Energy Sector Inefficiencies, Circular Debt, and their Impact on Industrial Productivity in Pakistan

Abstract

This paper discusses how inefficiencies in Pakistan energy sector contribute to forming circular debt and how it impacts on industrial productivity, that is, energy prices and reliability. It plots the links among circular debt, T&D losses, recovery rates, electricity tariffs, outages and industrial productivity (LSMI growth) using data between 2000 and 2025 and Autoregressive Distributed Lag (ARDL) model. Results indicate that increased T&D losses and ineffective recovery are some of the major contributors of circular debt. Circular debt also has negative effects by reducing productivity due to higher costs in energy and disruption in supply with reliability being one of the main considerations. The paper concludes with a conclusion that circular debt constrains the performance of manufacturing and export competitiveness, and proposes the policies to curb the losses, increase recovery and better the governance and tariff policies.

Keywords:

Circular Debt; Energy Sector Inefficiencies; Industrial Productivity; Electricity Tariffs; Power Outages; Pakistan; ARDL-ECM