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Circular debt is a type of public debt, defined as a spiral observed due to the shortfall in payment of subsidies linking back to one another, faced by the government, which leads to the buildup of debt on companies responsible for distribution. The concern for circular debt in the power sector appears to be rising daily, with Pakistan being the only country stuck in the clutches of this debt, solutions have not come easy. The perpetuation of high-power theft, shrinking recovery of unpaid bills, insufficient cash flow and inefficient policies continues to exacerbate the situation, moving Pakistan in the direction of making the challenge of circular debt in the power sector, much graver. This case study will focus on discussing the complexity of the issue of circular debt, the origin and escalation of circular debt engulfing the power sector in Pakistan, along with the budgetary restrictions faced by Pakistan and why it is falling behind on the track to sustainability. This study will use secondary research from public sources, examining the statistics and prior policies regarding circular debt in Pakistan. This study aims to explain the extent of this issue and provide various policy recommendations, that can potentially aid to tackle this escalating issue.