### Summary
The caretaker government in Pakistan has several key challenges to address, including managing the economy, stabilizing the currency, ensuring energy security, and attracting foreign investments.
### Facts
- 📉 The transition period until the next elections is expected to last five to six months, and the caretaker government must not be complacent in addressing economic issues.
- 🧱 A capable team, including a central banker, a veteran bureaucrat, and an expert planning commissioner, has been appointed to lead the Special Investment Facilitation Council (SIFC) and tackle political interference.
- 💱 The depreciation of the Pakistani rupee against the US dollar is a concern, and measures should be taken to discourage hoarding and build up net international reserves.
- ⚡️ Energy security is critical, and immediate actions should be taken to ensure full recovery of costs in the gas and power sectors. Direct cash transfers and full recovery of taxes in the electricity and fuel prices may be necessary.
- 💸 Negotiating a new IMF program is expected after the current program expires, and efforts should be made to attract investments from friendly Arab countries under the SIFC.
- 📊 Improving the fiscal side of the economy is essential, including widening the tax net, targeting untaxed income, and digitizing the tax collection process.
- 🗳 The caretaker government should focus on effective governance and decision-making, setting an example for the next government. The cabinet's performance will be judged on how well they manage the economy.
- 🌍 Restoring confidence in Pakistan's economy and addressing key indicators such as investments, inflation, fiscal prudence, and circular debt are essential for a stable future.
Note: The text provided contains a mention of the publication date (August 21st, 2023). Since it is already past this date, some information may be outdated.
The Oil and Gas Regulatory Authority (Ogra) is likely to recommend a hike in petroleum products prices in Pakistan due to an increase in global oil rates and depreciation of the rupee against the US dollar, with petrol expected to increase by Rs12 per litre and diesel by Rs14.83 per litre from September 1, 2023, leading to concerns of further inflation in the country.
The caretaker government of Pakistan has increased petrol and diesel prices by over Rs14 due to the rising trend of petroleum prices in the international market and exchange rate variations.
India has asked utilities to import 4% of their coal requirements until March next year in order to meet the country's increasing power demand, which has been exacerbated by hot weather, industrial activity, and deficient rainfall. To address the shortage, the government is also planning to revive idling gas-based power utilities and discuss the utilization of gas-based capacity in a meeting chaired by the power and renewable energy minister.
Pakistan needs to address concerns related to incentives, coordination, and remittance in order to secure Saudi investments in copper, mineral, refinery, and solar projects worth $25-30 billion, including the construction of a $10-12 billion refinery in Hub or Gwadar.
The caretaker government of Pakistan has raised petrol and diesel prices to record levels, leading to a surge in inflation and impacting the prices of essential commodities, while the country continues to invest in and expand its nuclear weapons program.
The unprecedented increase in fuel prices in Pakistan is expected to cause a significant rise in inflation, with the Consumer Price Index projected to reach as high as 30% to 32% in September 2023.
Pakistan is facing a deep economic crisis that has negatively impacted living standards, the private sector, and the environment, and the World Bank argues that urgent policy shifts are needed to address low quality basic services, improve fiscal management, create a more dynamic and open economy, and address failures and distortions in the agri-food and energy sectors.
The Pakistani government is considering privatizing power generation and distribution companies or transferring management control to private entities for 20 to 25 years in order to address the country's circular debt in the energy sector. The circular debt in the gas sector has surpassed that of the power sector, reaching a total of Rs2.8 trillion ($17 billion).
The high cost of electricity in Pakistan is due to poor governance, policy lapses, volatile global energy prices, and rupee devaluation, leading to inflated energy costs, a lack of dispatching excess power to consumers, and inadequate transmission and distribution systems; to address these issues, the government should implement a multifaceted strategy that includes shifting to local renewable energy sources, upgrading and modernizing the power supply network, promoting energy efficiency and conservation measures, and offering subsidies and tax exemptions for renewable energy technologies.
Gas loadshedding plan being developed in Pakistan due to depletion of natural gas reserves, with gas supply limited to eight hours in the winters; measures being taken to address gas shortage for industry and crackdown on power thieves underway.
Pakistan needs to reevaluate its geopolitical and economic strategy, prioritizing sustainable and inclusive economic growth and embracing trade with India in order to address its debt and accelerate development, with potential benefits including increased exports and improved energy supply. India should also play a proactive role in normalizing trade relations with Pakistan, as it shares an interest in a peaceful border and stands to gain commercially from a strong relationship. A trade-centered approach could align with Pakistan's military and contribute to its long-term security and national development.
The World Bank has recommended that Pakistan tax the agricultural and real estate sectors and merge the thresholds for the salaried and non-salaried class in order to generate revenue and reduce fiscal deficits, while protecting the poor.
The government of Pakistan is convening a meeting to discuss and approve a significant increase in fixed monthly charges and consumer rates for natural gas, amounting to a surge of 3,900% and 194% respectively, which will be implemented retroactively from October 1.
