Pakistan signs $4.5 billion loans with local banks to ease power sector debt

Men work on electric pylons along the roadside in Karachi on May 30, 2021. (AFP/File)
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Updated 22 June 2025
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Pakistan signs $4.5 billion loans with local banks to ease power sector debt

  • The government, which owns much of the power infrastructure, is grappling with ballooning ‘circular debt’
  • The liquidity crunch has disrupted supply, discouraged investment and added to fiscal pressure on Islamabad

KARACHI: Pakistan has signed term sheets with 18 commercial banks for a 1.275 trillion Pakistani rupee ($4.50 billion) Islamic finance facility to help pay down mounting debt in its power sector, government officials said on Friday.

The government, which owns or controls much of the power infrastructure, is grappling with ballooning “circular debt”, unpaid bills and subsidies, that has choked the sector and weighed on the economy.

The liquidity crunch has disrupted supply, discouraged investment and added to fiscal pressure, making it a key focus under Pakistan’s $7 billion IMF program.

Finding funds to plug the gap has been a persistent challenge, with limited fiscal space and high-cost legacy debt making resolution efforts more difficult.

“Eighteen commercial banks will provide the loans through Islamic financing,” Khurram Schehzad, adviser to the finance minister, told Reuters.

The facility, structured under Islamic principles, is secured at a concessional rate of 3-month KIBOR, the benchmark rate banks use to price loans, minus 0.9 percent, a formula agreed on by the IMF.

“It will be repaid in 24 quarterly instalments over six years,” and will not add to public debt, Power Minister Awais Leghari said.

Existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5 percent, and older loans ranging slightly above benchmark rates.

Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks participating in the deal.

The government expects to allocate 323 billion rupees annually to repay the loan, capped at 1.938 trillion rupees over six years.

The agreement also aligns with Pakistan’s target of eliminating interest-based banking by 2028, with Islamic finance now comprising about a quarter of total banking assets.


Pakistan says militants attempted drone attacks inside its territory, Afghanistan says carried out airstrikes

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Pakistan says militants attempted drone attacks inside its territory, Afghanistan says carried out airstrikes

  • Islamabad says anti-drone systems intercepted devices in three cities
  • Kabul says it carried out airstrikes in Pakistan after earlier strikes in Afghanistan

ISLAMABAD: Pakistan on Friday said militants attempted to launch small drones inside its territory, while Afghanistan’s ministry of defense claimed it had carried out retaliatory airstrikes in “various areas of Pakistan,” marking a sharp escalation in cross-border hostilities between the bitter neighbors.

The developments follow Pakistani airstrikes earlier this week targeting what Islamabad said were Tehreek-e-Taliban Pakistan (TTP) and Daesh militant camps inside Afghanistan. Pakistan said those strikes killed more than 100 militants, while Kabul said women and children were killed and condemned the attacks as violations of Afghan sovereignty.

On Thursday night, Afghanistan’s Taliban authorities said they had launched “large-scale offensive operations” against Pakistani military bases and installations, prompting Pakistan to say its forces were responding to what it described as unprovoked fire along the shared border. 

Pakistan’s Information Minister Attaullah Tarar said on Friday afternoon militants had attempted drone activity inside three Pakistani cities.

“Fitna al khawarij [TTP] terrorists have attempted to launch small drones in Abbottabad, Swabi and Nowshera. Anti Drone Systems have brought down all the drones. No damage to life,” Tarar said.

“The incidents have again exposed direct linkages between Afghan Taliban Regime and Terrorism in Pakistan.”

Afghanistan’s Ministry of National Defense, in an X statement, said it carried out airstrikes inside Pakistan.

“The Ministry of National Defense of Afghanistan today, before noon, at around eleven o’clock local time, carried out airstrikes in various areas of Pakistan,” the statement said.

“These attacks were carried out in response to last night’s aerial incursions by Pakistani forces in Kabul, Kandahar, and Paktia.”

Pakistan has not confirmed any damage from the Afghan claim.

Earlier Friday, the Pakistani prime minister’s spokesman Mosharraf Zaidi said counter-strikes were continuing after what Islamabad described as unprovoked Afghan fire along the border.

“A total of 133 Afghan Taliban are confirmed killed, more than 200 wounded,” Zaidi said in an X update. “Twenty seven (27) Afghan Taliban posts have been destroyed, and nine (9) have been captured.”

On the Afghan side, the defense ministry claimed 55 Pakistani soldiers were killed and that two garrisons and 19 posts were captured. Pakistani officials denied losing any posts. None of the casualty figures or battlefield claims from either side could be independently verified.

Amid the escalating rhetoric, Pakistan’s State Minister for Interior Talal Chaudhry urged Afghanistan’s Taliban leadership to change its approach.

“They must behave like a state, not like a guerrilla force,” Chaudhry told reporters in Islamabad. “Until their behavior changes, we will adopt every possible option to make it change.”

Chaudhry said the United Nations had confirmed that over two dozen militant groups operate from Afghan territory and added that brotherly countries “do not send militants who slaughter our youth, attack school buses carrying children, or make places of worship and innocent women unsafe.”

Cross-border violence has intensified in recent weeks, with Pakistan blaming a surge in suicide bombings and militant attacks on insurgents it says are based in Afghanistan. Kabul denies providing safe havens to anti-Pakistan militant groups.

The latest clashes mark the third major escalation between the neighbors in less than a year. Several regional countries, including China, Russia, Saudi Arabia and Iran, have urged restraint as operations on both sides continued Friday.

The confrontation unfolds against a backdrop of growing friction over Afghanistan’s regional alignments. Pakistan has repeatedly accused the Taliban authorities of allowing Indian influence to expand in Afghanistan, an allegation Kabul has rejected.

Pakistan’s defense minister Khawaja Asif earlier said the Taliban government had turned Afghanistan into “a colony of India.”

Islamabad has long accused India of using Afghan territory to support anti-Pakistan militant groups, a charge New Delhi denies.