Pakistan continues to struggle with a major economic and energy crisis, prompting the government to announce new energy conservation measures last week. A combination of rising inflation, the global energy crunch and a series of devastating natural disasters has put the country on the brink of an economic collapse.
While Pakistan’s economy has been struggling for some time, the war in Ukraine and the resulting energy supply shockwaves have exacerbated the situation.
Pakistan relies almost entirely on imported fuel, including liquefied natural gas. And as Russia is the world’s biggest exporter of gas, they’ve been feeling the pressure with gas prices skyrocketing worldwide.
These high gas prices, a lack of alternative energy sources and hot weather conditions have led to waves of power outages in Pakistan over the last year.
Heatwaves starting in March raged for months across the South Asian region, putting power grids under extreme stress as people turned to fans and air con to cope. Swaths of Pakistan experienced lengthy power cuts – with urban centres facing load sheddings of 6-10 hours, while rural areas saw outages of up to 18 hours a day.
Unfortunately, the heatwave was only the start of Pakistan’s natural disasters, as the nation was then ravaged by floods in the period June-October. Over a third of the country was submerged, causing the deaths of 1700 Pakistanis and the displacement of 8 million.
By October, the World Bank estimated that the floods had inflicted $40 billion worth of damage to the nation.
A sliver of hope has emerged with recent pledges by a number of countries to fund Pakistan’s post-flood rebuilding efforts, with billions of dollars worth of aid pledged in Geneva this week.
Still, going into 2023 reeling from one catastrophe after another, Pakistan’s economic situation is dire. Foreign exchange reserves now barely cover a month of imports, dwindling to less than half of what they were a year ago – an eight-year low.
On the other hand, inflation has soared to a decade-high of 25%, with staple food items becoming unaffordable to many citizens. The price of wheat – another major export of both Russia and Ukraine – has risen by 57%.
Pakistan’s government has turned to a raft of energy conservation measures to try and mitigate the economic damage.
Last week, they ordered all markets to close by 8.30pm, and restaurants by 10pm. This comes after they tried shortening the working week last year, and ordering more employees to work from home in an effort to shrink national energy consumption.
Ultimately though, Islamabad is hoping for financial aid from its allies, especially Saudi Arabia and China. The Saudi Fund for Development seems set to look into increasing its deposits to Pakistan’s central bank from $3 billion to $5 billion, and Pakistan plans to seek an extension to a $2.1 billion loan from China in March.
Progress on a stalled $1.1bil bailout tranche from the IMF is also desperately needed. Islamabad has been locked in disagreements with the organisation over reforms the IMF is requiring to release the money – a review process that should have been completed in November.
As PM Shehbaz Sharif has expressed, “We are racing against time.”
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