Investors Celebrate Pakistan's Continuing Economic Recovery

Pakistan's benchmark KSE-100 index hit an all-time high after the announcement of the $7 billion IMF bailout deal today. Economic indicators such as inflation, exports and remittances are also showing significant improvement as well. Speaking to reporters after the IMF deal,  the Fund Managing Director  Kristalina Georgieva acknowledged progress made by Pakistan. She said  "The economy is on the sound path. Growth is up and inflation is down". The KSE-100 index rose in early trade to a record high of 82,905.73 points, before giving up those gains later in the day to close 0.7% down at 81,657. It still represents an annual gain of nearly 100%. 

Pakistani Stock Market Outperforms Asian Peers. Source: Bloomberg

Pakistan rupee has remained essentially stable at around Rs. 277 to a US dollar over the last year. Inflation has come down from 37% last year to less than 10% this year.  Exports have climbed 10.54% ($2.921 billion) to $30.645 billion during the fiscal year 2023-24 compared to $27.724 billion in the corresponding period of 2022-23. Overseas workers' remittances have surged 44% to $5.94 billion in the first two months (July-August) of the current fiscal year 2024-25, compared to the same period last year.  Current account deficit has declined to $681 million in FY24 from $3.275 billion in FY23. The budget deficit for the 2023–2024 fiscal year has been reduced to 6.8% of GDP from 7.7% in the previous year. 

The stock market gains are driven primarily by the increasing profitability of the firms making up the index, in addition to improvement in macroeconomic indicators. The companies listed on Pakistan’s KSE-100 Index have reported their highest-ever earnings of Rs1.7 trillion in FY24, marking a 25% year-on-year increase from Rs1.3 trillion in FY23. In US dollar terms, profits after tax (PAT) rose 10% to $5.8 billion during the same period, according to data compiled by brokerage firm Topline Securities.  Dividend payouts soared 30% as banking, fertilizer, and cement sectors led growth, according to media reports. 

Pakistan has a long tough road ahead to carry out the reforms promised to the IMF in the latest bailout deal. Renegotiating unsustainable IPP (Independent Power Producers) contracts and carrying out long-delayed  privatization of state-owned enterprises to reduce major drain on the taxpayers will not be easy, Boosting tax collection is not easy either. Offering incentives for savings, investments and exports while reducing budget deficits is a difficult feat. It will take a lot of fortitude, finesse and political will to get the results to improve the economy. Pakistani leaders' biggest challenge is to find a way to grow the economy to create enough jobs for the country's growing working age population. Failure to do so could cause major social unrest in the nuclear-armed country of 240 million people. 

Related Links:

Haq's Musings

South Asia Investor Review

Why Hasn't Pakistan Economy Grown Faster the 5% Average Since 1960s?

Pakistan to Swallow IMF's Bitter Medicine

Agriculture: A Bright Spot in Pakistan's Economy

Following the Money: Insights into Pakistan Budget 2024-25

Pakistanis Consuming More Calories, Fruits and Vegetables

Pakistan Stock Market is World's Best Performing in 2024

Pakistan's Rural Economy

Pakistan Among World's Largest Food Producing Countries

Pakistan Sets New Record For Rice Exports

Riaz Haq's Youtube Channel

PakAlumni Social Network

India's Economy Grew Only 0.2% Annually Over the Last Two Years

The Indian government has reported an 8.4% jump in economic growth in the July-to-September period compared with a contraction of 7.4% for the same period a year earlier. The average GDP growth in India over the last two years has averaged just 0.2% per year. The news appears to indicate strong recovery after a big economic hit suffered from the COVID pandemic since early 2020.  Pakistan's economy fared relatively better during the pandemic. Pakistan's GDP rose 0.5% in 2020 and 3.9% in 2021. As a result, Pakistan now fares better than India on multiple indices including Hanke Misery Index, World Happiness Index, Food Affordability Index and World Hunger Index. 

India's Economy:

Welcoming the news, renowned Indian economist Kaushik Basu tweeted:  "India's growth of 8.4% over Jul-Sep is welcome news. But it'll be injustice to India if we don't recognize, when this happens after -7.4% growth, it means an annual growth of 0.2% over 2 years. This is way below India's potential. India has fundamental strength to do much better".

Indian Economist Kaushik Basu's Tweet 

Indian-American Nobel Laureate  economist Abhijit Banerjee, too, spoke out in agreement. He said, "I think that we (Indians) are in a moment of great pain. The economy is still well below as against what it was in 2019". "We don't know how much below, but it is substantially below. And I am not blaming anybody, I am just saying", he added.   

India's Rising Public Debt:

India's debt to gdp ratio is nearing 90%, the highest in the South Asia region. It has risen by 17% in the last two years, the most of any emerging economy. By contrast, Pakistan's debt to GDP ratio has increased by a mere 1.6% to 87.2% from 2019 to 2020.

