Aloan remains a loan, no matter how much one changes the nomenclature of it. The government’s decision to reduce the circular debt by issuing Islamic bonds is another attempt to pay off the pending dues by taking more loans. The move is nothing but shifting the burden of loans. Raising money through bonds, whether Islamic or conventional, is not a sustainable solution at all. Given the fact that it will be the second Sukuk financing worth rupees 200 billion for the power sector in less than six months makes it evident that the government’s approach to deal with the issue of circular debt is an unsustainable one.

No doubt that the government had no other option but to raise money for reducing the burden of debts accumulated in the energy chain. Especially after the London Court of International Arbitration (LCIA) decision favouring independent power producers (IPPs), the government is trying to make arrangements for paying off debts through less harmful ways. But the government’s way of dealing with the issue of circular debt is just a short-term solution. Whether the government likes it or not, it is a fact. Probably the government would meet its claim of bringing the circular debt down to zero by the end of next year by such bonds.

However, let’s be clear on one thing. It is not the first time that the government will be able to bring the circular debt to zero in the next year. In the past, the governments brought the circular debts to zero too. But because of short-term solutions, the problem of circular debt has risen again. Despite the fact that the said debt is going up and up, we hear nothing from the government about reforming the power sector.

True that raising finances through an Islamic bond will ease the financial crunch in the power sector of the country. True that loans play a key part in the government’s strategy to rethink how to deal with power arrears and get some breathing room. However, it is also true that the government needs to do more for improving the energy sector and avoiding the financial losses that it suffers because of sticking to the wrong policies and poor infrastructure that is yet to be overhauled.

Moreover, the incumbent government’s debt taking is exceeding the previous government’s rate. Nevertheless, if the government manages to plug the deficit and make inroads into eliminating the circular debt , then the move of issuance of Sukuk bonds is justifiable. But the solution while bringing circular debt to zero should be achieved through a long-term strategy. Otherwise, a few years down the road, the issue of circular debt will surface again.