Economic Stakes of Pakistan and their

impacts on economy:
Excessive imports

Pakistan’s major economy has been heavily been dependent on its imports. This has led to depleting
foreign exchange reserves, that is continuously lowering our currency value and increasing the inflation
rate to all time high due to continuously borrowing loans from SBP to overcome the deficiency of
Foreign Exchange. This has led to our imports being expensive, thus leading to the most dreadful price-
hike in Pakistan.

Low income per capita

Low income per capita in comparison with other low to middle-income developing countries have
contributed to a balance of payment crisis, where the country is unable to earn enough foreign
exchange to fund the imports that it consumes.

Critically Low Foreign Exchange Reserves

Old 2022: The government had imposed restrictions on imports to control and slash the monthly import
bill by around 50% to 70% of the average imports as proposed by Central Bank and FBR due to low
foreign exchange reserves. This resulted in 50% to 60% fall in capacity utilization of industries. Number
of leading industries like auto-industry, pharmaceutical industry and fertilizer industry whose production
relies completely on parts imported from other countries, failed to secure letters of credit because the
Central Bank is not opening LCs due to low foreign exchange reserves.

New 2023: Shortage of foreign exchange reserves led to several industries shut down due to
"unaffordable cost of production". Stating that the imports were too expensive to be able to meet their
expenditures to run the industries. Pharmaceutical industries in particular, as a consequence of which, a
shortage of medicines and equipment was reported across the country (in fiscal year 2022), forcing
hospitals to postpone surgeries and treatment. As another example, this created difficulties in importing
crude oil, leading to a temporary closure of Pakistan's largest petroleum refinery – Cnergyico, in
February 2023.

Price-hike: Increased food, gas and oil prices

Price-hike has resulted in poverty due to decreased savings and thus, investments from common people
that also results in low national income per year. Savings rate in Pakistan is persistently low as compared
with the investment requirements of Pakistan. Large family size is another reason for low private
savings.
High Inflation Rate

This results in lack of funds. High inflation rate results in no government funding for projects, limited
government jobs options, companies start downsizing employees to balance their business
expenditures. All of this results in unemployment.

Balance of Payment Crisis

Since the country is unable to earn enough foreign exchange to fund the imports that it consumes. This
has led to Pakistan getting foreign aids, grants and loans, thus increasing the foreign debt of the
company. Saudi Arabia has deposited $2 billion into Pakistan's central bank. China has deposited $1
billion into Pakistan's central bank. UAE has deposited $1 billion as foreign direct investment (FDI). The
International Monetary Fund (IMF) said on July 12, 2023, that it has approved a $3 billion loan
agreement for Pakistan.

Energy Crisis

 It is getting hard to attract local and foreign investors due to the non-availability of electricity,
gas and petroleum products.
 Moreover, investors are migrating to other states. For an example, In June 2023, Shell plc
announced that it would exit the Pakistani market by selling its entire 77.42% stake in Shell
Pakistan.
 Industries are shutting down due to power subsides. As an example, in October 2022, our largest
export industry, the All Pakistan Textile Mills Association (APTMA) announced that 1,600
garment mills were closed across the country due to withdrawal of power subsidies and, as a
result, five million people lost their jobs. In December 2022, APTMA stated that mills across the
country were running at less than 50% capacity utilization and textile exports could fall further
from 2023. Unannounced load-shedding has really discouraged the industrialists.
 Non-availability of energy has decreased the ratio of agricultural productivity that has a
significant share in the gross domestic product (GDP) of Pakistan since it is one of the major
sectors of economy in Pakistan. (Can’t operate tube-wells without electricity).
 The cottage industry has also fallen victim to the energy crisis, which was a great benefit for our
textile industry as they could get cheap cotton threads from there.

Causes of Energy Crisis

 66% of Pakistan’s energy is produced from thermal generation system. The three major
elements of inputs to the thermal energy generation system of Pakistan are fernace oil, natural
gas (RLNG), and coal. Pakistan’s electricity generation capacity is heavily dependent on its
continued imports of these three elements. This in turn has given rise to the phenomenon of
circular debt in the energy sector that triggers a chain of delayed payments for imported furnace
oil, natural gas or other inputs to the thermal generation system, which in turn gives rise to
shortage of energy in our country.
  WAPDA and IPPs Thermal power plants are running 50% of plant factor, unfortunately of their
total plant capacity. It means that only 50% of the total power is in workable condition because
the government doesn’t have enough funds to meet their expenditures.

