In Circular debt all the members are both creditor and
debtor; and in the end all the balance of all the debts between individuals is
Pakistan is currently facing Circular Debt of Rs 12
billionCircular debt is the condition when one party or group is
unable to pay to its supplier withholding payments. It is not restricted
specifically between creditor or debtor but it affects all the entities in the
supply chain. The consequences of the circular debt are very harmful as none in
supply chain entities are able to function at full capacity.
What is Circular Debt?
Let’s consider there are three persons in a room named X, Y
and Z. Person named X pays Rs 500 to person named Y. Y pays Rs 500 to person
named Z. Z pays Rs 500 to Person named X. This condition called circular debt.
In the Circular Debt all the members are both creditors and debtors; for example Person X is behaving as debtor for person Y, but at the same time it is creditor for the Person Z. In the end all the balance of all debts between the individuals is Zero.