Pakistan has signed mandate sheets with 18 commercial banks for 1.275 Roupie Billion ($ 4.50 billion) of Islamic finance to help repay the debt in its electricity sector, the Minister of Energy Sardar Ahmad Khan Leghari said on Friday.
The government, which has or controls a large part of the power infrastructure, is struggling with a “circular debt”, invoices and unpaid subsidies, which have smothered 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.
“Eighteen commercial banks will grant these loans by Islamic funding,” said Minister of Power Awais Leghari Reuters. “It will be reimbursed in 24 quarterly payments over six years.”
The installation, structured under Islamic principles, is obtained at a concessional rate of Kibor at 3 months, the reference rate banks use for price, minus 0.9%, a formula agreed by the IMF.
Leghari said it wouldn’t add public debt. 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.
Meezan Bank, HBL, National Bank of Pakistan and Ubl were one of the banks participating in the agreement, he said.
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.