India's Rising Debt. Source: Business Standard

The International Monetary Fund (IMF) has projected the Indian government debt, including that of the center and the states, to rise to a record 90.6% of gross domestic product (GDP) during 2021-22 against 89.6% in the previous year. By contrast,  the percentage of Pakistan's public debt to Gross Domestic Product (GDP) including debt from the International Monetary Fund, and external and domestic debt has fallen from 87.6% in Fiscal Year (FY) 2019-20 to 83.5% in FY 2020-21.    

Hanke's Misery Index: 

Pakistanis are less miserable than Indians in the economic sphere, according to the Hanke Annual Misery Index (HAMI) published in early 2021 by Professor Steve Hanke. With India ranked 49th worst and Pakistan ranked 39th worst, both countries find themselves among the most miserable third of the 156 nations ranked. Hanke teaches Applied Economics at Johns Hopkins University in Baltimore, Maryland. Hanke explains it as follows: "In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The surefire way to mitigate that misery is through economic growth. All else being equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful". Several key global indices, including misery index, happiness index, hunger index, food affordability index, labor force participation rate,  ILO’s minimum wage data, all show that people in Pakistan are better off than their counterparts in India.   The rankings for the two South Asian nations are supported by other indices such as the World Bank Labor Participation data, International Labor Organization Global Wage Report, World Happiness Report, Food Affordability Index and Global Hunger Index.  

Hanke's Annual Misery Index 2021. Source: National Review

Employment and Wages:

Labor force participation rate in Pakistan is slightly above 50% during this period, indicating about a 2% drop in 2020.  Even before COVID pandemic, there was a steep decline in labor force participation rate in India. It fell from 52% in 2014 to 47% in 2020. 

Labor Force Participation Rates in Pakistan (Top), India (bottom). Source: Trading Economics

The International Labor Organization (ILO) Global Wage Report 2021 indicates that the minimum wage in Pakistan is the highest in South Asia region. Pakistan's minimum monthly wage of US$491 in terms of purchasing power parity while the minimum wage in India is $215. The minimum wage in Pakistan is the highest in developing nations in Asia Pacific, including Bangladesh, India, China and Vietnam, according to the International Labor Organization.

Monthly Minimum Wages Comparison. Source: ILO

Global Food Security:

Pakistan (with 52.6 points) has scored better than  Bangladesh (48.8), Nepal (48.3) and India (50.2 points) in terms of food affordability.  Sri Lanka scored higher with 62.9 points in this category on the GFS Index 2021,  according to a global report released by Economist Impact and Corteva Agriscience recently. 

Ireland, Australia, the UK, Finland, Switzerland, the Netherlands, Canada, Japan, France and the US shared the top rank with the overall GFS scores in the range of 77.8 and 80 points on the index. 

In overall food security, Pakistan ranked 75th with a score of 54.7, ahead of Sri Lanka (77), Nepal (79) and Bangladesh (84), but behind India ranked 71st with a score of 57.2 points on the GFS Index 2021 ranking 113 countries.

Pakistan improved its GFS score by 9 points (to 54.7 in 2021 from 45.7 in 2012) while India’s score improved only by 2.7 points to 57.2 in 2021 from 54.5 in 2012.  Nepal improved by 7 points (to 53.7 points in 2021 from 46.7 points in 2012) and Bangladesh by 4.7 points (to 49.1 in 2021 from 44.4 points in 2012). China’s score improved by 9.6 points to 71.3 in 2021 from 61.7 in 2012, the report said. “The GFSI looks beyond hunger to identify the underlying factors affecting food insecurity around the world,” said Tim Glenn, Executive Vice-President and Chief Commercial Officer, Corteva Agriscience.

The cost of living in Pakistan is the world's lowest despite recent inflationary trends, according to the Cost of Living Index for mid-2021 as published by Numbeo.  Numbeo Grocery Index reports that the food prices in Pakistan are the second cheapest in the world. 

History of Inflation in Pakistan. Source: Statista

Global Hunger Index:

Global Hunger Index 2021 report has ranked Pakistan 92nd, ahead of India ranked 101st among 116 countries.  Pakistan's other South Asian  neighbors are ranked better: Nepal (76), Bangladesh (76), Myanmar (71). 

Hunger Trends in South Asia. Source: Global Hunger Index 

Pakistan has been reducing hunger at a faster rate than India but slower than other South Asian neighbors like Bangladesh and Nepal.  

World Happiness Index: 

Amid the COVID19 pandemic, Pakistan's World Happiness ranking has dropped from 66 (score 5.693) among 153 nations last year to 105 (score 4.934) among 149 nations ranked this year. Neighboring India is ranked 139 and Afghanistan is last at 149. Nepal is ranked 87, Bangladesh 101, Pakistan 105, Myanmar126 and Sri Lanka129. Finland retained the top spot for happiness and the United States ranks 19th. 