 30% in energy losses are arising from distribution and transmission and theft. The government
has to pay subsidies, raise the base price and increase tariffs to cover the line losses and theft.
The ultimate burden of the inefficiency is passed on to consumers. Upgradation of the power
infrastructure is needed to help reduce line losses and proper governance is required to
eliminate theft.
 Oversized population giving rise to more energy demand. This is creating a problem of demand
supply.

Causes of low income per capita

High rate of inflation is a major reason for low per capita income. Inflation decreases the savings and
hence investments of common people, that results in low level of national income. Another reason is
the continuously increasing population of Pakistan and unemployment.

Causes of low foreign exchange reserves

The major reason is the low level operation of our export industry at about 50% capacity and due to lack
confidence on current government and political crisis, Pakistan cannot attract foreign investments and
oversees remittances have stopped. Another big reason is the poor governance.

Causes of price-hike

Due to continuously increasing foreign debts, low foreign exchange reserves and high imports, the
government is forced to impose high taxes on food, oil, gas, electricity, etc. This has led to all time high
price-hike in Pakistan. Moreover, continuously decreasing rupee value is resulting in high exchange rates
due to which imports are becoming expensive thus resulting in price hike.

Causes of Excessive imports

Due to continuous political crisis, Pakistan’s economy could never get even to long-term stability. The
long-term internal political wars for power and authority led to giving little attention towards industrial
development, dams, improving agriculture and services sectors, proper management and maximum
utilization of our natural and energy resources. All of this has led Pakistan to being almost completely
dependent on its imports even just to breath or survive. The rampant corruption and mismanagement
of economic resources has led to this economic crisis, leaving Pakistan no choice but to rely on imports
for its mere survival.

Causes of high inflation rate

High inflation rate in Pakistan is because the country has to fund its imports, cover foreign debts and
cover the internal economic matters all while the country’s national treasury is critically low on reserves.
Causes of Balance-of-payment crisis

Pakistan’s major form of earning foreign exchange is through its exports. Therefore the current
imbalance between the imports and the exports is mainly the cause of balance-of-payment crisis in
Pakistan, i.e. the imports being too excessive and the exports being critically low.

Introduction to energy crisis in Pakistan

 Pakistan is a type of region where the energy supply cannot meet the demand and hence it
faces a huge crisis of electricity. The crisis takes a shape of devil or torment in summer season.
Our generating capacity is insufficient and the transmission and distribution infrastructure
cannot transmit the required heavy load according to the demand.
 To overcome the crisis of energy the government takes such heavy bills from consumers, i.e.
either domestic or commercial users that they became unbearable to pay. As a result industries
became closed and national economy even reached bankruptcy, While WAPDA still paying
the IPPs (Independent Power Producers) a billion of dollars.
 Hypothetically speaking, this means that if all of the IPPs in Pakistan do not produce a single unit
of electricity, WAPDA would still have to pay them for the availability of their capacity.
 In Pakistan 40% people have no access to electricity. All this is happening in such a country
where there is abundant of water resources, vast reserves of coal and gas and also a lot of
power of renewable energy. If these resources are properly used it can meet our requirements
for years.
 We have neglected the development of power sectors and that’s the evidence that we took
25 years to construct a dam of GHAZI BAROTHA after the construction of TERBELA dam.

Solutions to Energy Crisis

Power generation from imported furnace oil costs Rs48.56 per unit. However, imported liquefied natural
gas (LNG) has become the most expensive fuel for power generation in the country, costing at Rs51.42
per unit.

The third-most expensive generation —after RLNG and furnace oil — would be from imported coal at
Rs40.54 per unit, followed by wind power (Rs33.64) and then electricity imported from Iran (Rs24.73).

The sixth costliest power source is local coal (at Rs23.97 per unit), followed by nuclear fuel (Rs18.38) and
solar (Rs15.04).

The next three cheapest sources of power at present are bagasse (Rs14.83 per unit), local gas (Rs13.02),
and the most cost-effective hydropower at Rs6.94.

Hydropower, at Rs6.94 per unit, remains the cheapest source of electricity supply to the national grid.

Pakistan should go for alternative, renewable and cheaper sources of energy. 24 percent of hydro
production should replace 66 percent of thermal power. The number of solar and wind power plants
should be increased to generate power at cheaper rates. Biogas plants should be encouraged in rural
areas for producing energy at minor levels.

