First the bad news: our current deficit has risen from $3.1 billion in 2013-14 to over $18 billion. The circular debt in the electricity sector stands at over Rs1,200 billion, of which Rs500 billion is a carry-over from the PPP government and the remaining came from the PML-N government.
Yes, the cost of generating electricity is high. Yes, the transmission and distribution losses are high. Yes, electricity theft is rampant. And yes, there have been massive kickbacks.
Over the short term, the PTI government would now have to pay for all the losses plus the kickbacks. And for that to happen, electricity rates would have to rise. This essentially amounts to paying for past sins. Over the medium-to-long term, the challenges include: reducing the cost of generating electricity; reducing transmission and distribution losses; and bringing down theft. Question: Is the PTI government up to it? Answer: Only time will tell.
Another piece of bad news: the circular debt in the gas sector now stands at around Rs370 billion, most of which has come up during the five years of the PML-N government. Unaccounted for gas (UFG) – a euphemism for theft, plunder, leakages and metering errors – used to be seven percent back in 2001. UFG has since shot up to over 15 percent or 500 million cubic feet of gas per day every day of the year (the internationally acceptable level for UFG is around three percent).
Over the short term, the PTI government would have to pay for all the past theft, plunder, leakages and metering errors. And for that to happen, gas tariff has already been raised. This essentially amounts to paying for past sins. Over the medium-to-long term, there are serious challenges. Question: Is the PTI government up to it? Answer: Only time will tell.
Now the good news: moving forward there’s a comprehensive, well-thought-out strategy in place. The first component of that strategy is the focus on exports. Since two-thirds of our exports are cotton-related, the government has decided to introduce a separate gas tariff for the textile value chain. The Economic Coordination Committee of the cabinet has amended the natural gas load management policy for five zero-rated export sectors (textile, carpets, leather, sports and surgical goods). In return, Adil Bashir, the newly-elected chairman of the All Pakistan Textile Mills Association Punjab, has assured that the “textile industry’s closed capacity would be revived within six months”.
The second component of the strategy is the use of the housing sector as a growth-driver. According to the World Bank’s ‘Pakistan Housing Finance Project’, “the estimated housing shortage in Pakistan is up to 10 million units and the deficit continues to grow”. This massive pent-up demand for housing has the potential of unleashing a potent growth-driver in at least three-dozen other related industrial sectors. This is happening in Egypt, Kenya, Nigeria and South Africa. Imagine: the mortgage-to-GDP ratio in Pakistan is 0.25 percent while in India it stands at 11 percent, in Malaysia it amounts to 33 percent and in the US it stands at 80 percent. If it can happen in India, then why not in Pakistan? The World Bank has already shown interest in a billion-dollar mortgage liquidity facility.
The third component of the strategy is to attract non-debt creating capital inflows – including foreign direct investment, channelling around $20 billion in remittances through banking channels and tourism. Where we went wrong over the past five years is that the PML-N government relied almost exclusively on debt-creating capital inflows.
The writer is a columnist based in Islamabad.
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