Pakistan Happiness Index Trend 2013-2021

One of the key reasons for decline of happiness in Pakistan is that the country was forced to significantly devalue its currency as part of the IMF bailout it needed to deal with a severe balance-of-payments crisis. The rupee devaluation sparked inflation, particularly food and energy inflation. Global food prices also soared by double digits amid the coronavirus pandemic, according to Bloomberg News. Bloomberg Agriculture Subindex, a measure of key farm goods futures contracts, is up almost 20% since June. It may in part be driven by speculators in the commodities markets. These rapid price rises have hit the people in Pakistan and the rest of the world hard. In spite of these hikes, Pakistan remains among the least expensive places for food, according to recent studies. It is important for Pakistan's federal and provincial governments to rise up to the challenge and relieve the pain inflicted on the average Pakistani consumer.  

Pakistan's Real GDP: 

Vehicles and home appliance ownership data analyzed by Dr. Jawaid Abdul Ghani of Karachi School of Business Leadership suggests that the officially reported GDP significantly understates Pakistan's actual GDP.  Indeed, many economists believe that Pakistan’s economy is at least double the size that is officially reported in the government's Economic Surveys. The GDP has not been rebased in more than a decade. It was last rebased in 2005-6 while India’s was rebased in 2011 and Bangladesh’s in 2013. Just rebasing the Pakistani economy will result in at least 50% increase in official GDP.  A research paper by economists Ali Kemal and Ahmad Waqar Qasim of PIDE (Pakistan Institute of Development Economics) estimated in 2012 that the Pakistani economy’s size then was around $400 billion. All they did was look at the consumption data to reach their conclusion. They used the data reported in regular PSLM (Pakistan Social and Living Standard Measurements) surveys on actual living standards. They found that a huge chunk of the country's economy is undocumented. 

Pakistan's service sector which contributes more than 50% of the country's GDP is mostly cash-based and least documented. There is a lot of currency in circulation. According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21, up from Rs 6.7 trillion in the last financial year,  a double-digit growth of 10.4% year-on-year.   Currency in circulation (CIC), as percent of M2 money supply and currency-to-deposit ratio, has been increasing over the last few years.  The CIC/M2 ratio is now close to 30%. The average CIC/M2 ratio in FY18-21 was measured at 28%, up from 22% in FY10-15. This 1.2 trillion rupee increase could have generated undocumented GDP of Rs 3.1 trillion at the historic velocity of 2.6, according to a report in The Business Recorder. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size. Even a casual observer can see that the living standards in Pakistan are higher than those in Bangladesh and India. 

Related Links:

Haq's Musings

South Asia Investor Review

Pakistan Among World's Largest Food Producers

Naya Pakistan Housing Program

Food in Pakistan 2nd Cheapest in the World

Pakistan's Pharma Industry Among World's Fastest Growing

Pakistan to Become World's 6th Largest Cement Producer by 2030

Pakistan's 2012 GDP Estimated at $401 Billion

Pakistan's Computer Services Exports Jump 26% Amid COVID19 Lockdown

Coronavirus, Lives and Livelihoods in Pakistan

Vast Majority of Pakistanis Support Imran Khan's Handling of Covid19 Crisis

Pakistani-American Woman Featured in Netflix Documentary "Pandemic"

Incomes of Poorest Pakistanis Growing Faster Than Their Richest Counterparts

Can Pakistan Effectively Respond to Coronavirus Outbreak? 

How Grim is Pakistan's Social Sector Progress?

Pakistan Fares Marginally Better Than India On Disease Burdens

Trump Picks Muslim-American to Lead Vaccine Effort

Democracy vs Dictatorship in Pakistan

Pakistan Child Health Indicators

Pakistan's Balance of Payments Crisis

Panama Leaks in Pakistan

Conspiracy Theories About Pakistan Elections"

PTI Triumphs Over Corrupt Dynastic Political Parties

Strikingly Similar Narratives of Donald Trump and Nawaz Sharif

Nawaz Sharif's Report Card

Riaz Haq's Youtube Channel

PakAlumni Social Network

Is Modi's Honeymoon Over?

Things are not looking so rosy at home for Indian Prime Minister Narendra Modi as he continues his world tour with the latest stop in Beijing, China.

Is Modi government's honeymoon already over on its first anniversary at the helm? Has the Indian economy really turned around? Is it really growing faster than China? Are Indian businesses doing better under the new government? Are investors more excited about India's prospects? Has Indian currency recovered to levels before its collapse in 2013? Is India any cleaner than it was last year? To answer these questions, let's look at some data:

1. Revision of GDP methodology by India's Central Statistical Office (CSO) to show it is growing faster than China has drawn serious skepticism, even derision by serious economists around the world. While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

2. India's exports are continuing to drop. The trade data shows a sharper slowdown (21%) in exports than in imports (13%,  due to lower oil prices) for March, 2015.  Exports are down another 13.96% in April 2015. There is an overall decline in both for the year too, according to Seeking Alpha.

