The government has signed mandate sheets with 18 commercial banks for an Islamic financing center of 1.275 Billion of rupees ($ 4.5 billion) to help repay the assembly debt in its power sector, government officials announced on Friday.
The government, which has or controls a large part of the power infrastructure, is struggling with a “circular debt” arrow – invoices and unprecedented subsidies – which has stifled the sector and weighed on the economy.
The liquidity crunch has disrupted the offer, discouraged investment and added to budgetary pressure, making it a key objective in the $ 7 billion IMF program in Pakistan.
Finding funds to fill the gap was a persistent challenge, with a limited budgetary space and a high -cost debt inherited making the resolution efforts more difficult.
Learn more: Pakistan signs an ease of loan at $ 1 billion
“Eighteen commercial banks will grant loans through Islamic financing,” Khurram Schehzad, adviser to the Minister of Finance, told Reuters.
The installation, structured under Islamic principles, is obtained at a 3 -month Kibor concessional rate (reference rate banks use loans price) minus 0.9%, a formula agreed by the IMF.
“It will be reimbursed in 24 quarterly payments over six years”, and will not add to public debt, said the Minister of the Power Awais Leghari.
Existing liabilities result in higher costs, including late payment supplements on independent electricity producers to Kibor plus 4.5%, and older loans going slightly above the reference rates.
Also read: The banking sector extended 15.8% in 2024
Meezan Bank, HBL, National Bank of Pakistan and Ubl were one of the banks participating in the agreement.
The government plans to allocate 323 billion rupees per year to repay the loan, capped at Rs1,938 Billions over six years.
The agreement is also aligned with Pakistan’s objective to eliminate banking services based on interest by 2028, Islamic finance now comprising approximately a quarter of total banking assets.
