Pakistan has entered into term sheets with 18 commercial banks for an Islamic finance facility amounting to PKR1.275tn ($4.5bn) to assist in alleviating the growing debt within its power sector, as reported by Reuters.

The financing will address unpaid bills and subsidies that have severely constrained the industry and impacted economic stability.

The banks involved in the financing facility are Meezan Bank, HBL, the National Bank of Pakistan and UBL.

The government, which holds ownership or control over much of the country's power infrastructure, faces a liquidity crisis that has stifled supply chains, deterred investment opportunities and intensified fiscal burdens.

This issue remains a central concern under Pakistan’s ongoing $7bn International Monetary Fund (IMF) programme.

Efforts to bridge the financial void have met challenges due to limited budgetary leeway and high-cost legacy debts complicating resolution endeavours.

The newly structured facility benefits from a concessional rate based on three-month KIBOR - the benchmark rate banks use to price loans - minus 0.9%. These terms have been endorsed by the IMF.

Existing liabilities incur higher costs, including surcharges for late payments imposed on independent power producers at rates up to KIBOR plus 4.5%, alongside older loans marginally exceeding benchmark rates.

To repay the loan, the government plans to allocate PKR323bn annually towards loan amortisation, maintaining a ceiling of PKR1.938tn over six years.

Power Minister Awais Leghari stated: "It will be repaid in 24 quarterly instalments over six years and will not add to public debt.”

The financing agreement is in line with Pakistan’s broader objective to phase out interest-based banking by 2028, as Islamic finance presently represents approximately one-quarter of total banking assets in the nation.

In December 2024, ADB approved a loan of $200m loan to upgrade Pakistan’s power distribution infrastructure.

The initiative seeks to improve the efficiency of distribution companies and guarantee the reliable supply of electricity.

"Pakistan signs $4.5bn Islamic finance deal to clear power sector debt" was originally created and published by Power Technology, a GlobalData owned brand.

The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.