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Dynamics of Circular Debt in Pakistan and Its Resolution


  • Syed Sajid Ali

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

  • Sadia Badar

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


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

    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. 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.
    4. 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.
    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.

    More about this item


    Circular debt; energy; tariff; subsidy; Pakistan.;

    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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