The government has signed the term sheet with 18 business banks for an RS1,275 trillion ($ 4.5 billion) Islamic financing facility to help defend a debt mounting in its electricity sector, government officials said Friday.
The government, which owns or controls much of the power infrastructure, is struggling with the balloon of “circular debt” – non -paid bills and subsidies – which have strangled the sector and weighed on the economy.
The liquidity crisis has disturbed supply, discouraged investment and added tax pressure, making it an important focus under Pakistan’s IMF program of $ 7 billion.
Finding funds to connect the gap has been a persistent challenge, with limited fiscal space and high cost debt that make it more difficult to decide the decisions.
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“At eighteen business banks will provide the loans through Islamic funding,” Khurram Schehzad, adviser to the Finance Minister, told Reuters.
The facility structured under Islamic principles is secured at a concession rate of 3-month kibor (benchmark rate banks use for price loans) minus 0.9%, a formula agreed by the IMF.
“It will be repaid in 24 -quarterly rates over six years,” and will not add public debt, said Power Minister Awais Leghari.
Existing obligations carry higher costs, including additional fees on independent power producers of up to Kibor plus 4.5%and older loans, spanning a little over the benchmark rates.
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Meezan Bank, HBL, National Bank of Pakistan and UBL were among the banks that participated in the agreement.
The government expects to sell RS323 billion annually to repay the loan limited to RS1.938 trillion over six years.
The agreement is also in line with Pakistan’s goal of removing interest -based banking in 2028, where Islamic Finance now consists of about a quarter of the total bank assets.
