^_^ XXX^_^
FULL MEMBER
New Recruit
- Joined
- Oct 9, 2011
- Messages
- 24
- Reaction score
- 0
Energy crisis spins out of control | Pakistan | News | Newspaper | Daily | English | Online
By Shakil Ahmad | Published: October 9, 2011
Since late 2007, Pakistan has been faced with a set of serious issues: An unstable political climate, increasing domestic security threats, diplomatic pressure from the US, and an economy on the brink of failure. How did Pakistan get into this situation and how can the country regain economic stability?
The GDP growth rate is 2 percent this year, which implied a recession considering Pakistan’s high population growth rate. Inflation is hovering around 25 percent, having tripled since the period 2004-2006. The central bank’s gross foreign reserves tumbled to $3.5 billion in November 2008 representing less than one month’s import value and, at the same time, the government is ran an $11 billion budget deficit. This is attributed to the high input cost of fighting the war on terror. In brief, Pakistan needs $10 billion to bridge its current financing gap.
There were a number of factors that led to this dire economic situation: One, a rapidly rising subsidy bill for spiralling energy costs in 2008, and two, extremely low tax revenues that combined to cause an increasingly large fiscal deficit. The government tried to finance this deficit by borrowing from the central bank, but the increased liquidity, in turn, caused double-digit inflation and significant loss of foreign exchange reserves. The fact that Musharraf’s government was running for re-election, coupled with the ongoing political and security instability, discouraged the then PM Shaukat Aziz from dealing with many of these key economic issues.
Today, Pakistan's power crisis has become a catastrophe. Power cuts of up to 14-18 hours a day have become the norm. In Lahore and Karachi, patients admitted in the largest public hospitals have died due to prolonged non-supply of electricity. There has been massive damage to hospital equipment and dengue virus is being assisted by loadshedding. Riots had engulfed Punjab and other major cities across the country, as the government wringed its hands and tried to get the situation under control. Allegations flew between the leaders of the two major political parties. The PML-N had accused the PPP of being responsible for the crisis, while the PPP had accused it of instigating violence. But as the flurry of allegations continued, the problem at hand grew serious. Dubbed the circular debt issue, power companies had racked up billions in unpaid dues to petroleum companies, which supply them oil to run their powerhouses. Pakistan State Oil (PSO), tired of waiting for the dues long promised to them, finally decided to stop petroleum supply to the power generating companies, leading to an increase in the already inhumane cuts.
Against a reported amount of Rs208 billion labelled as circular debt, the government decided to release Rs8 billion to appease PSO. But this is not a long-term solution. Federal Minister for Water and Power Naveed Qamar responded to the most recent protests by saying that there were no quick fixes, and then turned around and announced that the situation would improve in 24-36 hours. Similarly, Finance Minister Hafeez Sheikh, in Washington, had solemnly announced that the government understood the severity of the circular debt issue and would resolve it in the weeks to come. But with a growing fiscal deficit and ADB’s refusal to fund programmes in Pakistan after Islamabad decided to end their IMF loan programme, how the PPP leadership plans to resolve the circular debt issue for good is anyone's guess.
One solution, according to PM Gilani, was that the US "should help Pakistan solve its energy crisis if it wanted better ties." America has previously said that it is investing in dams in Pakistan to help add to the power grid and has helped in the reconstruction of existing dams in the country. Unfortunately, Pakistan seems to have developed the tendency to look for external assistance in resolving its internal problems. This needs to stop!
Looking towards the West for a solution and, perhaps, redirecting its attention to how to fix its problems internally first - maybe, by collecting payment of unpaid bills or cracking down on those stealing electricity. First, though, it has to deal with the political ramifications of these protests. The PML-N has played its cards right; by blaming the political centre of which it is no longer part, it has easily scored political points, while the PPP becomes the fall guy and, perhaps, deservedly so. Pakistan's government, in turn, can only do so much. Strapped for cash, it barely has the funds to invest in power generation, and in cases where it has, such investments have barely led to a meaningful increase in the electricity grid. Additionally, in the face of all of these problems, if Pakistan raises power tariffs on those that have been suffering for the last many years, the law and order situation could become even more perilous.
