which is meant to provide relief. News Directory 3 reports on the essential details, helping you stay informed. Discover what’s next as Pakistan allocates funds to repay the loan while evolving toward interest-free banking.
Pakistan Taps Islamic Finance to Ease Power Sector Debt
Pakistan’s government is turning to Islamic finance to tackle its crippling power sector debt. Power Minister Awais Leghari announced Friday that term sheets have been signed with 18 commercial banks for a Rs1.275 trillion facility. The Islamic finance arrangement aims to alleviate the contry’s ballooning circular debt, unpaid bills, and subsidies that have long strained the economy.
The power sector’s liquidity crunch has disrupted supply and discouraged investment, adding pressure to the nation’s fiscal situation. this issue is a key focus under Pakistan’s $7 billion IMF program. The new financing is structured under Islamic principles at a concessional rate of three-month KIBOR minus 0.9 percent, as agreed with the IMF.
According to leghari, the Islamic finance facility will not increase public debt. The existing liabilities carry higher costs, including late payment surcharges on Independent Power producers (IPPs) and older loans with rates slightly above benchmarks. Repayment is structured over six years, in 24 quarterly installments. The government anticipates allocating Rs323 billion annually, capped at Rs1.938 trillion over the period.
Banks participating in the deal include Meezan bank, HBL, national Bank of Pakistan, and UBL. The agreement also supports Pakistan’s objective of eliminating interest-based banking by 2028. Islamic finance currently accounts for about a quarter of the country’s total banking assets.
What’s next
The government plans to allocate funds to repay the loan annually, aligning with its broader strategy to transition towards interest-free banking and stabilize the power sector through strategic financial initiatives.