Business Desk 
Jun 21, 2025
Pakistan’s government has signed term sheets with 18 commercial banks for Rs1.275 trillion ($4.50 billion) Islamic finance facility to pay down mounting debt in its power sector.
On Friday, June 20, 2025, Energy Minister Sardar Awais Ahmad Khan Leghari stated that the government, which owns or controls much of the power infrastructure, is fighting with rising “circular debt,” unpaid bills and subsidies, that has impacted 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 programme.
“Eighteen commercial banks will provide these loans through Islamic financing,” Leghari told Reuters. “It will be repaid in 24 quarterly instalments over six years.”
The facility, structured under Islamic principles, is secured at a concessional rate of 3-month Karachi Interbank Offered Rate (KIBOR), the benchmark rate banks use to price loans, minus 0.9%, a formula agreed on by the IMF.
Leghari says that existing liabilities carry higher costs, including late payment surcharges on Independent Power Producers of up to KIBOR plus 4.5%, and older loans that range slightly above benchmark rates.
The government signed a loan deal with banks, including Meezan Bank, HBL, National Bank of Pakistan and UBL.
The federal government expects to allocate Rs323 billion annually to repay the loan, capped at Rs1.938 trillion over six years.
Leghari noted that the agreement also aligns with Pakistan’s target of eliminating interest-based banking by 2028, with Islamic finance comprising about a quarter of total banking assets.
