I delivered a lecture before a graduation class in Hamdard University on December 15, 2021, which as per my understanding, was a private gathering. However within hours of that lecture some footage of my lecture was on the national media. The theme of my lecture was the past, present and future of the Pakistan economy from 1970 to 2020. The half century. One of the slides in the presentation that is being quoted everywhere in Pakistan stated as under:
“•The entity is bankrupt, and the shop is not a going concern.
• For a state, this is not a problem; restructuring will correct it, surgery is required.”
It is highly unfortunate that the first line was picked up without referring to the second line where I have stated that aforesaid principles have to be differently applied in the case of a state. The first word “bankruptcy” in this sense means that Pakistan’s foreseeable foreign exchange account will not be able to service the present liabilities and more loans will be required to repay the present loan. In other words, I do not see the current account to be positive in the following decade if the fundamentals of exports and imports remain the same. This is not a desirable and sustainable position and every new loan will have tougher conditions with continuous deterioration in the exchange rate against USD. There is no place to be complacent. Unless we restructure the basic framework of our economy and society there will be a continuous deterioration of exchange rate, ultimately leading to rising inflation and no investment in sustainable employment for the people. As stated in my speech the worst year in this respect was 2018 when the trade deficit reached a level of USD 34 billion. There were comparatively better years in 2019 and 2020; however, the signs in 2021/2022 are not good. There is an expected current account shortfall of over USD 10 billion. This is not a good sign for the current year and years to come. My discussion at the university and in this paper is not about short-term and immediate solutions. The emphasis is on a long term sustainable solution to get Pakistan out of these ‘bailout’ packages after every five to 10 years. In my view, a bailout is extended to an entity which is not able to generate enough resources on its own.
In my view, there has not been proper emphasis on import bills in Pakistan. In the past, we tried to manage the import bills by levying duties and providing protection to industries which at times are inefficient per se. There is a need to zero base the analysis of the import sector.
The first item that needs a serious review is the energy import. This includes oil, coal and RLNG. The ground reality is that this energy import is made for (i) generation of electricity, (ii) transport activities and other purposes in commerce and industry. For the past two decades Pakistan is becoming more and more reliant on import of oil or coal for power generation. This has been the result of the fact that there has been no substantial development in any hydel power after Mangla and extension of Tarbela dams. During the peak seasons we require around 24,000MW at the existing level of industrial output. A very large part of that generation is made from imported fuel. In addition to other factors, it is also a fact that there are average line losses of over 10% in the system which have not been reduced in the past decades. This means that the cost of around 2400MW does not add anything to the national economy. This is not a sustainable situation. The solution is immediate privatisation of Discos with very restrictive conditions that their profitability will be based on reduction in line losses. The present system of operating Discos is immensely injurious to the economy.
The second aspect is the national campaign for the conservation of energy. In Pakistan, we do not see any move to reduce the unnecessary consumption. In our country, almost all the city’s markets open by 11am and a large number of these shops remain open even beyond 10 pm. There is enough use of daylight. This uncivilized manner should be immediately shunned and all markets should mandatorily be closed before sunset.
In addition to the same, there is no movement or national energy for reducing the consumption of energy for private transports. There has been a trend in the recent past for the use of four-wheelers in the city. Pakistani cities may be unique in the sense with the number of four-wheelers in the city. The use of such vehicles increases the overall consumption of our oil bill. It is strongly suggested that special motor vehicle tax be levied on all four-wheelers to compensate for the cost of expensive energy. Pakistan would have to decide whether it can as a country afford to provide luxuries to few elites at the cost of constant increase in the cost of living of middle and poor classes.
Another big problem in Pakistan is wastage of gas as a domestic fuel at very low rate even for the consumption in big quantities. In order to save the fuel it is recommended that there should be a reasonable increase in the rate of gas for home consumption above a certain level of use.
The countries that are deficient in energy have increased their exportable surpluses and have established their industrial base in coastal areas. In Pakistan, there is a concentration of exportable goods industry upnorth. This requires the cost of transportation of fuel from the port to around 1000 miles in the north. It is, therefore, strongly suggested that there should be focus in establishing exportable surplus industries in coastal areas to reduce the unnecessary cost of transport of energy to those areas and then ferrying the products from there to the coast. China is a big country however it has developed its exportable surplus activities in its coastal areas. This is an essential economic policy issue for Pakistan.
(To be continued)
Copyright Business Recorder, 2021