Pakistan Economy and Energy

By | December 18, 2021

Economy

The precarious security conditions that characterize the country represent a structural factor that negatively affects the possibilities for economic growth, especially as regards the ability to attract investments for infrastructure projects. An exception in this field is China, which has allocated 46 billion dollars for the construction of the China-Pakistan Economic Corridor (Cecp). The Corridor, which connects the port of Gwadat in Pakistan with the Chinese province of XinJiang, would offer Beijing an alternative route to the Strait of Malacca for its trade. China is also the first partner for Pakistani imports, followed by the United Arab Emirates (UAE), Saudi Arabia and Kuwait, from which Pakistan buys oil. Beijing is the second instead of Islamabad partners in terms of exports, preceded by U know and followed from Afghanistan. The United States is also confirmed as a key economic partner for Islamabad, despite a foreseeable decrease in aid following the withdrawal of international forces from Afghanistan. For Pakistan 2017, please check mathgeneral.com.

Pakistan has the ambition to become a transit corridor between the Middle East area and Central and South Asia, but to achieve this goal it must face the structural gaps which, beyond political instability, mainly concern the inefficiency of infrastructure. The railway network has not grown since 1998 and 96% of goods travel by road. Although investments have been made in the road link system, motorways make up only 4.2% of the total. However, 90% of transport takes place on the motorway and this makes clear the need for an expansion of the infrastructures, above all because the population, already very large, continues to grow at an annual rate of around 1.6%.

International aid and remittances – which amounted to $ 17 billion in 2014 – represent two of the main items of the Pakistani economy. However, they are not sufficient to compensate for serious structural problems. In addition to the aforementioned lack of infrastructure, another serious problem that heavily affects the Pakistani economy is the chronic lack of electricity, also due to the inability to rationalize tariffs, which remain too low compared to the costs of producing electricity.

The country’s economic structure still appears to be very unbalanced in favor of the primary sector, on which about two thirds of the population depend, despite the contribution to GDP is just over 25%. The industrial sector is the least developed: almost totally dependent on the textile sector, it suffers as much from competition from China as from the frequent periods of drought and floods that put a strain on cotton crops. The service sector, on the other hand, contributes 53% of GDP ; Pakistan has its own excellence, albeit still developing, in the field of information technology.

To partially revive the economy, Islamabad is relying on an ambitious reform program. In September 2013, the International Monetary Fund (I mf) has given the green light to a financial assistance program worth $ 6.6 billion which will be completed in 2016, aimed in part to support the balance of payments Pakistani, burdened by shortage of foreign currency in national coffers. Among the conditions set by the MF for the loan are the reduction of the deficit, fiscal consolidation, the liberalization of the rules on inward foreign investment and the launch of a serious privatization program. Islamabad is working to carry out the reforms requested by the IMF. The deficit actually decreased, going from 8.2% of GDP in the fiscal year 2012/2013 to 5.5% of GDP in the fiscal year 2013/2014. In June 2014, the government launched a privatization program involving the sale of shares in state-owned companies such as United Bank and Pakistan Petroleum. However, the process is extremely slow, due to the prevalence of vested interests. Also in the field of agriculture dominates an oligopoly of owners, linked to the power elites and interested in maintaining the status quo, which hinders the path of reforms.

Energy and environment

The Pakistani energy mix is very composite, but for more than 50% it depends on hydrocarbons: among these, 31% is represented by natural gas and about 25% by oil. With growing oil demand but limited production capacity, Pakistan is forced to import around 350,000 barrels a day, mostly from Saudi Arabia. This causes the country’s economy to suffer from the price of oil on the international market: when this rises, the repercussions on the balance are inevitable.

As for natural gas, the goal is to increase imports from both the Gulf countries, in particular Qatar, and Central Asia. Pakistan is also at the center of two regional gas pipeline projects, which for geopolitical reasons have been, and still are, the subject of controversy. The first is the so-called ‘peace pipeline’, used to transport natural gas from Iran to India. The plant would pass through Pakistan (Iran-Pakistan-India, Ipi), where 7.5 billion cubic meters per year of the 40 transported would be marketed. While the Iranian section has already been almost completed, work on the Pakistani section is struggling to take off. To weigh, in addition to the pressure from Washington to make Islamabad follow the Indian example and abandon the project, there is the scarce availability of funds in the Pakistani coffers. The second regional infrastructure project involving Pakistan is the Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline, which would ensure gas from Caspian extraction. The project, supported by the USA and from the Asian Development Bank in the perspective of stabilizing Afghanistan and bypassing Iran, could allow a total flow of 33 billion cubic meters per year, half of which will go to Pakistan. Here the possibility of building liquefaction terminals along the coast is being studied which would allow Islamabad to activate export flows of the resource. The big unknowns linked to the precarious security conditions in Afghanistan, however, actually remove the possibility of realizing the project.

Being one of the most populous countries in the world, Pakistan has a very high and constantly growing demand for electricity. Electricity production is one of the biggest problems for the country: against a growth in demand of more than 9% per year, electricity production grows by only 0.6% on an annual basis and still today around 40 % of the population does not have access to electricity, a share that in rural areas reaches 60%. The electricity distribution network is also not efficient and waste amounts to about a quarter of the total. Due to the scarce availability of electricity there are frequent interruptions in the supply of electricity, not always planned.

Pakistan gas pipeline