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Business Recorder
4 days ago
- Business
- Business Recorder
Power sector debt: Govt secures historic Rs1.275trn loan deal from banks
ISLAMABAD: After months of negotiations on term sheets and legal formalities, the government has finalized agreements for a historic loan package of Rs 1.275 trillion with approximately 18 commercial banks to address the growing circular debt in the power sector. According to sources, the draft agreements are now ready for final approval by the Federal Cabinet. The loan aims to offset a portion of the circular debt, which currently stands at approximately Rs 2.3 trillion. The government has already secured the International Monetary Fund's (IMF) endorsement for its circular debt reduction plan, which includes borrowing from commercial banks. Of the total debt, around Rs 700 billion is currently held on the books of the Power Holding Company Limited (PHL) on behalf of the power distribution companies (Discos). Rs1.275trn loan to tackle circular debt: CPPA-G likely to sign term sheets with 18 banks During ongoing discussions with the IMF Review Mission, both the Finance Division and the Power Division briefed the mission on the status of negotiations with commercial banks and the terms outlined in the draft agreements. Under the deal, commercial banks will extend fresh loans amounting to Rs 617 billion at an interest rate of 10.50–11 percent, pegged to the Karachi Interbank Offered Rate (KIBOR) minus 0.2 percent. Repayments will be made over six years through the Debt Service Surcharge (DSS), which is currently charged to consumers at Rs 3.23 per unit in electricity bills. To meet IMF structural benchmarks, the government also plans to uncap the DSS, which currently represents 10 percent of the total revenue of power companies. This will be done through a legislative amendment, enabling the payment of interest and partial repayments of loans raised by PHL that appear on Discos' balance sheets. 'We have finalized all necessary documentation and term sheets with the banks, and these are expected to be approved before Eid (this week),' a source confirmed. Earlier reports suggested that commercial banks had requested guarantees from the State Bank of Pakistan in case of government default. However, sources indicated that government negotiators emphasized the systemic risk to banks' investments if the power sector were to collapse—an implied warning rather than a direct threat. A government official denied any coercion, stating that banks were merely urged to recognize the severity of the situation. 'This is a massive, unprecedented transaction in Pakistan, so naturally, many aspects needed to be carefully finalized,' the official said. Another senior official involved in the initiative confirmed that all outstanding matters with the banks have been resolved. 'The indicative term sheet was signed by all banks last week. It now awaits approvals from the federal cabinet and the CPPA-G Board. A summary will be submitted to the cabinet next week, after which the loan documentation will be completed within three to four weeks,' he explained. Loan disbursements are expected before the end of the current month so that reduced figures of circular debts are shown in the budget documents. According to official documents, the government has committed to borrowing Rs 1.252 trillion from commercial banks to repay all outstanding PHL loans (Rs 683 billion) and settle the remaining interest-bearing arrears owed to power producers (Rs 569 billion). The loan is expected to be secured at more favourable terms than those currently applied to the existing circular debt—one of the primary factors contributing to its accumulation. Repayments will be made over six years through DSS collections. Copyright Business Recorder, 2025
Business Recorder
27-05-2025
- Business
- Business Recorder
IMF disagrees with Pakistan over key targets, subsidies ahead of budget
ISLAMABAD: The Finance Ministry said on Monday that the presentation of the Federal Budget 2025-26 has been delayed from June 2 to June 10 due to disagreements with the International Monetary Fund (IMF) over key budgetary figures, including subsidy allocations. During a session of the Sub-Committee of the National Assembly Standing Committee on Commerce, chaired by Khurshid Ahmed Junejo, Joint Secretary (Corporate Finance) Sajjad Azhar outlined the government's challenges in revising the budget figures. The Sub-Committee is currently working to resolve the issue of outstanding receivables owed to the Trading Corporation of Pakistan (TCP), which total approximately Rs 317.5 billion. Of this, Rs 93.693 billion is principal, while Rs 223.797 billion is accrued markup. Aurangzeb says IMF case approved 'on merit' despite disruption attempts 'As you know, Pakistan is under the IMF's Extended Fund Facility, which restricts any changes to the allocated funds in the budget,' Azhar told the sub-committee. 