Amir Khan

With its heavy reliance on energy imports and limited foreign exchange reserves, Pakistan faces a daunting challenge in managing its debt burden and ensuring sustainable economic growth, said a senior member from the Ministry of Energy while taking to WealthPK. As per Dr. Ahsan Satti, an economic researcher at the Pakistan Institute of Development Economics (PIDE), there has been a notable increase in the overall debt and liabilities, reaching a total of US$125.7 billion, out of which the government's direct debt to the international and bilateral creditors stands at US$96.3 billion. Over the next three years, Pakistan is faced with the challenge of repaying debts exceeding US$77 billion.

Considering the country's population of 230 million and a GDP of US$376 billion, the scale of this debt is considerable requiring urgent attention, he said. A major concern contributing to Pakistan's debt crisis is the soaring import of petroleum products, including liquefied natural gas (LNG) and liquefied petroleum gas (LPG). As per an economic survey, the petroleum product imports increased 18% from July 2022 to April 2023, valuing around US$14 billion compared to the previous fiscal year, Satti added. The transportation sector, which consumed approximately 78% of 11.3 million tons of petroleum products utilized during this period, is the primary driver of this demand.

Research conducted at the PIDE reveals that the demand for petroleum products in the transportation industry remains largely unaffected by changes in income or price, with the demand elasticity consistently below 0.36, he elaborated. “In order to reduce oil consumption in the transportation industry, the government should adopt policies like the Philippine government which applied strict rationing of petrol for government officials, resulting in reduced consumption. This approach led to an approximate 8% decrease in petroleum product consumption over two years and could serve as a model for the entire nation,” he suggested. LNG imports also contribute significantly to Pakistan's energy import bill, amounting to US$745.9 million from July to April in FY2023.

Shutting down LNG facilities is not a viable option due to long-term contracts and capacity payments tied to power plant usage, which accounts for over 60% of LNG consumption, he added. Dr. Satti highlighted that Pakistan was currently facing a critical situation characterized by significant challenges, including substantial energy imports, elevated debt levels, and limited foreign exchange reserves. To effectively address this crisis, he suggested that the government should adopt a series of strategic reforms like strict petrol rationing for officials, rationalizing gas pricing, and holding distribution companies accountable. Such actions are crucial to mitigating circular debt and enabling the country to navigate these challenges.

Credit: INP-WealthPk