Pakistan Institute of Development Economics

Circular debt - an unfortunate misnomer
P & R Vol.2 Issue 5
QR Code

Circular debt – an Unfortunate Misnomer (P & R Vol.2 Issue 5)

Publication Year : 2021
Author: Afia Malik

Circular debt has been with us for 16 years. Pakistan has suffered huge losses (cumulated loss of more than Rs. 5 trillion). We tend to hide behind the term circular debt without any clarity. Experts at the webinar were of the view: Circular debt is a power sector deficit; shortfall in inflows and outflows at the CPPA-G. It is because of inefficiencies, delays in tariff determination/ decision-making, taxation issues, administrative and governance issues. It is huge and increasing as there is no serious effort to curtail it. The only effort government made over the years is to increase consumer tariff; which in itself is distortionary. Uniform tariff and subsidies act as a disincentive for DISCOs to improve efficiency.