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Dynamics of Circular Debt in Pakistan and Its Resolution

Author

Listed:
  • Syed Sajid Ali

    (Policy Research Department, The State Bank of Pakistan.)

  • Sadia Badar

    (Monetary Policy Department, The State Bank of Pakistan.)

Abstract

This paper examines the circular debt problem in the Pakistani energy sector. After presenting the profile of the energy sector in Pakistan, the paper explains why circular debt has emerged in the sector. Two principal reasons are discussed for the circular debt problem: First, consumer tariffs were insufficient to recover the rising costs of power generation and the government (due to fiscal constraints) was not compensating PEPCO for the resulting losses. Second, PEPCO has faced significant problems in recovering dues from consumers. In order to resolve the circular debt problem, sharp adjustments in power tariffs may be required combined with the need by the government to explicitly recognize the costs of power subsidies in the budget.

Suggested Citation

  • Syed Sajid Ali & Sadia Badar, 2010. "Dynamics of Circular Debt in Pakistan and Its Resolution," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(Special E), pages 61-74, September.
    • Handle: RePEc:lje:journl:v:15:y:2010:i:sp:p:61-74
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    References listed on IDEAS

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    1. Afia Malik, 2007. "Effectiveness of Regulatory Structure in the Power Sector of Pakistan," PIDE-Working Papers 2007:25, Pakistan Institute of Development Economics.
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    Cited by:

    1. Muhammad Shahbaz Shabbir & Muhammad Shahbaz & Muhammad Zeshan, 2014. "Renewable and Nonrenewable Energy Consumption, Real GDP and CO2 Emissions Nexus: A Structural VAR Approach in Pakistan," Bulletin of Energy Economics (BEE), The Economics and Social Development Organization (TESDO), vol. 2(3), pages 91-105, September.
    2. Shaikh, Faheemullah & Ji, Qiang & Fan, Ying, 2015. "The diagnosis of an electricity crisis and alternative energy development in Pakistan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1172-1185.
    3. Abdullah, Fahad Bin & Iqbal, Rizwan & Hyder, Syed Irfan & Jawaid, Mohammad, 2020. "Energy security indicators for Pakistan: An integrated approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 133(C).
    4. Valasai, Gordhan Das & Uqaili, Muhammad Aslam & Memon, HafeezUr Rahman & Samoo, Saleem Raza & Mirjat, Nayyar Hussain & Harijan, Khanji, 2017. "Overcoming electricity crisis in Pakistan: A review of sustainable electricity options," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 734-745.
    5. Kessides, Ioannis N., 2013. "Chaos in power: Pakistan's electricity crisis," Energy Policy, Elsevier, vol. 55(C), pages 271-285.
    6. Mahmood, Anzar & Javaid, Nadeem & Zafar, Adnan & Ali Riaz, Raja & Ahmed, Saeed & Razzaq, Sohail, 2014. "Pakistan's overall energy potential assessment, comparison of LNG, TAPI and IPI gas projects," Renewable and Sustainable Energy Reviews, Elsevier, vol. 31(C), pages 182-193.
    7. Mirza, Faisal Mehmood & Mushtaq, Iqra, 2022. "Estimating the marginal cost of improving services quality in electricity distribution utilities of Pakistan," Energy Policy, Elsevier, vol. 167(C).
    8. Afia Malik & Ghulam Mustafa, 2024. "Power Sector Debt and Pakistan’s Economy," PIDE-Working Papers 2024:2, Pakistan Institute of Development Economics.
    9. Mirza, Faisal Mehmood & Rizvi, Syed Badar-Ul-Husnain & Bergland, Olvar, 2021. "Service quality, technical efficiency and total factor productivity growth in Pakistan's post-reform electricity distribution companies," Utilities Policy, Elsevier, vol. 68(C).
    10. Rashid Latief & Lin Lefen, 2019. "Foreign Direct Investment in the Power and Energy Sector, Energy Consumption, and Economic Growth: Empirical Evidence from Pakistan," Sustainability, MDPI, vol. 11(1), pages 1-21, January.
    11. Ahmad, Hafsa & Jamil, Faisal, 2024. "Investigating power outages in Pakistan," Energy Policy, Elsevier, vol. 189(C).
    12. Rafique, M. Mujahid & Rehman, S., 2017. "National energy scenario of Pakistan – Current status, future alternatives, and institutional infrastructure: An overview," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 156-167.
    13. Jamil, Faisal & Islam, Tanweer Ul, 2023. "Outage-induced power backup choice in Pakistan," Utilities Policy, Elsevier, vol. 82(C).
    14. Muhammad Azhar Hassan & Saad Ullah Khan & Muhammad Fahad Zia & Azka Sardar & Khawaja Khalid Mehmood & Fiaz Ahmad, 2023. "Demand-Side Management and Its Impact on the Growing Circular Debt of Pakistan’s Energy Sector," Energies, MDPI, vol. 16(15), pages 1-20, July.

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    More about this item

    Keywords

    Circular debt; energy; tariff; subsidy; Pakistan.;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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