Pakistan Faces IMF Pressure Over Rs1,700 Billion Gas Circular Debt Reduction Strategy

Pakistan and the IMF failed to reach agreement on a settlement plan for the gas sector’s circular debt during virtual talks, according to sources, with the two sides discussing proposals to reduce the debt by Rs1.7 trillion but unable to close the gap on the Fund’s conditions. Final negotiations are now expected in September.

At the center of the disagreement is a specific accounting demand from the IMF: sources say the Fund wants gas companies’ losses formally booked, with amounts the two gas companies are owed classified as losses rather than as receivables still expected to be recovered. That distinction carries real financial weight — treating unpaid amounts as losses rather than recoverable dues would require companies to absorb the shortfall directly, rather than continuing to carry it as a receivable asset on their books awaiting eventual collection.

The IMF’s proposal goes a step further, calling for the companies to be recapitalized once the losses are booked, according to sources. Recapitalization following a loss write-down typically signals a company’s financial position has deteriorated enough that fresh capital injection is needed to keep operations viable — a process that often affects existing shareholders’ equity value in the process.

That’s precisely the concern flagged by sources: implementing this IMF condition could result in a decline in the share prices of the gas companies involved, a consequence that may explain why Petroleum Division officials are reportedly unwilling to accept the Fund’s terms as currently proposed. Officials managing state-linked or partially listed energy companies often resist accounting changes that could trigger investor losses, even when the underlying financial reality being reflected is otherwise accurate.

The scale of the problem underlying these talks is substantial: the gas sector’s overall circular debt has climbed to roughly Rs3.3 trillion, according to sources — a figure that dwarfs the Rs1.7 trillion reduction currently under discussion, meaning even a successful settlement along these lines would still leave a significant portion of the debt unresolved.

Circular debt has remained one of the most persistent structural problems in Pakistan’s energy sector for well over a decade, spanning both power and gas, with successive governments and IMF programs repeatedly attempting settlement plans that have provided only partial or temporary relief. The recurring nature of these negotiations reflects underlying issues — including under-pricing, distribution losses, and delayed subsidy disbursements — that accounting settlements alone haven’t fully addressed in the past.

Whether September’s talks produce a plan aligned with IMF proposals, as sources suggest may now be likely, will determine whether Pakistan accepts the potentially market-sensitive booking and recapitalization requirements, or continues seeking a compromise that avoids the share price implications currently causing friction between the Petroleum Division and the Fund.