Promote public-private cooperation to bring Pakistan out of the energy crisis:

 The government should exempt custom duty on the imports of solar panels and related
equipment like inverters, batteries, and photovoltaics. The equipment can be beneficial for
controlling the energy crisis. Also encourage masses to install solar systems in their houses and
businesses through media. Also the private businesses should install these systems at low costs.
 In private and government offices a timetable should be set for the use of Air-Conditioners (ACs)
and the officials should consider if one or two ACs can fulfill the requirement of the office the
extra ones should be switched off.
 IPPs should provide cheap energy to the government because the economic crisis are getting so
severe that common people cannot afford this anymore.

Investing in Renewable Energy Industry: Pakistan has given its Alternative and Renewable Energy Policy
2019. The major objective of the 2019 policy was to encourage and support the nation’s development of
renewable resources. Right now, t is a golden chance for local and overseas investors to invest in
Pakistan’s renewable energy program for which the government of Pakistan has given an Alternative
and Renewable Energy Policy in 2019.

Pakistan is situated on such a blessed region where there are four seasons and a lot of potential
of renewable energy. The government should take steps to use alternating source of energy (renewable
energy) as the whole world take benefit from these resources. We have a lot of availability of wind in
the coastal areas of Baluchistan and river side of Sindh. We have abundant of solar energy all
over the country and especially in the hot climate areas such as Thal, Thar, Cholistan, etc. If these
renewable energy are used correctly we can reduce the supply gap.

 Wind power is the fastest growing energy all over the world, countries making remarkable
work in this source of renewable energy include France, United Kingdom, China, Italy, Brazil,
USA, India, Spain, Germany, and Denmark. With this the energy crisis can be helped and the
consumers can get energy in a very low cost.
 Pakistan is a dry climate with less amount of rainfall country. 60 % of the total land is
mountainous (i.e. direct sunlight) while 40 % is flat and graduated surface (i.e. no hurdles). Such
geography of the land makes it very suitable for solar energy utilization. Installing solar
systems would be less expensive and would decrease a lot of load on the national grid. Public
parks and local streets should be used for this purpose.

Replacing thermal power fuel:

 The 66 % of the total electricity is produce from oil and gas which is more than 50% of our
total import. Now given that our electricity are depending on these power plant with such a
large percentage so, we cannot dismantle it and move to hydro or some other source of
energy, however we can change the fuel because it is the only way to get rid of such an
 expensive energy. We can change the fuel to Local Coal. Government should be thinking of
investing in the industry for the production of local coal.

Stand-alone power projects:

 Constructing small runoff river hydro projects where there is availability of Water, Install
Solar PVs where there is Sunny weather and also install Wind Power panels in areas where
wind is in abundant. It will fulfill the need of electricity of those people and also lessen the
load on national grid. This step is great for rural areas where there is no access to electricity.

If Pakistan integrates renewable resources for its power generation on an aggressive scale then it will
significantly reduce our import bill and will boost our image in the international community as one of
the front-line states in the war against climate change and global warming. It will help make power
available to a wider number of people, lower the overall costs for the whole country and will also make
our overall system more sustainable. It will also reduce the load on our already overburdened grid
allowing it to serve existing customers better.

Begin construction on an Iran-Pakistan pipeline—a project that could potentially boost gas supply by 25
percent, and at lower prices than Pakistan’s current liquefied natural gas imports.

Theft is prevalent mostly with the connivance of electricity meter readers who help with meter
bypassing and tampering. Theft takes place in connivance with the staff of the distribution companies.
Smart Electronic meters should be introduced that detects anything going away from its normal
working, for example, ability to detect disruption to the meter’s ability to detect power consumption,
ability to detect tampering of the reading, etc. However, the problem would remain there until and
unless distribution companies of Pakistan are split into smaller entities and handed over to
provincial/local governments to keep an eye over them. To make it effective the profit/royalty of power
generation should go directly to the province which produces electricity under the 18 th amendment.

Energy Governance solutions (policy recommendations)

 Pakistan should consolidate its many energy-related institutions into a single ministry (e.g.
ministry of energy). This will bring some urgently needed order and efficiency to its
dysfunctional energy sector.

 Focus more sectoral attention on noncommercial form of energy, because 50% of the country’s
energy is consumed in the form of noncommercial energy (in households). The other 50% is
consumed by industry, agriculture and services sector.

 Pursue a more sustainable energy mix by balancing the promotion of new energy sources with
judicious management of existing resources.

 Address sectoral debt by focusing less on stopgap measures such as unconditional bailouts, and
more on endemic causes such as system losses and operational inefficiencies.
Solutions of Price-hike

Hybrids and Electric Vehicles (EV) should be promoted to enhance fuel efficiency in the transport sector
by making them duty free and making them accessible within a common person’s reach. It will reduce
petrol consumption and will thus reduce our imports which will definitely reduce the petrol prices.

