Ajmal Nemat

Pakistan’s economic woes continue to deepen, with the recent hikes in electricity and gas prices further compounding the hardships faced by the public. While these increases are attributed to the IMF’s conditionalities and the pursuit of “full cost recovery,” they highlight a long-standing problem: the reliance on price hikes instead of structural reforms.

Despite past attempts at subsidies, the country is now at a critical juncture. Facing international lenders unwilling to offer loans without concrete reforms, Pakistan is simultaneously burdened by an increasingly frustrated population struggling to afford basic necessities.

The IMF’s Flawed Approach:

The IMF’s insistence on linking the policy rate with the headline inflation, including imported inflation, is misguided. This approach, while potentially effective in developed economies, fails to account for Pakistan’s specific dynamics.

• Limited impact on public borrowing: Unlike developed economies, Pakistan’s public borrowing is restricted due to lack of collateral and guarantees. Therefore, changes in the policy rate have minimal impact on their borrowing behavior.
• Negative impact on key sectors: The two main borrowers in Pakistan are the large-scale manufacturing sector and the government itself. Higher policy rates lead to increased input costs, hindering productivity and growth. Additionally, the government’s reliance on domestic borrowing results in ever-rising debt servicing costs, further burdening the economy.

This flawed approach is evident in the Finance Division’s November 2023 Update, which notes a significant surge in mark-up payments attributed to the higher policy rate.

The Need for a Change:

Despite repeated attempts by Pakistan’s finance ministers and State Bank governors since 2019, the IMF remains unfazed by arguments against linking the policy rate with headline inflation. This rigid stance, if maintained, could lead to dire consequences:

• Civil unrest: Pervasive public discontent due to rising costs and declining living standards could culminate in widespread social unrest.
• Economic recession: The ongoing inflationary pressures, exacerbated by the ineffective policy rate strategy, could push the economy into a deeper recession.
• Challenges to structural reforms: Implementing necessary reforms becomes increasingly difficult in an environment of political instability and economic hardship.

Moving Forward:

To avoid these disastrous outcomes, a shift in approach is crucial.

• IMF Policy Recalibration: The IMF must recognize the flaws in its current strategy and adapt its recommendations to suit Pakistan’s unique economic realities. This includes abandoning the ineffective link between the policy rate and headline inflation and focusing on solutions tailored to Pakistan’s specific circumstances.
• Structural Reforms: Alongside external assistance, Pakistan must prioritize its own efforts to implement long-term structural reforms. This requires tackling inefficiencies across various sectors, reducing reliance on price hikes, and fostering sustainable economic growth.
• Transparency and Communication: Effective communication with the public is essential. Transparency regarding the rationale behind economic decisions and clear explanations of the challenges and solutions can help build trust and encourage public support for necessary reforms.

Only through a collaborative effort, involving international organizations, the government, and the public, can Pakistan navigate this critical juncture and build a more resilient and prosperous future.

Pakistan’s energy sector is one of the most important and challenging sectors for the country’s development. It faces various issues such as low efficiency, high losses, circular debt, gas shortages, power outages, environmental degradation, etc. To overcome these challenges and achieve a sustainable and inclusive energy future, Pakistan needs to adopt a comprehensive and holistic approach that involves multiple stakeholders and sectors. Some of the possible ways to develop Pakistan’s energy sector are:

Enhancing governance: Pakistan needs to improve the governance and management of its energy sector by strengthening the institutional capacity, accountability, transparency, and coordination of the relevant authorities and agencies. This includes reforming the legal and regulatory framework, enhancing the role of independent power producers (IPPs), ensuring fair competition and consumer protection in the electricity market, resolving disputes and grievances through arbitration or mediation, etc

Increasing investment: Pakistan needs to increase its domestic and foreign investment in its energy sector by creating an enabling environment for private sector participation, attracting long-term financing from multilateral or bilateral sources, mobilizing local resources from public-private partnerships (PPPs), promoting renewable energy sources (RES), etc. This will help reduce the dependence on imported oil and gas, diversify the energy mix, improve the efficiency and reliability of power generation and distribution, etc

Improving infrastructure: Pakistan needs to improve its physical infrastructure for its energy sector by upgrading or expanding its transmission and distribution networks, building new generation plants or hydropower projects, developing smart grid technologies or digital solutions for demand response or load management, etc. This will help enhance the connectivity and accessibility of electricity across the country, reduce transmission losses or thefts, increase grid stability or resilience, etc.

Promoting innovation: Pakistan needs to promote innovation in its energy sector by fostering research and development (R&D) activities in areas such as new fuels or technologies for power generation or storage, alternative sources of energy such as solar, wind, biomass, etc . , energy efficiency measures such as LED lighting, smart meters, etc . , etc. This will help create new opportunities for economic growth, social welfare, environmental protection, etc. 

These are some of the possible ways to develop Pakistan’s energy sector. However, there are many more aspects that need attention and action from all stakeholders, including government, civil society, media, academia, religious leaders, human rights activists, etc. The development of Pakistan’s energy sector is not only a matter of technical feasibility but also a matter of political will, social consensus, environmental sustainability, etc. Furthermore, Pakistan must develop and reform the whole governance system in the country. The legislature must legislate qualitatively to ensure functional energy legislation. The executive must develop efficient delegated legislation and implement the legislation and delegated legislation. Also, the judiciary should restrain itself from meddling in executive and legislative affairs. Further, the bureaucracy must also be reformed to implement the law and execute the plans according to the specialized demands of the 21st century. 

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