Supplies of letters of credit (L/Cs) are drying up as circular debts in Pakistan's fuel sector reach record highs.

Debts have even risen to record levels at Pakistan State Oil (PSO), the company with the highest sales turnover in the country.

Financial situation

Receivables at the state-run company reached 238 billion rupees (Rs238 billion - US$2.3 billion) compared with a previous May 2013 high of Rs220 billion.

Similar problems are reported throughout the sector. Power producers are seriously constrained by lack of funds while other firms in the circular debt crisis include Pakistan International Airlines.

The ministry of finance is reportedly looking at various options to solve the crisis by providing funds for the sector but has so far not injected sufficient cash into the system.

L/C impacts

The National Bank of Pakistan has reportedly declined to open an L/C for PSO for crude oil imports.

There are also reports of delays in obtaining L/Cs for other products, including furnace oil.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.