The beginning of the New Year brings new energy, commitment but in the case of Pakistan’s economic scenario, it only means mountainous energy commitments and a mounting Circular Debt.
Pakistan has entered 2022 with a domestic and external debt of $280 billion, a staggering 94% of our GDP. The situation of the circular debt is not any better, which is almost half of our annual budget estimated to be between Rs 1200 and Rs 2500 billion
Now operating with the stringent conditions of the IMF programme, the Government of Pakistan is left with no choice but to abide by them. The incumbent government made all efforts to dodge the tariffs deemed necessary by the IMF. Despite a written agreement to the IMF, the base tariff increment of Rs 1.39 per unit on June 1, 2021, was increased in November 2021. Additionally, the Rs. 2.20 base tariff increase committed for July 2021 was never honoured. This means that 2022 will bring many more tough decisions for the government and even more challenging times for the population.
The latest official figures of the circular debt reveal the Rs. 2419 billion, a monstrous payable amount of which Rs 1420 billion are payable to IPPS, Rs 91 billion to GENCOs, and Rs 908 billion to Power Holding Company. The only consolation in terms of numbers comes from the Rs 200 billion payment made to the IPPs by the Power Sector with Rs 54 billion still to be cleared.
The vicious cycle of debt can genuinely hamper the economic growth of a country. The most suitable example of this is Japan that despite its advancements, has struggled to balance off its high debt, which is a staggering 257% of its GDP.
Pakistan is also on the path of a population explosion, which only adds to the challenges faced. What may truly get us out of this predicament is our willingness and commitment to change through effective reforms. This was accurately summarised at the launch of a World Bank report titled “Pakistan @ 100: Shaping the Future: Investing in People” by Vice President Hartwig Schafer, who stated that Pakistan’s economy could grow at an 8% rate. “However, Pakistan’s economy will remain like business as usual even in 2047 unless structural reforms are introduced and implemented effectively.”
The vicious cycle of debt can genuinely hamper the economic growth of a country.
At the core of the circular challenges are the administrative challenges that continue to plague us. These include the inefficiencies created by DISCOs and the compensation not made on a performance basis. DISCOs receive equal subsidies, which means they have no incentive to improve and expand their distribution networks. A portion of consumers remains unbilled. Metering has remained an unresolved issue for decades, and revenue collection seems an unsolvable puzzle for the authorities. The line losses further dent the situation. However, Pakistan’s current power crisis is directly related to massive institutional and governance failures over the last three decades in the form of reckless energy policies.
Present and past governments have continued to rely on large subsidies towards the power sector even though there has been a strong commitment towards privatisation in the energy sector, which many believe is superficial. And if that is not enough, our energy sector is regularly mocked by the journalists in neighbouring India. An excerpt from The Wire published in June 2020 reads,
“Pakistan’s energy policymaking credentials are well known for being half-baked and myopic. The country’s first formal energy policy and plan was adopted in 1994, 47 years after the country’s independence.”
As Pakistan’s energy sector continues to be in the news for all the wrong reasons, the world does not shy away from questioning the energy commitments and projects under the CPEC agreement. Our inadequacy may jeopardise our relationship with a closet ally and hamper our chances towards economic growth and stability. A more pertinent question here is what must be done to undo the damage of the last 70 years?
I truly believe that political stability and the development of a technocratic culture could be the key to solving this massive challenge. We all know that Pakistan experienced its first democratic transition in 2013; before it, political mayhem added to the institution’s inability to develop effective policies or stabilize the infrastructure. As governments continued to change rapidly over the years, so did their approach towards tackling the energy crisis and the circular debt issue.
Treating the challenges faced by the Energy sector as a national emergency must be taken into consideration. We must not wait to reach a national consensus towards a permanent resolution before the mountainous circular debt jeopardises the viability of IPPs, but also the solvency of local banks, which will be debilitated in the event of power sector defaults.
Apart from the administrative failures, The World Bank Group 2019 study on Pakistan’s Energy Sector clearly spells the leakages and contributors to the country’s Circular Debt. We need to stop reinventing the wheel every time and focus sincere efforts on a resolution that needs to focus on capacity enhancement, performance-based payment terms for DISCOs, and minimisation of line losses that the current government has focused upon but requires dedicated attention. We need to take constructive steps to explore and implement alternative energy sources into action while bringing clarity on the overall energy commitments, whether under the CPEC agreement or national projects. Privatisation may seem like a viable option to many. However, I believe in the Chinese philosophy that encourages retaining ample assets while letting the small ones go. We need to strengthen the national assets and retain them while attracting privatising the rest; this will create a proper balance of competition as well as public-private participation in the energy sector.
The year 2022 has brought challenges but could very well be used as an opportunity to re-evaluate and redefine our national priorities and commitments, especially when it comes to this circle of debt – which must be broken.
The writer is the Foreign Secretary-General for BRI College, China. He tweets @DrHasnain_javed.
Turkish President Tayyip Erdogan said on Saturday Islamic countries should form an alliance against what…
A rare snake species known as the blunt-nosed viper and other reptiles, especially the geico…
As Pakistan prepares to celebrate the birthday of the Holy Prophet Muhammad (PBUH) on September…
PCB Director High-Performance, Tournament Director Champions One Day Cup Nadeem Khan has said that the…
The Health experts addressing a symposium on Saturday stressed lifestyle changes to prevent diabetes which…
Pakistan's combined contingent is all set to participate in the 5th World Nomad Games, scheduled…
Leave a Comment