So common and unpredictable are power cuts in Pakistan that few Pakistanis pause for even a fraction of a second in mid-interview when the lights go off. Whether they are tycoons, politicians or religious leaders, they continue talking and gesticulating in the semi-darkness as if nothing had happened.
“We have around 10 or 12 hours daily of no electricity,” says Azam Saigol, managing director of Saigols in Lahore, an industrial conglomerate that itself produces electrical power for which the government often fails to pay. “It’s a really, really appalling state of affairs, but we are calm about it because it’s a way of life.”
Yet the worsening shortages of natural gas and electricity that have crippled Pakistan’s manufacturing and provoked riots in big cities are only the most visible of a plethora of financial, social and political crises that threaten the viability of the country’s already feeble economy.
“It’s very frustrating,” says Sakib Sherani, an economist who heads Macro Economic Insights in Islamabad. “You know you’re heading for a wall at 120mph and no one’s doing anything.”
The problems facing the country include bomb attacks and assassinations by Islamic extremists, high inflation, sluggish growth, extreme corruption, lack of jobs for young Pakistanis and an unsustainable budget deficit, which the International Monetary Fund (IMF) says reached 8.5 per cent of gross domestic product in the previous fiscal year, more than double the official target.
It does not help that a quarter of all government spending goes on defense, or that only 0.9 percent of Pakistanis pay tax , compared with 4.7 percent in neighbouring India and 80 per cent in Canada, according to data compiled by Ehtisham Ahmad and Michael Best of the London School of Economics.
Punjab Chief Minister Shahbaz Sharif who is an opponent of the central administration of President Asif Ali Zardari, accuses the government of “looting and plunder” and tells of $700m spent in vain on two hydroelectric power projects that were supposed to have been built by Chinese and other contractors and a capacity to produce 950 megawatts.
“Not a kilowatt of power was generated. They should have been functional two years ago. The plant has been lying in Karachi for two years and there’s no electricity. The Chinese have gone back to Chinam,” said Sharif. For a country of 180m people – the world’s sixth biggest – the most worrying financial portent is the decline of the domestic and foreign investment that should ensure growth and jobs in the future. According to the central bank, total investment as a share of GDP fell to 12.5 percent in 2011-12, just more than half the level of five years earlier.
“Investment has just fallen off a cliff,” says Sherani. “Private domestic investment is at the lowest level on record.”
Pakistan’s economy is kept alive in part by about $1billion a month of remittances from citizens and former citizens working in the Gulf, the UK and North America. A thriving black economy, untaxed and unmeasured, and good prices for cotton and other farm crops have also bolstered the otherwise fragile domestic economy.
“We have food security. We are a wheat exporting country,” Prime Minister Raja Pervaiz Ashraf said. He boasted in an interview that foreign exchange reserves of $16-17billion are higher than when the government was elected four years ago, but his aides quickly correct him with an updated figure of $14billion. The IMF says reserves actually fell to an estimated $10.8billion in the previous fiscal year and are projected to drop to $7.4billion in the current year ending in June.
“Right now reserves are relatively comfortable, but the burn rate is increasing,” says Sherani. “In Pakistan, the definition of a crisis is a balance of payments crisis. It’s on the cards.”
Among both Pakistani and foreign observers, there is broad agreement on what has gone wrong – the Zardari government has failed to restore fiscal discipline, curb corruption or take essential decisions on infrastructure investment – but scant hope that remedial action will be taken before a general election due in the first half of next year.
“What the government is hoping for is that the IMF will bail them out,” says Sherani, predicting that the IMF will wait to act until a new government is installed amid a deepening crisis. In between power cuts in Lahore, Saigol also thinks that a dysfunctional Pakistan will again be granted a reprieve by international financial institutions. “Really we’ve reached a position where we’re unable to meet our commitments,” he says.
