Power‑sector governance concerns, early‑week PSX moves, macro indicators and reserves through Jan 23

Pakistan’s economic landscape in early 2026 continues to be a complex interplay of ongoing reforms, external vulnerabilities, and market dynamics. Recent developments across the power sector, energy logistics, macroeconomic indicators, and capital markets illustrate both progress and persistent challenges. Building on previous insights, this update highlights significant strides in governance, infrastructure, and investor sentiment, providing a comprehensive picture of Pakistan’s trajectory toward stability and growth.

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Power Sector Governance: Advancing Reforms Amid Challenges

The power sector remains at the forefront of Pakistan’s reform agenda, with notable achievements aimed at addressing long-standing inefficiencies:

• Circular Debt Management: The circular debt, currently around Rs397 billion, remains a critical concern. Efforts to streamline payments and operational efficiencies are ongoing, with recent measures focusing on tariff adjustments and capacity planning.

• Project Cancellations and Capacity Planning: The government has cancelled nearly 8,000 MW of high-cost power projects, signaling a strategic shift toward sustainable and cost-effective capacity expansion. While this may temper short-term capacity growth, it is expected to alleviate fiscal pressures and enhance sector resilience over time.

• Tariff and Cost Recovery Measures: NEPRA approved a Rs1.79 per unit increase in tariffs from January 2026, aligning consumer prices with rising fuel costs. Utilities are also seeking an additional Fuel Cost Adjustment (FCA) of Re0.4781 per unit. Despite these increases, billing collection efficiency remains robust at around 93.5%, supported by the N3 surcharge, which has been retained for up to six years to ensure phased recovery.

• Consumer Support and Monetary Policy: To mitigate inflationary impacts, the government introduced targeted subsidies and tariff reductions for vulnerable consumers. Concurrently, the SBP’s accommodative stance persists, with a 300 basis point cut in the refinancing rate to 4.5% and reductions in SCRA remuneration—measures aimed at lowering borrowing costs and stimulating investment.

• Corporate Governance Reforms: A significant development has been SECP’s directive for K-Electric (KE) to hold board elections by March 25, 2026, reinforcing transparency and corporate governance standards. Restoring stakeholder confidence in KE is crucial for the utility’s stability and the broader sector reform momentum.

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Energy Logistics and Fuel Supply: Strategic Agreements and Infrastructure Initiatives

Enhancing Pakistan’s energy security remains a priority, with recent agreements and projects set to bolster supply stability:

• Cnergyico-Asia Petroleum Pipeline Deal: A 20-year pipeline agreement has been ratified between Cnergyico and Asia Petroleum for transporting High-Speed Diesel (HSD). This long-term contract is expected to reduce transportation costs, stabilize fuel prices, and improve supply security, especially vital amid regional geopolitical uncertainties.

• Refinery Infrastructure Expansion: The government continues to pursue additional refinery pipeline deals, aiming to streamline fuel imports and cut logistics costs. The active trading of Attock Refinery (ATOR) shares on PSX reflects ongoing market interest in refining assets, which could bolster fuel supply stability and reduce import dependence.

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Macroeconomic and Liquidity Landscape: Resilience Amid External Risks

Pakistan’s macroeconomic indicators depict an economy with limited buffers but notable resilience:

• Foreign Exchange Reserves: As of February 2026, FX reserves stand at approximately $21.26 billion, providing some cushion but remaining insufficient against high rollover obligations. External liabilities, including foreign currency loans exceeding $31 billion, pose significant risks, especially amid tightening global credit conditions.

• Fiscal and Liquidity Support: The Rs35.05 billion in the Special Cash Reserve Account (SCRA) has slightly declined by Rs2.06 billion, reflecting fiscal adjustments. The SBP’s active liquidity management through Rs13.6 trillion in Open Market Operations—including reverse repos and Shariah-compliant instruments—aims to stabilize liquidity and support credit flow.

• Corporate Sector Growth: The NBFI/NBFC sector assets reached Rs6.84 trillion by December 2025, indicating ongoing sector expansion. FDI inflows into insurance and stake transfers in firms like TPL Insurance Limited bolster confidence, while large FX rollover liabilities remain a key external vulnerability.

• Tax Revenue: Tax collections have surpassed Rs3 trillion, with super-taxes expected to recover Rs200 billion, providing fiscal buffers amidst external uncertainties.

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Capital Markets and Corporate Disclosures

The Pakistan Stock Exchange (PSX) experienced heightened volatility in late January and early February:

• On January 29, the KSE-100 index plunged over 1,060 points, closing at 172,109 points, amidst geopolitical concerns and sector-specific worries.
• The subsequent day saw a rebounce of 1,836 points, demonstrating the market’s resilience.
• By early February, the KSE-100 index climbed to approximately 188,079 points, marking a 2.4% weekly gain, indicative of cautious optimism among investors.

Market-driven factors include:

• Corporate earnings: Fauji Fertilizer Company (FFC) reported net profits of Rs73.6 billion for 2025, driven by favorable fertilizer prices and operational efficiencies.
• Strategic deals and IPOs: The Ghani Dairies IPO attracted significant investor interest, and Avanceon Limited secured $9 million worth of new projects, reflecting ongoing market vibrancy.
• Regulatory actions: The SECP revised Shariah screening criteria for the PSX-KMI All Share Index, aiming to improve compliance and transparency. Additionally, disclosures such as Adam Sugar Mills’ interest disclosures under section 5.6.1(d) reinforce governance standards.

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External Risks and Strategic Outlook

Despite positive signs, external risks continue to loom:

• The recent exit of major foreign firms like ExxonMobil, Panasonic, and Lufthansa during January signals ongoing concerns over Pakistan’s investment climate.
• Regional geopolitical tensions, particularly with India and Afghanistan, threaten to disrupt supply chains and investor confidence.
• Global financial conditions tightening, coupled with large FX rollover liabilities, constrain external financing options.

In response, the government emphasizes policy consistency, fiscal discipline, and external risk mitigation. Initiatives such as port and logistics cost reductions in collaboration with DP World and AD Ports Group aim to make exports more competitive, while plans for PIA’s listing on PSX seek to attract strategic investors and serve as a sector reform catalyst.

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Current Status and Outlook

Pakistan’s early 2026 landscape is characterized by measured progress:

• Power sector reforms—including tariff adjustments, governance improvements, and capacity management—are advancing, though challenges remain.
• Energy logistics projects like the Cnergyico-Asia Petroleum pipeline promise to stabilize fuel supplies and reduce logistics costs, contributing to macroeconomic stability.
• Resilient macro indicators, supported by active liquidity management and fiscal reforms, provide some buffers against external shocks.

However, external vulnerabilities—notably FX rollover obligations and regional tensions—necessitate vigilant policy responses. The government’s focus on external risk mitigation and structural reforms will be crucial to transforming current volatility into sustainable growth.

In summary, Pakistan’s reforms and strategic initiatives in early 2026 lay a foundation for recovery. Continued policy discipline, external risk management, and sectoral reforms will determine whether this momentum can be sustained toward long-term stability and prosperity.