Promotion of renewable energy to reduce impacts of rupee devaluation

January 19, 2023

Financial experts have urged the government to promote renewable energy and local fuel-based power projects to reduce the impacts of rupee devaluation on energy prices in Pakistan by decreasing dependence on imported fuels, WealthPK reports. The experts feared that inflation in Pakistan would increase to 35% if the loan arrangements with the International Monetary Fund (IMF) succeeded. However, they said that the inflation would skyrocket to 70% in case of default. They were addressing the members of the Pakistan Industrial and Traders Associations Front (PIAF). Speaking on the occasion, former finance minister Dr Hafiz Pasha said that the overall economy of Pakistan was likely to remain in the environment of severe stagflation in the year 2023. PIAF patron-in-chief and FPCCI former president Mian Anjum Nisar and PIAF chairman Faheemur Rehman Saigol also addressed the meeting.

Dr Hafiz pasha said that inflation could exceed 35% if the government implemented the key reforms, including the imposition of a levy of Rs50 per litre on petroleum products, a 40% increase in electricity tariff, doubling the gas tariff and shifting to market-based exchange rate policy. “If the government does not implement the agreed reforms, it will lead to the termination of the IMF programme. In this case, there will be a breakdown of economic operations in the country while the rate of inflation can rise to 70%,” he said. The financial expert observed that the artificial exchange rate of the government and the over-value of the rupee were disastrous for the economy. The over-value of the local currency, which has an actual rate of Rs295 against one dollar, has put a negative impact on remittances as well as on exports.

“Our reliance on expansive foreign loans has proven to be disastrous. In the first 65 years, the country’s debt was $65 billion while in the next seven years, the borrowing was doubled to almost $130 billion as we enhanced our speed of borrowing foreign loans at a high-interest rate from commercial banks, which is creating problems in payback,” he said. Speaking on the occasion, Mian Anjum Nisar urged the government to promote renewable energy and local fuel-based power projects to reduce the impact of the rupee devaluation on energy prices in Pakistan by reducing dependence on imported fuels. He said that a reduction in the energy import bill was a must to narrow down the unsustainable trade deficit and current account deficit. He added that the share of energy spiked to a record high of 29% in the overall imports worth $80 billion in the year 2022.

He said that the current economic situation in Pakistan, marred by rapidly depleting foreign exchange reserves, also forced commercial banks to be selective in opening letters of credit (LCs), even for sectors like healthcare. Faheemur Rehman Saigol said that on the occasion that short-term and long-term policies would have to be devised to improve the economy. He said that Pakistan was endowed with immense cheap indigenous energy resources, including hydel and renewable energy like wind and solar, waste and biodiesel, etc., which needed the commitment to be exploited. He called upon the government to develop an indigenous base of renewable technologies in Pakistan for tapping those energy resources so that the country could meet its growing energy needs comfortably.

“The country is facing chronic socioeconomic woes due to politically-motivated economic policies. The reserves are not sufficient to cover imports for a month. All economic indicators are negative,” said Rehman Saigol. Responding to a question, Dr Hafiz Pasha said that the decision to take more loans would keep complicating the problems in the longer term. He said that the government needed $23 billion in foreign debt repayments for the current fiscal year. “All the problems of the country can be solved only when the political and economic leaders sit together with good intentions and sincerity to come up with the best economic model to get the country out of the current financial crisis,” he said, according to a press release received by WealthPK.

Credit : Independent News Pakistan-WealthPk