Takes measures against stockings and smuggling of food commodities. Take effective disaster
management measures and strictly enforce competition laws.

Promote more conservation of residential gas and more use of renewable energy sources (such as solar-
powered water heaters and electric stoves) in households, public and private institutions to bring
residential natural gas at minimal use. Industrial establishments are usually involved in the theft of
natural gas. An IT based sensory theft detection system should be installed for each industry to detect
this theft.

Solutions to Low Foreign Exchange Reserves

Pakistan is a resource rich country. Attract foreign investments for mines and minerals projects.
Geographically, the land is suitable for renewable energy resources. Attract foreign investments for
renewable energy power plants in all capacity (small, medium, large). Privatize and internationalize SOEs
to attract foreign investments. Attract big IT giants into Pakistan since Pakistan’s IT talent is known
world-wide for its excellence.

Solutions to Balance-of-Payment Crisis

Increase your export capacity, by improving agriculture capacity and gaining access to the international
market of agriculture.

Solutions to High Inflation

Government should rationalize expenditures and untargeted subsidies in order to cover budget deficits
and battle high inflation.

Solutions to low income per capita

Legislate large informal economy. Provide smart loans to people with reasonable interest rates for
investments (like for street vendors) – especially encourage our informal economy through these
measures. Encourage employment through privatization of SOEs. Take strict measures against tax theft.
Take measures to control population without worrying about popular religious backlash.

Solutions to Excessive Imports

 Reduce dependency on imported food.

 Rationalize your imports.
 Internal trading and barter trading (or smuggling) of goods needs to be cracked down.
  Rely more on local coal for thermal energy generation and then slowly expand the capacity of
renewable energy resources for power production.
 Pakistan has huge capacity of barren lands and thus, high potential to attract foreign investment
for agricultural development.
RAW

Lack of Industrial Development - Excessive imports - dollar goes out in shape of import - in SBP foreign
exchange reserves (i.e. dollar reserves) goes down - currency value decreases - inflation rate high
(because further imports will require more currency printing (loans from SBP and other banks) to
overcome the deficiency of Foreign Exchange, this will make our imports more expensive, thus leading
to price-hike in Pakistan).

Income per capita:

 Income per capita is the yearly avg. earning per human in the form of tax.
 It determines the poverty and lifestyle in the country.
 Per capita income for a nation is calculated by dividing the country's national income by its
population.
 From the income earned (in form of tax, etc.), country purchases foreign exchange (FE).

Ways of earning foreign exchange by a country: In the form of exports, foreign investments (either
Pakistan does it in other countries or other countries do it in Pakistan), income per capita, oversees
remittances.

Causes of oil prices increase:

 The Russian invasion of Ukraine has caused fuel prices to rise worldwide.
Causes of food prices increase:
 Natural disasters destroying our food crops, leading to supply and demand imbalance.
Minor factor: livestock affected due to diseases/epidemics.
Causes of gas prices increase:
 Our major reserve of gas in SUI has decreased, causing supply and demand issue in the country,
leading to imports of gas.

LCs:
 letter of credit provides that payment will be made to the foreign suppliers after the goods have
been received and cleared by the Customs in Pakistan.
 Central Bank is not opening LCs for imports due to low foreign exchange reserves.

GDP:
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and
services produced within a country’s borders in a specific time period (typically a year).

Imports:
 Pakistan's heavy reliance on imports for its energy needs and capital goods (machinery,
equipment, vehicles, and tools).

Services sectors in Pakistan:

The service sector of Pakistan contributes almost two-third to the final economic share.
 business services (transportation, cleaning, repair & maintenance , consulting, IT, etc.),
 financial services,
 communication services,
 health and related services,
 construction and related engineering services,
 tourism and travel related services.

Russian-Ukraine war oil prices:

 Russia is the 2nd largest crude oil exporter in the world after Saudia Arab. It contributes to 12% of
the global imports in the world while Saudi Arabia possesses approximately 15% of the world's
oil reserves.
 After the Russian invasion in Ukraine the oil price exceeded $ 120 per barrel last year. At around
$ 80 now, it has dropped to pre-war levels again.

Oil:
Fernace oil and petroleum oil are acquired from refining crude oil.

Nuclear:
Nuclear energy originates from the splitting of uranium atoms – a process called fission. This
generates heat to produce steam, which is used by a turbine generator to generate electricity.