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Circular debt is when, to give a three-person example, A owes B, who owes C, who owes A. Circular debt relates to subsidies which the government in Pakistan is providing to the electricity consumers. By not collecting the bills KESC does not have the funds too pay its oil supplier , which could be PSO which in turn does not have the funds to pay its supplier, National Refinery say and then National Refinery does not have the funds to pay for imported oil. A better name is incorporate debt,
Circular debt is a situation in which a string of debtors and creditors exist in a fashion such that the net final creditor in the string is indebted to the first creditor. Every member is both a debtor and a creditor.
