The national flag fluttering over rooftops, fireworks, parades, and special TV transmissions celebrating national heroes – like every year, much of the same can be expected again as the 74th anniversary of Pakistan’s independence is marked ceremoniously, despite the threat posed by ongoing fourth wave of COVID-19.
We can expect some finger-pointing too for much of the country’s existing problems. However, the need of the hour is introspection; there is an urgent need to reflect on the persistent challenges of energy security, food security, and weak export growth, which have limited Pakistan from achieving its immense potential.
The energy crisis is one of the most pressing issues faced by Pakistan today, inhibiting its industrialization and making exports globally uncompetitive. From the gloomy years of energy shortages that resulted in an annual loss of around 2 percent of GDP (USD 5-6 billion), Pakistan is now faced with the new dilemma of excess production capacity.
By 2023, it is expected that there will be 50 percent more power capacity than currently needed as new projects become operational. As a result, the government will have to pay up to Rs. 1.45 trillion for even the unutilized excess capacity in the form of fixed-capacity charges.
At the same time, the inefficiencies of distribution companies will pile up around Rs. 4 trillion in circular debt by 2025. The second problem of the energy sector is that of producing expensive electricity.
The cost of power produced for the industrial sector is 26 percent higher than other regional countries as half of the generated electricity is through costly furnace oil imports, which places an estimated burden of $5.5 billion on the national exchequer.
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Resolving the energy crisis
Fortunately, the government is focused on resolving the energy crisis and has already negotiated new terms with IPPs. While the new IPP agreements are moving in the right direction, all stakeholders must work in tandem to undertake wide-ranging energy market reforms for affordable and accessible electricity.
The power sector must be liberalized through the adoption of a multi-buyer market model. At the same time focus should be on improving the operations of distribution companies, increasing electricity demand, independent power- planning in view of supply-demand dynamics, and investing in grid reliability to shift industrial captive-power generation.
The government’s commitment to promote indigenous fuels and generate 60 percent of energy from renewables by 2030 must also be appreciated. According to a report by OGRA, indigenous gas production recorded a decline of 10 percent in 2019-20.
Therefore, LNG imports are expected to continue to play a critical role in meeting Pakistan’s growing gas needs. Even though the government has granted regulatory approvals to set up new terminals, the progress on this front has been slow.
Red tape and the monopoly of state-owned gas companies have also posed a hurdle to expanding the operations of existing terminals and opening the market to private importers. These complexities have trivialized the LNG market and made even routine matters, like vessel dry docking, politically controversial.
To ensure energy security for Pakistan, the government must expedite the Third-Party Access regime and the establishment of onshore LNG terminals by attracting private investors.
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Boosting our exports
Pakistan cannot aspire to achieve export-led growth and higher rates of industrialization till the energy sector is revitalized as it directly affects the competitiveness of the country’s exports.
While the country has managed to record its highest ever exports of $25.3 billion in the outgoing fiscal year by reopening early for business amidst COVID-19, the annual export target of $150 billion under Vision 2025 seems to be a distant reality.
The narrow base of Pakistan’s export partners and products is reflected from the fact that over $5 billion of these sales were made to the US, while over 61 percent ($15.5 billion) belonged to the textiles segment.
The $2 billion exports of IT services can be counted as a silver lining as the technology sector continues to enjoy a boom in the country, especially in the COVID era. Suppose Pakistan harnesses its current export potential valued at $88 billion by a recent World Bank report.
In that case, the government must learn from the experience of Vietnam and Bangladesh to encourage private sector investments and liberalize the market. The ease of doing business for exporters, especially small & medium-sized enterprises and service providers, must be improved so that they produce for the world rather than catering only to local supplies.
At the same time, a policy framework should be developed to fast-track innovation in products and technology that can help in value addition, development of human capital, and diversification of exports. This policy should also assist exporters in obtaining quality certifications to make the products more marketable on the world stage.
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Tackling the country’s food insecurity
Despite being an agrarian economy, Pakistan has been a net food importer for the last three decades as systemic issues of yields and capacities have not been overcome. In recent years, the country has imported billions of dollars worth of wheat, sugar, and cotton to either meet local shortages or counter price distortions in the market.
For food security, agriculture needs to be sustainable and viable within the country. Therefore, farmers well-being must be kept in mind when devising policies; otherwise, crop yield and quality will not be prioritized by the growers.
Around 10 percent of zamindars hold 52 percent of the agricultural land in Pakistan; thus, there is a need to gear agricultural policies and support specifically towards the small farmers to uplift their incomes and crop yields.
The government’s Kisan Card is a positive step that provides targeted subsidies to promote the adoption of modern farming practices and boost the productivity of small landowners.
Further, the government’s comprehensive agricultural transformation plan is expected to encourage private sector participation and fix the structural issues related to the supply chain and infrastructure that result in high spoilage.
Until these fundamental infrastructural issues are fixed, Pakistan will not be able to export value-added and horticultural products. At the same time, Pakistan should learn from global examples, such as Indonesia, to identify critical resources under balanced agricultural policies that promote value-addition and exports to offset the import bill and ensure food security through staple crops.
The last seven decades have been a mixed bag of disappointments and limited successes. Still, the future of Pakistan depends on how well the government and private sector come together to tackle some of these most pressing issues.
The opportunity to self-reflect will hopefully lead to rational decisions that prioritize the country’s best interests and pave the way for sustainable economic growth that benefits all citizens of Pakistan.