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KARACHI: Pakistan’s government is expected to secure deals today, Wednesday, to raise about Rs1.3 trillion ($4.6 billion) in Islamic financing from banks, market experts said a day earlier, to retire energy sector debt and meet conditions of the International Monetary Fund’s (IMF) $7 billion loan program.

The funds will be raised through Sukuk or Islamic bonds and a “financing facility agreement” will be signed at the Prime Minister’s House “for circular debt reduction of the power sector,” according to a ceremony invitation sent out by the state-run Central Power Purchasing Agency (CPPA) earlier today.

The agency is Pakistan’s state-run power market operator which buys electricity from power producers in bulk and sells it to distribution companies, handling payments, contracts and billing for the national grid.

Its invitation did not name the participating banks or specify the exact financing target, but energy analysts following the development said the government plans to secure as much as Rs1.3 trillion from 18 banks.

“The government is expected to raise about Rs1.3 trillion in Islamic financing from almost all the banks to settle its debt,” said Adnan Sami Sheikh, assistant vice president of research at Pakistan Kuwait Investment Company, a joint venture between the governments of Pakistan and Kuwait.

Arab News reached out to Pakistani energy ministry spokesman Zafar Yab Khan who did not immediately comment on the development, while Finance Adviser Khurram Schehzad did not respond to a request seeking the government’s version.

Circular debt — an ever-growing chain of unpaid bills within Pakistan’s power and gas sector where one entity’s arrears cascade to the next — has for years strained the economy, with debt-servicing now a major drain on public revenue.

Pakistan’s cash-strapped government relies heavily on domestic and external loans to repay its mounting obligations amid slow revenue growth.

“The impact of this development would be positive for the economy and markets,” Sheikh said.

The government is moving ahead as the IMF team is expected to arrive for a second review of Pakistan’s flood-hit economy. The mission, originally scheduled for September 15, will examine end-June 2025 performance and continuous criteria.

“The government has to show to the IMF that it has reduced the outstanding balance of the circular debt, which is a major objective here,” said Muhammad Saad Ali, head of research at Lucky Investments Limited.

Reducing Pakistan’s energy-sector debt was an IMF requirement, he added.

Ali said the targeted amount would roughly comprise Rs683 billion ($2.4 billion) in refinancing of existing debt held by the government’s Power Holding Company and about Rs600 billion ($2.1 billion) in fresh loans to be secured from 18 banks.

“The government aims to retire its old expensive debt as well as reduce late payment charges,” Shankar Talreja, head of research at Topline Securities Limited, told Arab News.

He noted that power producers currently charge a late-payment surcharge of KIBOR plus 2.5 to 4.5 percent.

“This amount will not accrue when the government pays its debt to those power companies using the bank financing it would secure at KIBOR minus 0.9 percent [tomorrow],” Talreja said.

In a separate research note, Topline Securities said electricity consumers will ultimately repay the government’s bank debt through a Power Holding Limited (PHL) surcharge of Rs3.23 per unit, which is already being collected in monthly utility bills.

Analysts said the transaction would also boost Pakistan’s stock market, benefiting listed companies such as Oil & Gas Development Company, Pakistan State Oil, Pakistan Petroleum, Hub Power Company, Lucky Cement, Fauji Fertilizer Company and Thal Limited.

“It would unlock the stuck-up liquidity for energy-sector companies, which would now be able to invest in upgrading their infrastructure as well as pay some dividends to their shareholders,” Sheikh said.

Ali of Lucky Investments added that settling circular debt would help both private power producers and the government manage future liabilities.

“These are benefits which will go down well with the IMF program. The IMF has already greenlighted this,” he said.

Abu Dhabi, United Arab Emirates: Pakistan kept their Asia Cup campaign alive with a hard-fought five-wicket win over Sri Lanka in a Super Four clash in Abu Dhabi on Tuesday.

With both teams having lost their opening fixtures of the second round, defeat wasn't an option and Pakistan's bowlers rose to the occasion tying Sri Lanka down to 133-8 on a featherbed of a pitch.

Chasing what looked a modest target, Pakistan made heavy weather of it. After a brisk opening stand of 45, their innings went into free fall at 80-5.

But a cool-headed 58-run partnership off 41 balls for the sixth wicket between Mohammad Nawaz and Hussain Talat steadied the ship and saw them home with 12 deliveries in hand.

Nawaz struck a breezy 38 off 24 balls, while Talat anchored the innings with an unbeaten 32 off 30.

Earlier, Shaheen Shah Afridi set the tone with the new ball, nipping out Sri Lanka's in-form openers inside his first two overs.

The left-arm quick returned at the death to dismiss top-scorer Kamindu Mendis and closed with figures of three for 28 -- a spell that put Pakistan on the front foot.

Talat and Haris Rauf chipped in with two wickets apiece, while leggie Abrar Ahmed bowled with miserly precision, giving away just eight runs in his four overs and dismissing fellow leg-spinner Wanindu Hasaranga.

Sri Lanka, unbeaten in the first round with three wins on the trot, have hit a brick wall in the Super Four, losing to Bangladesh on Saturday and now to Pakistan.

With only India left to play, their chances of making the final are hanging by a thread.

Put in to bat, Sri Lanka slumped to 58-5 and looked set to be bundled out inside 20 overs.

But Kamindu Mendis dug in, compiling a fighting 50 off 44 balls with three fours and two sixes, his third half-century in T20Is.

He stitched together a 43-run stand with Chamika Karunaratne for the seventh wicket, but the former champions were still left high and dry.