By Shakil Ahmad | Published: October 9, 2011
Since late 2007, Pakistan has been faced with a set of serious issues: An unstable political climate, increasing domestic security threats, diplomatic pressure from the US, and an economy on the brink of failure. How did Pakistan get into this situation and how can the country regain economic stability?
The GDP growth rate is 2 percent this year, which implied a recession considering Pakistan’s high population growth rate. Inflation is hovering around 25 percent, having tripled since the period 2004-2006. The central bank’s gross foreign reserves tumbled to $3.5 billion in November 2008 representing less than one month’s import value and, at the same time, the government is ran an $11 billion budget deficit. This is attributed to the high input cost of fighting the war on terror. In brief, Pakistan needs $10 billion to bridge its current financing gap.
There were a number of factors that led to this dire economic situation: One, a rapidly rising subsidy bill for spiralling energy costs in 2008, and two, extremely low tax revenues that combined to cause an increasingly large fiscal deficit. The government tried to finance this deficit by borrowing from the central bank, but the increased liquidity, in turn, caused double-digit inflation and significant loss of foreign exchange reserves. The fact that Musharraf’s government was running for re-election, coupled with the ongoing political and security instability, discouraged the then PM Shaukat Aziz from dealing with many of these key economic issues.
Today, Pakistan's power crisis has become a catastrophe. Power cuts of up to 14-18 hours a day have become the norm. In Lahore and Karachi, patients admitted in the largest public hospitals have died due to prolonged non-supply of electricity. There has been massive damage to hospital equipment and dengue virus is being assisted by loadshedding. Riots had engulfed Punjab and other major cities across the country, as the government wringed its hands and tried to get the situation under control. Allegations flew between the leaders of the two major political parties. The PML-N had accused the PPP of being responsible for the crisis, while the PPP had accused it of instigating violence. But as the flurry of allegations continued, the problem at hand grew serious. Dubbed the circular debt issue, power companies had racked up billions in unpaid dues to petroleum companies, which supply them oil to run their powerhouses. Pakistan State Oil (PSO), tired of waiting for the dues long promised to them, finally decided to stop petroleum supply to the power generating companies, leading to an increase in the already inhumane cuts.
Against a reported amount of Rs208 billion labelled as circular debt, the government decided to release Rs8 billion to appease PSO. But this is not a long-term solution. Federal Minister for Water and Power Naveed Qamar responded to the most recent protests by saying that there were no quick fixes, and then turned around and announced that the situation would improve in 24-36 hours. Similarly, Finance Minister Hafeez Sheikh, in Washington, had solemnly announced that the government understood the severity of the circular debt issue and would resolve it in the weeks to come. But with a growing fiscal deficit and ADB’s refusal to fund programmes in Pakistan after Islamabad decided to end their IMF loan programme, how the PPP leadership plans to resolve the circular debt issue for good is anyone's guess.
One solution, according to PM Gilani, was that the US "should help Pakistan solve its energy crisis if it wanted better ties." America has previously said that it is investing in dams in Pakistan to help add to the power grid and has helped in the reconstruction of existing dams in the country. Unfortunately, Pakistan seems to have developed the tendency to look for external assistance in resolving its internal problems. This needs to stop!
Looking towards the West for a solution and, perhaps, redirecting its attention to how to fix its problems internally first - maybe, by collecting payment of unpaid bills or cracking down on those stealing electricity. First, though, it has to deal with the political ramifications of these protests. The PML-N has played its cards right; by blaming the political centre of which it is no longer part, it has easily scored political points, while the PPP becomes the fall guy and, perhaps, deservedly so. Pakistan's government, in turn, can only do so much. Strapped for cash, it barely has the funds to invest in power generation, and in cases where it has, such investments have barely led to a meaningful increase in the electricity grid. Additionally, in the face of all of these problems, if Pakistan raises power tariffs on those that have been suffering for the last many years, the law and order situation could become even more perilous.
