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The new government faces the daunting challenge of navigating its complex economic landscape. The country’s foreign debt, while seemingly modest at US$124.5 billion or 42 percent of its GDP as reported by the State Bank of Pakistan in mid-2023, belies an undercurrent of fiscal strain.

The crux of the dilemma lies in the country’s foreign exchange earnings, which fall short of bridging the gap between export revenue and import costs. The previous fiscal year saw a current account deficit of US$30.5 billion, a gap only narrowly closed by the remittances from the Pakistani diaspora and further borrowing on the international front.

On the domestic front, internal economic challenges have thwarted efforts to boost export earnings in 2024. The textile industry, a cornerstone of Pakistan’s exports, has been particularly hit, with surging electricity costs leading to widespread mills closures and a dip in export production throughout 2023. Regulatory measures aimed at stabilising the currency have had the unintended consequence of dissuading overseas Pakistanis from utilizing official remittance channels.

In the face of static export earnings, the government’s most pressing priority is to catalyze exports through economic stability and growth. This is where the country’s energy consumption patterns emerge as both a challenge and an opportunity.

The sectors of industry, transport, and residential living have experienced notable shifts in their energy demands over the past two decades.

A discernible rise in energy consumption within residential areas, a sector that traditionally does not feed directly into economic productivity, calls for a strategic reallocation of energy resources. The following graph illustrates the need for an energy paradigm shift towards sectors that promise to revitalize the national economy.

The confluence of findings from academic literature on global energy consumption offers a robust framework for Pakistan’s energy policy.

The examination of OECD countries’ energy use illustrates the impact of economic activities on energy demands and highlights the potential for energy efficiency to mitigate these demands. The study on developing countries’ energy growth factors emphasizes the significance of balancing economic development with efficient energy use, pointing to a sustainable path forward.

Additionally, the investigation into major energy-consuming countries offers a blueprint for Pakistan, indicating that comprehensive energy efficiency and the transition to renewable sources are key to achieving a more sustainable energy footprint.

Lastly, the comparative analysis of energy consumption patterns across different regions spotlights the need for developing countries, including Pakistan, to stimulate growth in the industrial sector for socioeconomic development, shifting away from a reliance on the residential energy use which characterizes less developed economies.

Comparatively, the case of Vietnam stands out. Once marred by similar challenges, Vietnam has dramatically shifted its energy utilization towards manufacturing and technology sectors, resulting in an impressive average annual GDP growth rate of over 6% in the last decade.

This rechanneling of energy has been fundamental to its emergence as a manufacturing hub in Southeast Asia. The spotlight was on the industrial sector, which grabbed more than half of the country’s energy use, showing its key role in driving economic growth.

On the other hand, in 2020, its energy use in transportation dipped, likely because the pandemic kept people from traveling, hinting at a chance to move energy use towards more productive activities. Also, the slight rise in energy used by households suggests an opportunity to shift some energy use to boost the economy.

Vietnam made impressive progress in industrial, agricultural, and services sectors. It was the result of broad-based economic transformation, which opened the Vietnamese economy to international markets and foreign trade. Global exports of Vietnam have surpassed $370 billion, while its global imports have crossed $358 billion.

We have a lot to learn from the Vietnamese economic model, which underscores the importance of integrating into the global economy and leveraging sectors that can drive substantial economic growth.

Bangladesh’s journey towards greater energy efficiency is evident through strategic investments in energy-intensive industries, such as the textile sector, which now remarkably accounts for around 80% of the country’s export earnings. This deliberate push has seen the industrial sector’s energy consumption rise, catalyzing a boost in economic activity and job creation.

The shift in energy use reflects a broader economic transformation, where energy previously utilized for less productive means is now powering sectors that directly enhance the country’s GDP and export capabilities.

Furthermore, an analysis of Bangladesh’s gas consumption paints a clear picture of prioritized resource allocation: about 40% is directed to the power sector, with industry and captive power following closely. This judicious distribution of energy resources, favoring industrial over non-productive use, contributes to a higher energy to GDP conversion rate, setting a commendable example in the region. Such deployment of energy should serve as a blueprint for Pakistan.

The energy intensity graph, which measures primary energy consumption per unit of gross domestic product (GDP) in kilowatt-hours per dollar, illustrates the economic efficiency in Vietnam, Pakistan, and Bangladesh. Vietnam exhibits an ascending line, indicating rapid industrialization and economic growth accompanied by increased energy usage per unit of GDP. This suggests a phase of development characterized by heavy industry expansion.

Conversely, Pakistan and Bangladesh maintain lower energy intensities. Bangladesh’s prioritized resource allocation strategy contributes to its superior energy efficiency compared to regional counterparts. The declining energy demand within Bangladesh’s industrial sector reflects greater energy efficiency in industrial processes, bolstering the country’s overall energy performance.

While Vietnam’s model of industrial growth is enviable, it argues for a strategic approach in Pakistan: emulating Vietnam’s aggressive economic development while concurrently investing in energy efficiency technologies and practices. This dual focus would ensure that Pakistan’s economic growth, powered by increased energy use in productive sectors, does not come at the cost of environmental sustainability or long-term economic viability. It’s about finding a balance between the necessary energy consumption for growth and the efficient use of energy to ensure that every kilowatt-hour contributes as much as possible to Pakistan’s GDP.

