To address circular debt, the government and banks sign a Rs1.225 trillion agreement.

The government reached a Rs1.225 trillion deal with 18 commercial banks on Wednesday to address the nation’s growing circular debt, which authorities are describing as a historic accomplishment.

One of the biggest financial restructuring initiatives in Pakistani history was completed when the agreement was signed at the Prime Minister House in Islamabad.

As part of the agreement, banks have restructured debts totalling Rs659.6 billion, and new funding totalling Rs565.4 billion has been set aside to guarantee electricity producers receive their payments on schedule.

In order to successfully incorporate the additional funds into the national economy, the government has also given sovereign guarantees of Rs660 billion.

No further strain on customers

Officials explained that these loans will be repaid using the current fee of Rs3.23 per unit. They emphasised that power users will not face any further financial hardship as a result of this arrangement.

With financing fixed at KIBOR minus 90 basis points, banks have offered these facilities at discounted interest rates.

Zafar Masood, the chairman of the Pakistan Banks’ Association (PBA), praised the deal as more than a simple business deal.

“This agreement is a symbol of the nation’s development and construction, not just a set of numbers,” he stated. He went on to say that the concept might be used as a template to address other structural issues down the road.