Pakistan’s electricity supply companies inflicted a staggering Rs660 billion loss on the national exchequer during the fiscal year ending June 30, 2024, according to a recent report by a recent report. To put this into perspective, this loss is 11 times the federal government’s Rs59.7 billion budget for higher education last year. This stark comparison underscores the severe structural flaws in the country’s power sector.
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The inefficiencies of electricity supply companies are draining national resources, reducing the government’s ability to invest in the economic well-being of Pakistan’s 241 million citizens. Despite ongoing power sector reforms, policymakers admit that eliminating such losses remains an uphill task in the near future.
These inefficiencies create a cascading effect on the economy, contributing to mounting circular debt, shrinking fiscal space, and frequent energy price hikes. The result is a significant reduction in industrial production, higher costs of goods, and prolonged power outages.
Impact on SMEs and IT Professionals Small and medium enterprises (SMEs), shopkeepers, and IT freelancers are among the worst hit by the power sector’s inefficiencies. Reliable electricity and internet services are critical for IT professionals who work from home or small offices, contributing valuable foreign exchange. However, persistent power outages and internet disruptions are driving many to relocate abroad.
As of December 2024, Pakistan ranks 198th globally in internet speed, lagging behind countries like Palestine, Bhutan, and Libya, according to the World Population Review. These challenges have led many IT professionals to move to nearby hubs like Dubai in search of better infrastructure.
Without accelerated power sector reforms and reliable internet services, Pakistan risks losing its IT talent and undermining its export-oriented businesses’ competitiveness in global markets. High energy costs further exacerbate these challenges, threatening the growth momentum of exports.
Export Growth Amid Rising Deficits In the first five months of FY2024-25 (July-November 2024), goods exports rose by 12.57% to $13.69 billion, while services exports increased by 7.91% to $2.6 billion (July-October 2024). However, sustaining this growth is crucial to narrowing the trade deficit.
During this period, the goods trade deficit stood at $8.65 billion, with imports growing by only 3.9% year-on-year. But as the economy recovers and fuel prices rise amid instability in the Middle East, imports are likely to increase, further straining the trade deficit.
The services trade deficit totaled $993 million (July-October 2024), with imports rising 2.41%. With the economy projected to grow by 3% this fiscal year, according to the Asian Development Bank, services imports are expected to climb further. Accelerated growth in services exports will be critical to containing the deficit.
Challenges to Foreign Exchange Inflows Poor wheat and cotton harvests threaten to slow goods export growth, while IT businesses relocating to Dubai introduce uncertainty in foreign exchange inflows from this key segment of services exports.
Remittances, which totaled $14.76 billion in July-November 2024, have become Pakistan’s largest non-debt foreign exchange source, surpassing goods exports. However, escalating political turmoil in the Middle East—triggered by the fall of Bashar al-Assad’s regime in Syria and an Israeli incursion along the Syrian border—raises concerns about remittance stability. With over 55% of remittances originating from Gulf Cooperation Council countries, further military escalation could severely impact these vital inflows.
The response of the incoming administration of U.S. President-elect Donald Trump, set to take office on January 20, 2025, will also influence the geopolitical situation. Remittances in November 2024 were already 4.55% lower than in October.
Domestic Political Landscape and Economic Recovery Domestically, there are tentative signs of progress in Pakistan’s political landscape. The government and opposition party PTI have initiated dialogue following the November 26 protest in Islamabad, which tragically claimed the lives of 12 PTI workers and several law enforcement personnel. Political stability is essential for sustaining economic recovery and attracting foreign investment.
However, challenges persist. The government’s proposed reforms of religious seminaries have sparked backlash from Maulana Fazlur Rehman’s JUI and other religious parties. A failure to address these concerns could lead to an alliance between PTI and religious factions, posing significant challenges for the government.
Such an alliance, coupled with rising militancy in Khyber Pakhtunkhwa and Balochistan, could create severe economic repercussions. The government and opposition must tread carefully to ensure both political stability and economic progress.
