A surge in electricity costs in Pakistan has triggered nationwide protests in an outpouring of popular anger that threatens to derail the crisis-hit country’s $3 billion International Monetary Funds programme.
Pakistan narrowly avoided default in June after securing a loan from the fund that came with strict conditions to enact economic reforms, including cutting energy subsidies and imposing taxes to reduce heavy losses in the power sector.
The measures, combined with a weakened rupee that has pushed up the cost of fuel imports needed to generate power, have caused consumer electricity bills to as much as double in July.
The ensuing protests, in which angered residents across the country have publicly burnt their bills, have added to mounting pressure on the caretaker government of prime minister Anwar ul Haq Kakar to take action.
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But observers warned that any sort of relief could violate the terms of the IMF deal and once again tip the country towards bankruptcy.
Cutting electricity tariffs would “immediately spark a new crisis with the IMF”, a senior government official said, possibly resulting in the suspension of the fund’s loan and putting Pakistan at risk of a default on its foreign payments.
Analysts said the crisis was the culmination of years of mismanagement of Pakistan’s power system, which chronically undercharges for electricity. They also estimated that as much as 30 per cent of power sent through the national grid was lost before it reached consumers on account of poor maintenance and siphoning.
“This is a situation that has emerged over the past decades. It can’t be managed overnight,” said Salman Naqvi, a Karachi-based analyst. “Right now, the public is very outraged but the government cannot offer any incentives.”
Mr Kakar’s government is considering alternatives including allowing consumers to stagger payments, in the hope that consumption and bill prices will fall as high temperatures subside ahead of winter.
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Pervez Tahir, the former chief economist of the national planning commission, said the government should redirect some development spending from the annual budget to relieve consumers. “Otherwise, this crisis will grow,” he said.
Pakistan has over the past 18 months descended into one of the worst economic meltdowns in its history, with consumer inflation rising 28 per cent in July from a year earlier. Foreign reserves fell to a low of $3.7 billion in May, less than enough for one month’s worth of imports, before the IMF loan was finalised.
Anger over the cost of living could stoke political turmoil ahead of elections, which are expected to take place early next year after a delay.
Diplomats said this could benefit the country’s opposition including allies of jailed leader Imran Khan, who was sentenced to three years in prison in August but remains popular.
Mr Khan denies corruption allegations against him and supporters of his Pakistan Tehreek-e-Insaf party argue that he is the victim of political persecution by the army and erstwhile government of the Pakistan Muslim League-Nawaz party, which resigned this month to prepare for the polls.
“The danger is that this plays in the hands of Imran Khan, especially if the government is unable to reduce the bills and the protests keep on growing,” said one senior western official. – Copyright The Financial Times Limited 2023