'The budget announcement has been delayed by a week because the Finance Ministry's figures are still under reconciliation. The IMF has placed a cap on subsidies,' he added. Azhar further noted that the IMF has declined to make any changes to the revised budget figures recently presented to the Fund's team. The Sub-Committee held a detailed discussion on the TCP receivables. Tensions flared during the meeting between Sajjad Azhar and TCP Chairman Syed Rafeo Bashir Shah over the calculation of markup and loans obtained from commercial banks. Chairman Shah maintained that TCP distributed imported wheat and urea in line with Economic Coordination Committee (ECC) directives, yet payments remain outstanding since 2010. In response, Azhar stated that the ECC never approved covering the markup costs through the federal government. He added that the Finance Ministry has held five meetings with relevant stakeholders to reconcile the dues. The State Bank of Pakistan (SBP) was also approached to persuade commercial banks to reduce markup rates. However, the SBP clarified that since the agreements are commercial, no relief could be extended. The National Assembly panel urged the Finance Division to increase subsidy allocations to enable partial payment to TCP. Azhar informed the committee that the Finance Ministry recently secured commercial loans for Pakistan International Airlines (PIA) without any discounts. Similar arrangements are being considered to manage circular debt, with borrowing pegged at the Karachi Interbank Offered Rate (KIBOR) minus 0.2 percent. A summary on this matter is being submitted to the federal cabinet. He also mentioned that the Punjab government has committed to paying Rs 26 billion, while the federal government will release an equivalent amount next fiscal year. Additionally, Rs 15 billion will be disbursed to TCP on behalf of the Utility Stores Corporation (USC) and National Fertilizer Marketing Limited (NFML) during the current fiscal year, pending release authorizations from the respective ministries. Another Rs 30 billion will be earmarked in the upcoming budget. A representative from NFML stated that all dues, including markup, were cleared during 2023-24, and no further payments are pending. After an in-depth discussion, the panel decided to release the undisputed amount of Rs 90 billion to TCP in the first phase. A mechanism will be developed to address the markup issue in the second phase. It was also decided that TCP will conduct a special audit of its commercial loans to identify any discrepancies. panel members Shaista Pervaiz Malik and Rana Atif raised various concerns regarding the markup and called for swift resolution of outstanding payments. Copyright Business Recorder, 2025
Business Recorder
26-05-2025
- Business
- Business Recorder
IMF in disagreement over key targets, subsidies
ISLAMABAD: The Finance Ministry said on Monday that the presentation of the Federal Budget 2025-26 has been delayed from June 2 to June 10 due to disagreements with the International Monetary Fund (IMF) over key budgetary figures, including subsidy allocations. During a session of the Sub-Committee of the National Assembly Standing Committee on Commerce, chaired by Khurshid Ahmed Junejo, Joint Secretary (Corporate Finance) Sajjad Azhar outlined the government's challenges in revising the budget figures. The Sub-Committee is currently working to resolve the issue of outstanding receivables owed to the Trading Corporation of Pakistan (TCP), which total approximately Rs 317.5 billion. Of this, Rs 93.693 billion is principal, while Rs 223.797 billion is accrued markup. Aurangzeb says IMF case approved 'on merit' despite disruption attempts 'As you know, Pakistan is under the IMF's Extended Fund Facility, which restricts any changes to the allocated funds in the budget,' Azhar told the sub-committee. 'The budget announcement has been delayed by a week because the Finance Ministry's figures are still under reconciliation. The IMF has placed a cap on subsidies,' he added. Azhar further noted that the IMF has declined to make any changes to the revised budget figures recently presented to the Fund's team. The Sub-Committee held a detailed discussion on the TCP receivables. Tensions flared during the meeting between Sajjad Azhar and TCP Chairman Syed Rafeo Bashir Shah over the calculation of markup and loans obtained from commercial banks. Chairman Shah maintained that TCP distributed imported wheat and urea in line with Economic Coordination Committee (ECC) directives, yet payments remain outstanding since 2010. In response, Azhar stated that the ECC never approved covering the markup costs through the federal government. He added that the Finance Ministry has held five meetings with relevant stakeholders to reconcile the dues. The State Bank of Pakistan (SBP) was also approached to persuade commercial banks to reduce markup rates. However, the SBP clarified that since the agreements are commercial, no relief could be extended. The National Assembly panel urged the Finance Division to increase subsidy allocations to enable partial payment to TCP. Azhar informed the committee that the Finance Ministry recently secured commercial loans for Pakistan International Airlines (PIA) without any discounts. Similar arrangements are being considered to manage circular debt, with borrowing pegged at the Karachi Interbank Offered Rate (KIBOR) minus 0.2 percent. A summary on this