People visit a market for shopping in Lahore on January 4, 2023. Pakistani authorities have ordered malls and markets to close until 8:30 p.m. as part of a new energy-saving plan aimed at easing Pakistan’s economic crisis. The move comes amid talks with the International Monetary Fund. | Photo credit: `
The story so far: In the face of an ongoing financial crisis and dwindling foreign exchange reserves, the Pakistani government has developed measures to save energy and reduce energy costs. Markets and restaurants close at 20:30 and 22:00 local time to save energy. This Jan. 3 decision, which is expected to save about $274 million, has drawn criticism from both market bodies and restaurants. In addition, the production of “inefficient” fans has been banned and government agencies are to reduce electricity consumption by 30%.
Why did the Pakistani government make this decision now to save energy?
Pakistan’s economic crisis could reach a turning point. Last year, the country’s foreign exchange reserves shrank to just over $9 billion, roughly equivalent to the country could pay for imports for six weeks. They bottomed out at $5.56 billion in January 2023. Annual inflation was 24.5% in 2022. For perishable foods, that figure was 55.93%. Aside from seeking bailouts, Prime Minister Shehbaz Sharif’s government could do little to stabilize the economy or help the populace. The recent decisions appear to be a knee-jerk reaction to mounting pressure on the government to “do something”.
Currently, Mr Sharif’s government is in negotiations over the delayed release of $1.1 billion from the International Monetary Fund (IMF). In 2019, Islamabad received a $6 billion bailout from the IMF. At a January 4 press conference, Finance Minister Ishaq Dar announced that Saudi Arabia and China were ready to support Pakistan’s foreign exchange reserves before the end of January.
Will the energy-saving decisions produce the desired results?
According to the `, Defense Minister Khawaja Asif says the implementation of the energy saving plan will cost Pakistan around Rs. 62 billion (US$274.3 million). After global energy prices rose last year due to the war in Ukraine, this put more pressure on the economy as Pakistan imported fuel for its electricity needs.
Traders have refused to close markets until 8.30pm local time and restaurant associations have said recent decisions by Shehbaz Sharif’s government are bankrupting them. “The real crisis is inflation – flour price is around Rs. 140 per kg, chicken surpassed Rs. 800, sugar, rice, legumes and ghee and oil are over Rs. 400,” said Mohammad Farooq Chaudhry, President of All Pakistan Restaurant Joint Action Committee, quoted at a press conference in Islamabad. Dealer representatives have said they will resort to protests and have threatened not to close their shops at 8.30pm. In an editorial, The Dawn said the energy saving announcements were “homeopathic remedies” for a country stricken with a “potentially incurable disease”.
Has Pakistan been in this boat before?
Shortly after Pakistan conducted its nuclear tests in May 1998, the country’s already strained foreign exchange reserves dwindled to just over $1.2 billion. The government of Prime Minister Nawaz Sharif, who now runs the country from London, froze all dollar accounts of ordinary Pakistanis with deposits of around 11 billion dollars because they feared a run on the banks. And then in June 1998, in a bizarre speech, Mr. Nawaz Sharif urged ordinary Pakistanis to give up drinking tea (since they were spending Rs. 7 billion a year on it at the time) and cut down on ghee consumption. Recent decisions seem to follow this line.
What’s happening now?
Finance Minister Ishaq Dar’s confidence that Saudi Arabia could be one of the countries that could help shore up Pakistan’s foreign exchange reserves may reflect that the country’s new army chief, General Asim Munir, is currently visiting Saudi Arabia (and then the United Arab Emirates). In the past, Pakistan’s army leaders have been instrumental in ensuring that the Saudis come to the country’s aid at critical times.
Such aid, however, can do little to dictate the direction of Pakistan’s economy and the needs of a population of 220 million. In the longer term, Pakistan needs to reduce its defense spending and strive for a long-term stable trade/energy relationship with all its neighbors, especially India, to stabilize the economy.
Comments are closed.