Category: Energy Crisis

Surging prices leave Pakistanis unable to afford basic necessities | DW News

Pakistan is in the middle of its worst economic crisis in a long time. Sri Lanka’s meltdown last year was caused by the same things that are making things worse now: high inflation and low foreign exchange reserves. Even though Pakistan isn’t there yet, it’s on the brink, which makes people worry.

People are getting used to waiting in lines like this one. People in Pakistan queue for hours to get subsidised flour, a staple food. (“Surging prices leave Pakistanis unable to afford basic necessities | DW…”) Many just can’t afford to feed their families with the usual foods. This is why Pakistan wants to get money from the International Monetary Fund worth more than a billion dollars

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Is the IMF really a savior for our economy

Pakistan’s rulers want to restart the IMF agreement, which has been suspended for a year. People in Pakistan think the IMF is against the people, helps the elite, and is to blame for increasing poverty. However, it is seen as their only hope after years of economic crises.

There is only one option left: the IMF, as is repeatedly stated in every newspaper column and on every talk show. These words have been used so frequently that people are accustomed to hearing them.

“We” will be destroyed, go bankrupt, and no one will provide financial support for “us” if we don’t accept the IMF’s “reforms,” These phrases have developed into the new hymn that is sung in front of us every day.

Some economists warn that our current inflation rate of 25% could rise to 35% if we accept the IMF’s stringent conditions. If the IMF’s demands are met, the value of the dollar will exceed 300 rupees. In recent months, it has been rumored to be worth more than 200 rupees. If electricity and gas are made available to the general public, their costs will increase. Everything will increase in price, including gasoline, which is vital to our economy. Imports will also be significantly more expensive, and our aristocracy cannot survive without them.

Some analysts argue that accepting the IMF’s tough conditions will worsen the situation, but if we don’t we will most likely default. Inflation rates range between 35% and 70% in Pakistan; 2,200 luxury cars have been imported into the country despite a dollar shortage.

The IMF is Pakistan’s military and civilian elites’ only option. The elite has failed to implement effective reforms and create a substantial economic reform policy for years. Our elites looted our nation to the brink of default. Neither “we” nor “saving the country” are concepts. Class distinctions are crucial. All economic factors and interventions—inflation, austerity, fiscal discipline—are unevenly distributed.

The IMF is not a savior here for ‘us’ or ‘our’ country but for ‘some people’ and ‘their country’. The agreements under negotiation benefit only the capital and the people who benefit from it. Structural reforms such as distribution of energy or capital along class, gender and regional lines have never been part of our adjustment program.

Zaidi, S. Akbar. “کیا واقعی آئی ایم ایف ہماری معیشت کے لیے نجات دہندہ ہے؟.” Dawn News Television, 3 Feb. 2023, www.dawnnews.tv/news/1196138.

What will be the likely scenario if Pakistan defaults?
Source : Express.pk

While all predictions and analyses suggest that it is unlikely that Pakistan will default on repayment of external debt, one can still try to assess what a post-default Pakistan will likely be.

 

Some of the possible economic consequences of this include conscious inflation, a huge increase in poverty, devaluation of the rupee, withdrawal of capital, closure of industries, large-scale unemployment, brain drain and the stoppage of the wheel of economic development.

 

However, in any such scenario, the country will have to pay the biggest price in the form of social unrest in the context of inequality of income and wealth.

 

Almost all economists agree that there is apparently no possibility that Pakistan will default on its loans, and the reason for this coincidence or belief is not due to Pakistan’s economic health, but because of the expected social and strategic response, which is related to the relevant stakeholders because these stakeholders cannot afford these possible effects.

 

In the event of a default, its economic cost will be quite significant, but with the right economic policies and recovery mechanism, we can see some hope or light at the end of the tunnel to return to normalcy in a few years, however, it is certain that the biggest cost or loss to the country in the event of a default will arise in the context of the current inequality of income and wealth. There will be social unrest. This issue can lead to a serious situation and also create an internal security crisis.

 

The situation on our borders is worrisome and extremist forces are already operating inside the country, so in the event of default, the country can be more chaotic than is expected.

 

So it is not just the economic cost of default that we need to pay attention to, but also the cost of social and internal security, for which we have to be prepared. Moreover, it will not be a short-term trend, but it will be quite long-term and it will be deep-rooted, it can be assumed that the recovery process will be slow and painful.

 

In this context, analysts still believe that it is unlikely that Pakistan will default. The social impact of a possible default, security costs, economic costs will be so high that all internal and external stakeholders will try their best to avoid such a scenario.

Pakistan has nuclear energy, how did it end up with a power shortage?

Last year, total production capacity of electricity in Pakistan was 43 thousand 775 MW. This includes 26,683 MW thermal (owned by the private sector), 10,635 MW hydroelectric and 1,838 MW wind. Electricity was generated from nuclear energy. So, how did a country with nuclear power become a victim of power shortage?

Pakistan’s energy policy of 1994 has had the longest and most negative impact. The country was no longer being trusted in the capabilities of the company that provided 13,000 MW of production capacity and 29,000 km long transmission lines. The World Bank, which was once WAPDA’s best friend, also started criticizing it.

The policy introduced a bulk power tariff of 6.5 cents per kilowatt-hour for the initial 10 years of the project and 5.9 cents thereafter. As a result, WAPDA lost thermal power and was left with only hydel dams. They generate cheap electricity but they do not get the attention of commission agents.

The bulk power tariff is made up of two parts: the energy price, which includes fuel costs and operating costs, and the capacity price. Capacity price includes debt repayment, fixed operating costs, maintenance costs, and equity. The transfer of bulk power tariffs and dividends abroad was guaranteed.

WAPDA’s losses due to faulty transmission systems and theft were 21 percent in 1997-98, which now range from 10 to 40 percent. The transmission system was placed under the National Transmission and Dispatch Company. Local distribution companies employing retired soldiers were formed, employing ex-soldiers to distribute electricity.

After the decentralization of WAPDA, several regulatory bodies came into existence. Responsibilities became fragmented and the accountability system weakened. Today the country is saddled with mounting revolving debt. In 2013, this debt was 450 billion rupees. In 2020, it has increased to 2 trillion 30 billion.

According to a recent report, high electricity generation costs, delay in tariff fixation, extraordinary losses in transmission and distribution, failure of DISCOs to collect revenue, and partial (often delayed) government power disbursement to DISCOs and K-Electric. Tariff differential subsidies, high finance charges, and late payment penalties increased revolving debt. These reasons are old and their solutions are not with the beleaguered users who have grown accustomed to the darkness.

An independent, competitive and private-sector-led energy sector can be a sustainable and low-cost means of meeting potential growth in demand. In October 2021, the government released the Pakistan Energy Demand Forecast (2030-2021). Its aim was to ‘enhance the capacity of government institutions for analysis-based decision-making’.

The IEP has predicted the primary electricity demand to be 28,300 MW in 2025 and 33,600 MW in 2030. Oil demand is expected to hit 205 million barrels in 2030, including oil used for power generation.

Aijazuddin, F. S. “&Rsquo;آخر ایٹمی توانائی کا حامل پاکستان بجلی کی قلت کا شکار کیسے ہوا؟&Lsquo;” Dawn News Television, 27 Jan. 2023, www.dawnnews.tv/news/1196100.