Tailored energy policies are imperative, with Pakistan’s current trajectory pointing towards a higher proportion of renewable energy in its power mix and the adoption of energy-efficient practices. Measures such as implementing minimum energy performance standards (MEPS) for appliances and promoting renewable energy alternatives are crucial steps towards enhancing energy efficiency in the residential sector and thereby lowering household costs and making valuable energy for industrial use.

Similarly, attention to the transport sector, through the adoption of electric vehicles and improvement in public transport infrastructure, can bolster energy productivity while mitigating environmental impacts.

However, realizing this vision necessitates policy synchronization, requiring coordinated efforts across ministries and sectors. Revamping outdated policies, incentivizing renewable energy adoption, and implementing stringent energy efficiency standards are vital steps towards achieving energy resilience and economic prosperity.

Pakistan’s journey towards economic revival through productive energy use is both a challenge and an opportunity. By drawing lessons from Vietnam and Bangladesh, Pakistan can navigate towards a brighter economic future, where energy is not merely consumed but harnessed as a catalyst for growth and development. The path forward is clear: strategic energy reallocation, coupled with a focus on efficiency and sustainability, will energize Pakistan’s economy, driving it towards prosperity and resilience.

Copyright Business Recorder, 2024

Author Image

Shahid Sattar

PUBLIC SECTOR EXPERIENCE: He has served as Member Energy of the Planning Commission of Pakistan & has also been an advisor at: Ministry of Finance Ministry of Petroleum Ministry of Water & Power

PRIVATE SECTOR EXPERIENCE: He has held senior management positions with various energy sector entities and has worked with the World Bank, USAID and DFID since 1988. Mr. Shahid Sattar joined All Pakistan Textile Mills Association in 2017 and holds the office of Executive Director and Secretary General of APTMA.

He has many international publications and has been regularly writing articles in Pakistani newspapers on the industry and economic issues which can be viewed in Articles & Blogs Section of this website.

Comments

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Az_Iz Apr 01, 2024 07:34am
Excellent article.percentage of Residential energy consumption in Pakistan is ridiculously high.Increase tarrifs for residential consumers and use the money to reduce tarrifs for industry.
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Az_Iz Apr 01, 2024 07:37am
End cross subsidies for energy.Industry need not have to pay for it.
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Az_Iz Apr 01, 2024 07:39am
In Pakistan nearly half the electricity is used by households,in India it is 8%.People want retail stores to be open past midnight.Cannot support these ridiculous habits,when the country has no money.
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Az_Iz Apr 01, 2024 07:43am
Increase the enegy prices for residential customers,to bring sanity to consumption.Use the money to reduce tarrifs for industries.16 cents per unit,for industries is quite high. NO to cross subsidies.
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KU Apr 01, 2024 11:56am
True, but the pain is theft by robber barons and at behest of officials, and people have to pay for their discretions. Think food security, agriculture cannot afford high costs of electricity.
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KU Apr 01, 2024 12:25pm
@Az_Iz, you mean, kill the already injured consumers who face inflation and unemployment or maybe it's there problem while state is not responsible for chaotic economy or there welfare.
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Az_Iz Apr 01, 2024 06:46pm
@KU,in India 47% of electricity is used by industry,and 8% by households.In Pakistan 45% is used by households.Ridiculous. Everyone wants subsidies,so they can keep consuming.There is no money to pay.
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Az_Iz Apr 01, 2024 06:50pm
@KU,per capita income in Pakistan is less than India and Bangladesh,but food per capita is 20% higher.People want subsidies to keep consuming and complaining.
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Az_Iz Apr 01, 2024 06:54pm
@KU,compared with India and Bangladesh,income in Pakistan is less.But food consumption,electricity consumption by households is way higher.
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Az_Iz Apr 01, 2024 06:56pm
@KU,people want subsidized food,electricity,gas and petrol.Retail stores should stay open past midnight.Dishes must be prepared soaking inch deep in oil.Tea made with only milk,no water.Who will pay?
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Az_Iz Apr 01, 2024 07:08pm
@KU,walk into a Pakistani restaurant.Almost all dishes are meat based,soaking in oil.Indian restaurant,almost half are vegetarian with less oil.Habits have to change,towards savings,from consumption.
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KU Apr 01, 2024 07:09pm
@Az_Iz, all the comparisons you give are the result of steady Indian economic policy, ours is exactly the opposite. Penalizing consumers while ignoring theft n greed by officials is ridiculous.
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KU Apr 01, 2024 07:49pm
@Az_Iz, Electricity consumption in India is industry 37.7%, households 21.7% and US industry 19.9%, household 37.4% and UK industry 18.3%, household 39.1 % defies the point, yet they excel.
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Az_Iz Apr 01, 2024 09:18pm
@KU,the point is,the people and the country have to be frugal , nimble, and progress.Consumption can follow.It cannot be in front. Saving and investing is more important than consumption.
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Az_Iz Apr 02, 2024 07:03am
@KU,wikipedia says India household is 8%,Pakistan 48%.US & UK are done with energy intensive industries,e.g hardly any textile industry.They are service oriented,high tech and knowledge base economies
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Az_Iz Apr 02, 2024 08:28pm
@KU,correction.Latest wikipedia say India residential use is 25%. But Pakistan at 47% is still high.Industry in Pakistan is almost flipped at 28%, compared with India at 48%.
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