Pakistan and the International Monetary Fund (IMF) have failed to reach an agreement on a plan to reduce the country’s gas sector circular debt during virtual talks, with the lender seeking additional conditions that government officials are reluctant to accept, according to sources familiar with the discussions.
The talks focused on options to reduce the gas circular debt by around Rs. 1.7 trillion as part of a broader settlement plan. However, no consensus was reached, and further negotiations are now expected in September, the sources said.
According to the sources, the IMF has asked Pakistan to formally recognize uncollected receivables of the country’s two state-owned gas utilities as losses rather than outstanding receivables. Under the proposed approach, the accumulated losses would first be booked in the companies’ financial statements before the government injects fresh capital to recapitalize the utilities, the sources said.
Officials in the Petroleum Division are unwilling to accept the IMF’s proposed conditions, arguing that recognizing the receivables as losses could significantly weaken the financial position of the gas companies and trigger a decline in their share prices.
The country’s total gas sector circular debt has climbed to nearly Rs. 3.3 trillion, according to the sources, making it one of the largest unresolved liabilities in Pakistan’s energy sector.
Sources said any revised settlement plan prepared ahead of the September talks is likely to incorporate the IMF’s recommendations to improve transparency in the financial accounts of the gas sector and place the debt resolution strategy on a more sustainable footing.
Recognizing losses
Energy analysts said the IMF’s proposal reflects a push to align Pakistan’s energy sector accounting with international financial reporting standards by recognizing losses that may no longer be recoverable.
“Booking these receivables as losses would improve transparency but could have a significant short-term impact on the balance sheets of the gas utilities, requiring substantial government recapitalization,” said an Islamabad-based energy analyst. “The challenge for the government is to strike a balance between meeting IMF program requirements and limiting the financial and market impact on the state-owned companies.”
Analysts added that resolving the gas sector’s circular debt remains a key structural reform under Pakistan’s IMF-supported economic program, as the growing liabilities continue to weigh on the country’s energy sector and public finances.