Strategic Solutions for Pakistan’s Economic Woes

There are many problems before the government of Pakistan today; however, the major ones include external debts, governance crises, and up surging prices of electricity in the country. These issues have enticed a cycle of depression thus hampering the economic growth and development and exerting lot of pressure on the financial department. The general public budget deficit in the last fiscal year was looked forward at more than six thousand billion rupees while in the current fiscal year it is anticipated to be even higher, seven thousand billion rupees. While the government is quoted to be striving to balance the budget deficit at five to six percent of the gross national income. However, up to the present, there has been no improvement, or changes toward reforms to address this deficiency. Inadequate governance is still another problem, and this is mainly because governance appointments are done more along the lines of loyalty and subordination than capacity and morality.

 The financial crisis has weakened the status of Pakistan and now Pakistan seeks help from International financial organizations and friendly countries. At the same time, the energy crisis has eased all sort of economic exercises in different parts of the country. Market participants fare worse also because of poor transmission and distribution of electricity, and the various structures that have taken a long time to be adjusted. However, various governments have neglected these problems merely because of political reasons and other things, making a common man as well as industrialists drowned in high electricity and gas tariffs.

 Another of them is the IPPs deals that lead to extra tariff for electricity by the consumers. Aggravating this issue, the electricity distribution companies’ losses worth more than six hundred billion rupees on annual basis because of inefficient T&D and recovery. On the contrary, instead of reversing these losses, the government has kept quiet and imposed the burden of costs on consumers by overcharging through tariffs hike. As a result, energy tariff among the populace is regressive today and it encompasses not only the generation and distribution costs of electricity but a bulk of other charges as well. Producers and consumers that pay for the bills they receive are exploited because they end up subsidizing other clients who continue using electricity without making the payments. Due to this increase in electricity costs the development of the various sectors including the economy has been affected in one way or the other.

In solving this crisis, the following steps are involved. First, it is recommended that the government must renegotiate IPP contracts and cease the payment of capacity charges. On the second point, the government must expedite privatization in electricity distribution companies in order to minimize the drain on the public exchequer. Also, it is vital to examine the IPPs to retrieve stolen national wealth and lower the electrical tariffs that consumers are charged. Moreover, an audit of machinery and power generation facilities by IPPs would also prove useful to break the miscreants of capacity charges and circular debt.

Nevertheless, the government and the opposition have not manifested concern in addressing this issue while people of more supplicants accentuate the fact that political elites derive benefits from the existing agreements. If there are, conflicts of interest, it is imperative that the government officials declare them. Parliamentary intervention could solve the problem since the IPPs should be paid under the take and pay system, not the capacity charges. This would ensure that IPPs went to the government for remedy instead of approaching the International Court of Justice.

They PM recently provided 10 rupees per unit to the industry and 50 billion rupees to the domestic people who use up to 200 units of electricity. But one cannot expect a radical change of the situation. Recently it has shown an increase of 40 to 50 rupees per unit of electricity supplied to industry which has a bad impact on margin of production. Moreover, in Federal budget 2024-25, the exporters were again exempted from the final tax regime to the mercy of FBR, which enlarged. These measures have worsened what was already a bad situation in the industrial segment. SMEs indicate that tens of them have closed down due to high production costs and those still running are at risk of shutting down.

Therefore, despite the years of international community trying to assist Pakistan in its economic development it alongside faces issues of external debt, poor governance, and increasing prices of electricity. Solving these problems is possible only through the collaboration of several approaches such as renegotiating IPP contracts and other existing power sector deals, privatization of electricity distribution companies, and various major audit investigations of the power sector. Concerning legislative reforms, the payment structures should be altered from capacity charges to “take and pay”. Although the government has introduced recent relief measures providing some help, these efforts need to be more profound and structural to support further economic development and reduce people’s and enterprises’ costs.

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Sahibzada Usman
Sahibzada Usman

The writer holds a PhD in geopolitics and is the author of ‘Different Approaches on Central Asia: Economic, Security, and Energy’ with Lexington, USA.

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