Power price hike

Published July 17, 2023

PAKISTAN’S business community is dismayed over yet another increase of Rs4.94 per unit in electricity prices. The new hike pushes the base unit power tariff from Rs24.82 to Rs29.78. Businesses are worried that the fresh hike will adversely hit their competitiveness by spiking their costs, making them a lot more expensive both for domestic consumers and foreign buyers.

With the economy reeling because of the balance-of-payments crisis, high energy prices and soaring inflation, several industries have shut down or slashed production to reduce costs.

The expected recovery in manufacturing after the IMF-mandated tariff increase may remain elusive at least in the near term. It is a dilemma for the government.

On the one hand, it has to meet the conditions of the new, short-term $3bn IMF programme needed to avert default and improve Pakistan’s debt repayment capacity over the next several months. On the other, it is under tremendous pressure to revive industrial activity for economic growth and job creation.

The Stand-by Arrangement stipulation to produce a primary budget surplus of 0.4pc this financial year has restricted fiscal space as well as the government’s ability to continue financing massive power tariff price losses beyond a specific threshold to prevent power sector debt from increasing more rapidly than it already is.

Indeed, the business community has a point when it holds successive governments’ failure to execute long-standing politically unpopular and tough structural reforms responsible for Pakistan’s economic predicament.

For example, we have increased power tariffs multiple times over the last several years but still cannot contain the growth in circular debt. It is because no government has had the political will to fix the distribution losses, recover bills from powerful defaulters and control theft.

Businesses are spot on when they emphasise that we seem content with managing the symptoms rather than addressing the causes of the ailment. The increase in power tariffs will not only hurt businesses but also every citizen as electricity becomes more unaffordable and the hike unleashes a new round of inflation.

The question is, what other options did the government have? Many. For starters, it could have designed a framework to fix the deep-rooted energy sector to cut losses, taxed undertaxed sectors — real estate, retail and agriculture — to bridge the fiscal gap, and launched a credible privatisation plan to offload lossmaking public sector businesses like PIA to reduce pressure on the budget.

But it didn’t. That shows the weak resolve of our politicians and policymakers to stick to reforms. No wonder the IMF Board has communicated its concerns over Pakistan’s poor track record in fulfilling its commitments to the Fund, and advised the authorities to complete the new programme. As the lender has warned, this is Islamabad’s last chance to improve its poor track record on reforms.

Published in Dawn, July 17th, 2023

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