matter is being submitted to the federal cabinet. He also mentioned that the Punjab government has committed to paying Rs 26 billion, while the federal government will release an equivalent amount next fiscal year. Additionally, Rs 15 billion will be disbursed to TCP on behalf of the Utility Stores Corporation (USC) and National Fertilizer Marketing Limited (NFML) during the current fiscal year, pending release authorizations from the respective ministries. Another Rs 30 billion will be earmarked in the upcoming budget. A representative from NFML stated that all dues, including markup, were cleared during 2023-24, and no further payments are pending. After an in-depth discussion, the panel decided to release the undisputed amount of Rs 90 billion to TCP in the first phase. A mechanism will be developed to address the markup issue in the second phase. It was also decided that TCP will conduct a special audit of its commercial loans to identify any discrepancies. panel members Shaista Pervaiz Malik and Rana Atif raised various concerns regarding the markup and called for swift resolution of outstanding payments. Copyright Business Recorder, 2025
Business Recorder
07-05-2025
- Business
- Business Recorder
Rate cut: KIBOR drops across all tenors
KARACHI: The Karachi Interbank Offered Rate (KIBOR) declined across all tenors on Tuesday, following a cut in the key policy rate by the State Bank of Pakistan (SBP). On Monday, the SBP's Monetary Policy Committee (MPC) unexpectedly reduced the policy rate by 100 basis points to 11 percent, citing a sharp and sustained decline in inflation and an improved external account position. The rate cut exceeded market expectations, which had largely anticipated either no change or a modest 50-basis-point reduction. KIBOR is an equilibrium interest rate for a given tenor at which banks want to lend money to other banks. According SBP's statistics, the benchmark six-month KIBOR fell by 64 basis points to 11.44 percent on Tuesday, down from 12.08 percent a day earlier. Similarly, the one-week KIBOR dropped by 91 basis points, settling at 11.43 percent compared to 12.34 percent on Monday. Similarly, the two-week KIBOR also declined from 12.31 percent to 11.44 percent. The one-month KIBOR declined by 77 bps to 11.47 percent on Tuesday compared to 12.24 percent on Monday. The three-month KIBOR fell from 12.08 percent to 11.33 percent. In addition, the nine-month and one-year KIBOR rate decreased from 12.26 percent to 11.53 percent and 11.51 percent respectively. Analysts said the decline in the policy rate and the subsequent drop in KIBOR is expected to stimulate private sector borrowing in coming months, as lower interest rates make credit more affordable. 'With reduced financing costs, businesses may be more inclined to invest in expansion, working capital, and new projects, potentially driving economic activity and supporting overall growth,' they added. Copyright Business Recorder, 2025
Business Recorder
06-05-2025
- Business
- Business Recorder
KIBOR falls after SBP cut policy rate
Following the State Bank of Pakistan's (SBP) decision to reduce the interest rate by 1%, Karachi Interbank Offered Rate (KIBOR) rates for one-week to one-year tenors declined on Tuesday. KIBOR represents the average interest rate at which banks are willing to lend money to other banks. According to the data provided by Arif Habib Limited (AHL), on a day-on-day basis, the one-week KIBOR decreased by 91 basis points (bps) to 11.43%, the two-week tenor rate declined by 87bps to 11.44%, one-month KIBOR fall by 77bps to 11.47%, the three-month tenor rate was down by 75bps to 11.33%, six-month KIBOR decreased by 64bps to 11.44%. The nine-month tenor rate clocked in at 11.53%, following a decrease of 73bps and 1-year tenor rate decreased by 75bps to 11.51%. KIBOR surges after SBP keeps policy rate unchanged On Monday, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday cut the policy rate by 100 basis points (bps) to 11%, the cut came in above market expectations. In its statement, the MPC noted that inflation declined sharply during March and April, mainly due to a reduction in administered electricity prices and a continued downtrend in food inflation. 'Core inflation also declined in April, primarily reflecting favourable base effects amidst moderate demand conditions. 'Overall, the MPC assessed that the inflation outlook has improved further relative to the previous assessment. 'At the same time, the Committee viewed that the heightened global uncertainty surrounding trade tariffs and geopolitical developments could pose challenges for the economy. In this backdrop, the MPC emphasized the importance of maintaining a measured monetary policy stance,' read the statement. In the post monetary policy briefing session, SBP Governor apprised that key economic indicators have been improving and external sector sustainability is strengthening. SBP's FX reserves have improved on a YoY basis although in recent weeks decline has been noted amidst debt repayments. Regarding the US tariff impositions, the central bank's chief shared that the outcome remains uncertain and will depend on how the situation unfolds after the 90-day period ends.
