Pakistan Secures Major Islamic Finance Deal to Tackle Power Sector Debt

Pakistan has reached a significant agreement with 18 commercial banks to secure a 1.275 trillion Pakistani rupee ($4.50 billion) Islamic finance facility aimed at reducing the country's escalating power sector debt. This deal is pivotal for stabilizing the energy sector, which is burdened by 'circular debt'—a term that refers to unpaid bills and subsidies choking the system.

The liquidity challenges have not only hindered supply and investment but also increased fiscal pressure on the government, making it a focal point under Pakistan's $7 billion IMF programme. The funds from this financing facility are crucial since they come with a more manageable fiscal footprint due to the concessional rate of 3-month KIBOR minus 0.9%.

Participating banks, including Meezan Bank, HBL, National Bank of Pakistan, and UBL, are part of a broader strategy to eliminate interest-based banking by 2028. This move illustrates Pakistan's commitment to stabilizing its economy and transitioning towards Islamic banking, which currently accounts for a quarter of the country's banking assets.

(With inputs from agencies.)