The World Bank has reported a dramatic 400% increase in Pakistan's power sector subsidies over the past five years, significantly straining the federal government’s finances.
The latest figures reveal that 94% of domestic consumers are benefiting from these subsidies in 2024, contributing to the growing financial burden.
According to the report, power sector subsidies have surged from Rs 236 billion in the 2020 fiscal year to Rs 1,190 billion in the current financial year, marking an increase of Rs 954 billion. This sharp rise has been attributed to the growing number of protected consumers, along with challenges such as high system losses and poor recovery of electricity bills, which have contributed to a circular debt crisis. For the past four years, circular debt has averaged Rs 400 billion annually, despite ongoing reforms.
The World Bank has warned that without addressing these underlying issues, including increasing electricity tariffs and weak revenue collection, the circular debt crisis will worsen. It urged the government to take immediate steps to reduce the subsidy burden and tackle the root causes of the problem.
The report also highlighted that despite a historic rise in electricity tariffs, Pakistan’s circular debt in the power sector continues to rise. Over the past six years, the debt has ballooned by Rs 1,241 billion, with Rs 1,128 billion added between 2019 and 2021 alone. The debt further increased by Rs 113 billion between 2022 and 2024, bringing the total circular debt in the power sector to Rs 2,393 billion as of 2024. The World Bank underscored the urgency of implementing reforms to address this escalating debt situation.