The story so far: In the face of an unrelenting financial crisis and dwindling foreign exchange reserves, the Pakistani government has come up with measures to save energy and reduce its energy bill. Markets and restaurants will close at 8.30 p.m. and 10 p.m. local time in a bid to save energy. This January 3 decision, intended to save about $274 million, has drawn flak from both market associations as well as restaurants. Also, the production of “inefficient” fans has been banned and government departments are to cut electricity use by 30%.
Why has the Pakistan government taken this decision to save energy now?
Pakistan’s economic crisis could be reaching tipping point. In the year gone by, the country’s foreign exchange reserves dwindled to a little over $9 billion, the rough equivalent of the country being able to pay for six weeks of imports. They hit a low of $5.56 billion in January 2023. Year-on-year inflation stood at 24.5% in 2022. For perishable food items, this number was 55.93%. Other than seeking bailouts, the government of Prime Minister Shehbaz Sharif has been able to do little to stabilise the economic situation, or give relief to the people. The latest decisions appear to be a knee-jerk reaction to growing pressure on the government to “do something”.
Currently, Mr. Sharif’s administration is engaged in negotiations over the delayed release of $1.1 billion from the International Monetary Fund (IMF). In 2019, Islamabad had secured a $6 billion bailout from the IMF. Addressing a press conference on January 4, Finance Minister Ishaq Dar announced that Saudi Arabia and China were all set to shore up Pakistan’s foreign exchange reserves before the end of January.
Will the energy saving decisions achieve the desired results?
According to the BBC, defence minister Khawaja Asif says enforcement of the Energy Conservation Plan will save Pakistan around Rs. 62 billion ($274.3 million). After global energy prices rose last year due to the war in Ukraine, it put more pressure on the economy as Pakistan imports fuel for its power needs.
Traders have refused to close markets by 8.30 pm local time and restaurant associations have said the latest decisions taken by the Shehbaz Sharif government would ruin them. “The real crisis is inflation — the price of flour is around Rs. 140 per kg, chicken meat surpassed Rs. 800, sugar, rice, pulses and ghee and oil are above Rs. 400,” Mohammad Farooq Chaudhry, president of the All Pakistan Restaurant Joint Action Committee, was quoted as saying at a press conference in Islamabad. Traders’ representatives have said they would resort to protests and threatened to not close their shops at 8.30 pm. In an editorial, the Dawn said the energy saving announcements were “homoeopathic remedies” for a country gripped by a “potentially terminal disease”.
Has Pakistan been in this boat before?
Soon after Pakistan conducted its nuclear tests in May 1998, the country’s foreign exchange reserves, already under pressure, shrunk to just over $1.2 billion. The government of Prime Minister Nawaz Sharif, who now calls the shots in the country from London, froze all dollar accounts of ordinary Pakistanis, which had deposits of about $11 billion, as it feared a run on the banks. And then in a bizarre speech, in June 1998, Mr. Nawaz Sharif asked ordinary Pakistanis to give up drinking tea (as they spent Rs. 7 billion on it annually at the time) and rein in the consumption of ghee. The latest decisions appear to follow that line.
What happens now?
Finance Minister Ishaq Dar’s confidence that Saudi Arabia could be one of the countries that might help shore up Pakistan’s foreign exchange reserves may come from the fact that the country’s new Army chief, Gen. Asim Munir, is currently on a visit to Saudi Arabia (and then the United Arab Emirates). In the past, Pakistan’s army leaders have been crucial to ensuring that the Saudis come to the aid of the country at critical times.
However, such aid can’t do much in fixing the direction of Pakistan’s economy and the needs of a population of 220 million. In the long term, Pakistan will have to reduce its defence spending and look to having a long-term robust trade/energy relationship with all its neighbours, especially India, to fix the economy.
