Pakistan’s economic and political quagmire…Durdana Najam
Pakistan’s economic potentials has been marred by persistent challenges that have hindered its growth prospects. A complex interplay of fiscal imbalances, resource constraints, energy shortages, export vulnerabilities, human capital deficiencies and political instability has conspired to impede the nation’s progress.
A strange mindset had crept into the leaderhip that vie not for homegrown economic trajactory but seek dependence on loans from multilateral financial lenders. The backbone of any economy is energy; if that is crippled, progress or development can only be wished but not realised. We shall return to this issue later in the column.
A central issue is the country’s fiscal predicament.
Recurrent high fiscal deficits, driven by excessive government expenditure, have led to a burgeoning national debt. This unsustainable fiscal position diverts scarce resources from critical public investments in infrastructure and social welfare programmes, compromising long-term growth prospects. To address this, Pakistan must implement stringent fiscal consolidation measures, including expenditure rationalisation and tax base broadening.
This solution has been given, thought over and debated umpteen times, but the policymakers and their implementers, rarely shed the procrastination of not finding the energy, intention and political will to enforce this recipie for economic survival.
It is no rocket science to understand that Pakistan has to improve its exports to get rid of the debt circle. However, a very little consideration is given to this effect.
Several interrelated factors have contributed to almost nonperforming export prospects. However, the overconcentration of exports in a few primary commodities, predominantly textiles.
Furthermore, the low value-added nature of many Pakistani exports limits export earnings and job creation. A lack of diversification into new markets and products has further constrained export growth. On the policy front, complex regulatory environments, inefficient infrastructure and a high cost of doing business have eroded the competitiveness of Pakistani exporters.
Limited access to finance has also hindered the expansion of export-oriented firms. External factors, such as trade barriers imposed by trading partners, global economic downturns and increasing competition from regional rivals have exacerbated the situation. Internally, low productivity, skill shortages and political instability have compounded the challenges facing the export sector.
To address these multifaceted issues, Pakistan requires a comprehensive export promotion strategy that prioritises diversification, value addition and the improvement of the business environment.
The question is: how would a robust export policy function when the energy sector is facing its worst crisis, characterised by chronic power shortages, circular debt and an inefficient energy mix? These factors have severely hampered industrial growth, reduced agricultural productivity and compromised the quality of life for millions of Pakistanis.
The role of Independent Power Producers (IPPs) in Pakistan’s energy landscape has lately been a subject of considerable debate. Introduced to alleviate the country’s chronic power shortages, IPPs were envisioned as a catalyst for augmenting power generation capacity. However, the model has encountered significant challenges.
A primary point of contention lies in the Power Purchase Agreements (PPAs) inked between the government and IPPs. Many of these contracts feature ‘take-or-pay’ clauses, obligating the government to procure electricity regardless of actual demand or generation. This stipulation has been criticised for inflating electricity costs and contributing substantially to the burgeoning circular debt.
Furthermore, the tariffs stipulated in these PPAs have been subject to scrutiny, with allegations of their exorbitant nature compared to prevailing market rates. The accumulation of unpaid dues to IPPs has exacerbated the circular debt crisis, creating a vicious cycle that has undermined the overall health of the power sector.
While IPPs have undoubtedly contributed to expanding power generation capacity, the terms of their contracts and the broader management of the power sector have come under intense scrutiny.
Critics contend that the government’s reliance on IPPs without sufficient oversight has led to a scenario where the nation incurs premium costs for electricity while power outages remain a prevalent issue.
To address the multifaceted energy crisis, a comprehensive overhaul of the power sector is imperative. This necessitates a critical review of existing PPAs, potential renegotiation of unfavourable terms and a strategic shift towards more cost-effective and sustainable energy sources.
Concurrently, enhancing the overall efficiency of the power sector, mitigating transmission and distribution losses and addressing the endemic issue of electricity theft are indispensable steps towards stabilising the energy landscape in Pakistan.
Another issue that has hindered growth substantially is the challagnes of human capital development. Skill mismatches within the labour force and the outflow of skilled professionals have constrained economic growth. To address these issues, substantial investments in education and training are imperative. Additionally, policies aimed at retaining skilled talent and fostering a conducive business environment are essential.
However, none of the above policy initiatives can be successful if the country is not taken off the rollercoaster of political instability and regional disparities, which have collectively impeded investment, exacerbated social tensions and hindered overall development. To address these interconnected challenges, a multi-faceted approach is imperative. This includes strengthening democratic institutions through good governance, transparency and accountability; investing in infrastructure, education and healthcare in underdeveloped regions to bridge regional gaps; fostering inter-ethnic and inter-religious harmony to promote social cohesion; and proactively addressing the root causes of conflict through constructive dialogue and negotiation.
To conclude, Pakistan’s economic challenges are multifaceted and deeply intertwined. Overcoming these obstacles requires a comprehensive and coordinated policy response.
Courtesy The Express Tribune