To collect less money from its customers than the obligation to pay its suppliers results in cash flow shortfall of an entity. And to extend such shortfall to all entities of the supply chain is ‘circular debt’. Since its inception, circular debt in the energy sector of Pakistan has been uncontrollable which started with a policy decision not to raise power tariffs for the end users. From a socio-economic perspective, this is laudable so long as the Government has the capacity to pay tariff subsidies to meet higher costs. However, if adequate funds are not available for the subsidies or the same are not sustainable, the effects are invariably damaging even if there is a momentary benefit in low tariffs. Whether we prudently set our power tariffs and subsidies is a question answered by the evolution of circular debt. 
A significant amount of electric power in Pakistan is produced by independent power producers that use fossil fuels for power generation. During 2003-07, the power tariffs in Pakistan were frozen with a minor increase in 2008. This was the time when the international oil prices increased from an average of $30 per barrel to $72 per barrel and in June 2008, they hit $150 per barrel. In this period, rupee devalued and its exchange rate to US dollar increased from PKR 60 in 2003 to PKR 80 in 2008. The cost of power production thus increased and along with it came the mounting defaults in tariff payments by power users. The power distribution companies withheld payments to central power purchaser which did the same to power producers and eventually the fuel suppliers were unable to import and supply oil for power production. 
What was a debt of PKR 150 billion ($500 million) of one power-sector entity two decades ago has now swollen to debts of PKR 4100 billion ($1800 million) of several entities. The evolution of circular debt carries several lessons. A key takeaway is to only make popular economic decisions when there is adequate capacity to meet all its attending circumstances. Another is to not yield to considerations that would encumber the future of nation. The decisions that would restrict economic growth, cause commercial unproductivity and inefficiency, and adversely affect the life of ordinary citizens should be avoided. Is it worth to legislate to set prudential conditions in the economic decision-making in the larger national interest?