Muneeb ur Rehman

Energy prices play a major role in determining the inflation level in Pakistan. However, rising inefficiencies in the energy sector are pushing up general prices, thereby underscoring the need for reforms in the sector. Talking to WealthPK, Liaqat Ali Shah, Executive Director of CPEC Centre of Excellence, Peshawar, said that the high expenses associated with energy production in the country due to inefficiencies were responsible for numerous economic challenges, notably inflation.

As mentioned by the latest economic survey, the headline inflation, measured by the Consumer Price Index (CPI), was recorded at 28.2% during the July-April period of the financial year ending on June 30, 2023, as against 11% over the same period of the previous fiscal. Ali mentioned a few outcomes resulting from inefficiencies in the energy sector. "The power sector in Pakistan has long been grappling with circular debt – where the government owes money to power producers – leading to financial instability and hampering the ability to invest in the energy infrastructure," he pointed out. He added that the power transmission and distribution networks in Pakistan were experiencing high losses, both technical and non-technical, leading to a waste of generated electricity.

"This results in a high cost of electricity that has eventually a spillover impact on the cost of goods produced in industries." In order to reduce inefficiencies, Ali suggested the government issue directives to private enterprises to adopt solar energy for their buildings. "Additionally, initiating cost-effective energy production through the public-private partnership model is essential." "The predominant factor driving energy-related inflation is the reliance on thermal energy sources. The nation's limited domestic resources for thermal energy generation necessitate the costly import of petroleum products, exacerbated notably by the devaluation of the Pakistani rupee against the US dollar," he asserted.

While discussing the impact of inefficiencies in the energy sector on exports, he said: "The escalation of energy-related inflation within the country results in a significant rise in the prices of our goods in the international market. This phenomenon can be attributed to the substantial impact of energy expenditures, which constitute a significant component of the overall cost structure across various industries." In a nutshell, increasing inefficiencies within the energy sector are causing a surge in overall prices, emphasising the necessity for introducing reforms in the same sector.

Credit: INP-WealthPk