The US Ambassador, Cameron Munter, has said that Pakistan must fix energy sector and eliminate subsidies that drain the government budget.

Speaking on 'Economic Reform' during his visit to Karachi Stock Exchange (KSE) here on Monday he said that Pakistan's industrial sector was particularly hard hit by continuing electricity and gas shortages.

In his first major address after his arrival in Pakistan six weeks ago, the US envoy said that the United States shares the concerns of many Pakistanis about the chronic and severe energy shortages, which, if left unaddressed, have the potential to fuel a crisis that could threaten the country's political and economic stability.

"Pakistan is blessed with abundant rivers, coalfields, untapped oil and gas resources, and the prevailing winds that could support many wind farms," he added.

He said that previous governments' failure to implement energy development plans in timely manner, state regulatory interventions in the sector, insufficient focus on private sector solutions and continued questions about security and political situation had dampened investors' interests in Pakistan.

"Energy investors need a stable and predictable long-term investment framework and assurances that they will be able to recover their costs and to feel comfortable investing in Pakistan," he said.

Pakistan government has recognised the gravity of the problem by helping to draft the Energy Sector Recovery Plan he added.

He assured the audience that the US government would continue to support Pakistan government in this effort, as both governments recognise that reliable power is a necessary prerequisite for any modern economy to remain globally competitive.

"We're not just going to let this economic sector recovery plan sit on shelf", he said, adding that " this is going to be a focus of the next Friends of Democratic Pakistan forum in 2011".

Munter said that Pakistan must fix this key sector, and the United States "stands ready" to assist.

"We have already funded USAID funding audits of the generation and distribution companies and our technical experts are working closely with Pakistani officials on practical steps forward and together they are figuring out how to solve tough problems such as technical inefficiencies, unsustainable tariff structures and power theft all of which have been draining Pakistan's budget", he said.

He said that the US Foreign Commercial Service, the Overseas Private Investment Corporation and the US Trade and Development Agency remain active in promoting Pakistani business supported by US investment, particularly in the energy sector.

However, he said, the American and Pakistani partner companies have proposals pending with the government of Pakistan to build plants to import liquefied natural gas, electricity generation plants.

He said that the United States and Pakistan, together with American power company AES Corporation, have agreed to pursue a public-private partnership to develop a 150-megawatt, $375 million wind power generation in the Gharo Corridor.

This is in addition to more than $185 million pledged under the Signature Energy Program announced by Secretary Clinton to improve the efficiency of Pakistan's energy sector, which will help alleviate the load shedding that cripples commerce and economic growth.

"These programs and others were made possible by the Kerry-Lugar-Berman Act, which tripled our non-military aid to Pakistan to $7.5 billion over five years", he said, adding that "there are pending other projects supported by US investors, which include several proposals to build facilities to import liquefied natural gas, that we hope that the Government of Pakistan will quickly approve them".

He said: "We also look for Pakistan to take the lead in driving the movement of reliable and affordable energy from Central Asia for its own domestic consumption and that of its neighbours." However, he said, these measures will only provide partial solutions to Pakistan's energy crisis.

To meet the everyday energy needs of its people and to compete effectively in the global economy, Pakistani leaders must make policy changes that improve the country's investment climate and support sustainable investments in the energy sector.

He said that another key area that the government of Pakistan is addressing is the unsustainable revenue situation.

"The Pakistan government spends more than it collects", he said.

He commended that Pakistan government, particularly President Asif Ali Zardar, Prime Minister Yousuf Raza Gilani, Finance Minister Dr Abdul Hafeez Shaikh, State Bank of Pakistan Governor Kardar, as well as opposition politicians for their commitments to work co-operatively on the tax, budget, and economic reform legislation.

"Let us not kid ourselves; this is not easy", he said.

"Hopefully with our encouragement they will gain momentum and move forward", he added.

He said this legislation is critical to enable the private sector to grow, and create jobs and profits Pakistan needs to succeed over the long term.

Even as the Pakistan government embarks on these urgently needed reforms, it remains crucial that any reforms be built on a solid foundation.

Key to building that platform is ensuring that the central government and the provinces demonstrate budget discipline.

"Such discipline has been lacking, resulting in excessive borrowing from the State Bank and private sector banks.

This borrowing feeds inflation, which affects the poor particularly hard, and crowds out loans available to the private sector, limiting the prospects for growth of businesses and costing jobs.

"Given the natural tendency for all governments to focus on the politically expedient short term, we believe an autonomous State Bank of Pakistan that makes policy decisions that are in the interest of Pakistan's long-term economic interests is crucial", he said.

Munter said that progress cannot be achieved without first adopting necessary economic reforms.

With a fiscal deficit of 6.3 percent of GDP in 2010, the Pakistan government has been unable to meet its commitments to the IMF under the October 2008 Stand-by Agreement, that provided more than $10.7 billion in loans over two years.

He said that Pakistan's tax-to-GDP ratio is less than 9 percent, one of the lowest in the world.

This problem here is because there are many prosperous people in Pakistan who can afford to pay taxes but who refuse to do so or are not required to do so by law, he said.

He said he was hopeful that the 'Reformed General Sales Tax Bill', that is being debated in Parliament, will be passed and will be effectively implemented at both the federal and the provincial levels.

"We have no illusions that this legislation will resolve Pakistan's fiscal situation, but it is an important first step as the Pakistan government aligns its capacity to raise revenue with its need to boost security and development spending", he said, and added that this will ensure that Pakistan progresses towards achieving the U N Millennium Development Goals to combat disease, improve child and maternal health, provide education, and reduce poverty by 2015, while keeping up a robust national defence.

He said that the agriculture sector that constitutes one-fifth of Pakistan's GDP should also be included in government efforts to expand the narrow tax base.

He assured the audience that the United States is committed to assisting Pakistan in overcoming its difficult economic situation by providing long-term technical and economic assistance, which will help develop sustainable improvements in its capacity to provide basic social services.

He also mentioned US support during floods and said that the US was Pakistan's first international partner on the scene and remains the largest donor.

The US government has provided over $655 million to assist with relief and recovery efforts and almost $600 million of that is above and beyond the Kerry-Lugar-Berman funds.

He said that both governments have worked hard to build a renewed, strategic partnership based on mutual respect, mutual interests, and mutual trust.

"We must all continue working to bridge what some call the trust deficit between the United States and Pakistan", he said.

He expressed hope that the visit of President Zardari to the United States and President Obama to Pakistan in 2011 would serve to deepen this relationship.

"We want to create conditions that allow Pakistanis to be healthy and productive", he added.

Regarding Pak-US trade relations, he said that Pakistan enjoys trade surplus with the United States.

In 2009, the United States purchased $3.2 billion of Pakistan's exports and Pakistan bought $1.6 billion of US products.

About Reconstruction Opportunity Zone proposal, he said he was hopeful that the new Congress would pass the legislation in the coming year, 2011.

In any case, the US Embassy and Consulates in Pakistan remain committed to working with Congress to provide market access benefits to help boost Pakistan's export sector.

"We are quite aware that the potential for our relationship is much greater through improving market access than any assistance program we could have", he said, adding that Pakistan must diversify its exports.

Copyright Business Recorder, 2010

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