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 rules out talks with Afghanistan, says over 330 Afghan fighters killed in clashes

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Pakistan rules out talks with Afghanistan, says over 330 Afghan fighters killed in clashes

  • Clashes between the neighbors erupted after Pakistan’s airstrikes on Afghan territory last weekend
  • US voices support for Pakistan, Information Minister Attaullah Tarar says they aim to make Pakistan safe

ISLAMABAD: Pakistan has ruled out any talks with Afghanistan until an end to “terrorism” emanating from the Afghan soil, officials said on Friday, following the killing of more than 330 Afghan fighters in cross-border clashes this week.

The latest clashes between the neighbors erupted after Pakistan’s airstrikes on Afghan territory last weekend triggered Afghan retaliatory attacks along the border on Thursday, escalating long‑simmering tensions over Pakistan’s claim that Afghanistan shelters Pakistani Taliban militants. Afghanistan denies this and argues Pakistan is deflecting blame for its own security failures.

Pakistani Information Minister Attaullah Tarar said they had killed 331 Afghan fighters, destroyed over 100 posts and targeted 37 military locations across Afghanistan. Afghan officials have said that more than 50 Pakistani soldiers have been killed and several Pakistan posts have been captured by their forces. None of the casualty figures or battlefield claims from either side could be independently verified.

Meanwhile, Mosharraf Zaidi, Prime Minister Shehbaz Sharif’s spokesperson for foreign media, ruled out any talks with Afghanistan until Kabul addresses the issue as the United States (US) expressed his support for what it called Pakistan’s “right to defend itself” against attacks from Afghanistan’s Taliban rulers.

“There won’t be any talks, there is nothing to talk about... Terrorism from Afghanistan has to end,” Zaidi told Pakistani state media, saying Islamabad would continue to target militant havens inside Afghanistan.

“Pakistan’s responsibility is to protect its citizens. If we know that there is a terrorist in point A and we know that there is a terrorist enabler at point A, we will find a weapon to land at point A and eliminate the threat.”

Zaidi said he didn’t expect Pakistan to deviate from this position and that the government had clearly conveyed what it was doing.

“We have clearly articulated what we are doing and what we plan on continuing to do and what it will take for us to stop doing what we are doing,” Zaidi said.

“And we will expect that both the international community and the regime in question, the Afghan Taliban, will come to their senses and will help reduce instability and disorder in this region.”

Pakistan is a major non-NATO ally of Washington, while the US considers the Afghan Taliban to be a “terrorist” group.

“The United States supports Pakistan’s right to defend itself against attacks from the Taliban, a Specially Designated Global Terrorist group,” Reuters quoted a State Department spokesperson as saying. US diplomat Allison Hooker said on X she spoke on Friday with Pakistan Foreign Secretary Amna Baloch.

The State Department spokesperson said Washington was aware of the escalation in tensions and “outbreak of fighting between Pakistan and the Afghan Taliban,” adding the US was “saddened by the loss of life.”

“The Taliban have consistently failed to uphold their counterterrorism commitments,” the State Department said, adding that “terrorist groups use Afghanistan as a launching pad for their heinous attacks.”

Meanwhile, Afghan Taliban spokesperson Zabihullah Mujahid called for talks to resolve the crisis.

“We have always emphasized peaceful resolution, and now too we want the issue to be resolved through dialogue,” he said on Friday afternoon.

Asked what Pakistan desired, Information Minister Tarar said: “Neutralizing the threat and ensuring that Pakistan is safe.”

“Because for us, we’ve been good neighbors, we’ve been very friendly neighbors, we’ve been very, very generous neighbors. Our generosity, unfortunately, has often been seen as our weakness,” he told state media.

“So the objective, aim is to neutralize the threat and make Pakistan safe.”

To a question about a ceasefire, Tarar said it was “too early” to comment on that as it was an evolving situation.