3. Large scale manufacturing in India continues to disappoint. Growth slowed in April 2015, according to HSBC India Manufacturing Purchasing Managers Index (PMI) data. At 51.3 in April, down from 52.1 in March, the headline PMI points to slowing demand.

4. Mumbai stocks are among the worst performing in emerging markets. FII (foreign institutional investments) net outflows gave been of the order of Indian Rs 125 billion (about US$ 2 billion) over the past month. The stock market index has seen the biggest correction of 10 per cent in a short time, according to India's First Post.

5. In spite of Prime Minister Modi's high-profile campaign to improve hygiene,  India has been ranked near the bottom on access to clean water and sanitation. India has ranked 92 on Water, Sanitation and Hygiene  (WASH) Index developed by The Water Institute at the University of North Carolina at Chapel Hill's Gillings School of Global Public Health in the US, far below Pakistan which ranked near the top in 5th position.

India's Economic Times has recently reported results of a survey of top CEOs.  Majority of them say that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. The largest engineering conglomerate L and T has said some of its plants are idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.

A recent piece titled "Why India is Not A Buy in Current Environment" published by Seeking Alpha summarizes the current Indian situation as follows:

"While there are some who consider India to be the best emerging market and recommend it as such, my own assessment is different. Whether it's relatively high valuations, weak fundamentals with persistent deficits, government bonds under pressure, weakening currency, rebounding oil prices, declining confidence in the government and so on, India is facing a ton of headwinds going forward. Far too many to be a number one pick among emerging markets."

Modi government has to turn some of its election promises into action. Mr. Modi cannot rely on the benefit of the doubt because his honeymoon period is now over. He will be judged on what he is able to accomplish.

Related Links:

Haq's Musings

Can India Survive Without Western Money Inflows?

Modi's Pakistan Policy

India's Soaring Twin Deficits

Xi Jinping's Pakistan Visit

How Strategic Are China-Pakistan Ties?

India Pakistan Economic Comparison in 2014

Pakistan's KSE-100 Outperforms India's Sensex

India's IT Exports Highly Exaggerated

Is India Fudging GDP to Show Faster Growth Than China?

Indian Economy Slowing to "Hindu Rate of Growth"?

The "Hindu rate of growth" is a derogatory description of the low annual growth rate of the pre-1991 Indian economy, which stagnated around 3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%. In what appears to be an exaggeration, the Financial Times in its latest issue has an article titled "India’s abject return to talk of Hindu growth rates".

Written by James Lamont, the FT story says that "India trails in terms of attracting foreign capital and beating inflation.... some economists and industrialists fear India’s economy could shrink back towards what was derisively called the “Hindu rate of growth” from initial projections of 9 to 7 per cent this year."



With the India story unraveling due to big corruption scandals and governance deficit this year, the FDI fell by 28%, the second consecutive year of decline and the first such large decline since the opening up of the economy in 1991-92. As a result of this decline, the present level of $27 billion of FDI inflows is the lowest in four years.

Spurred by a tidal wave of hot money from the US Federal Reserve stimulus, the big drop in Indian FDI has been largely offset by the surge in FII in the last two years. In fact, the outflow of $15 billion was more than made up by inflows of $29 billion — their highest ever — in 2009-10. This level was largely maintained in 2010-11 as well, with a small increase. These hot money inflows continue to be a source of instability in the face of the Indian Central Bankers attempts to cool rising inflation. Such hot money inflows accounted for 58% of India's forex reserves in March 2010 compared to 47.9% in 2009, according to the Financial Express.

Even after the central bank boosting interest rates six times this year to 8.25 percent, India’s benchmark wholesale-price inflation has accelerated to a 13-month high of 9.78 percent in August 2011, according to Bloomberg.

It is very likely that the Indian central bankers will continue to maintain a tight money policy in the foreseeable future, and slow down the economy further to fight continuing inflation. I do think, however, that the Indian policymakers will try and orchestrate a soft landing in 2011-12, while still maintaining significantly higher gdp growth rates than the pre-1991 "Hindu rate of growth".


Related Links:

Haq's Musings

India Story Unraveling

India Soft Landing in 2011?

Inaction Against Corruption in South Asia

2G Corruption Scandal in India

Musharraf at Davos 2008

Imran Khan at Davos 2011

Delhi in Davos: How India Built its Brand at the World Economic Forum

FDI India, Pakistan, China and Vietnam 2003-2010

China's Trade and Investment in South Asia

India and Pakistan at Davos 2009

India's Twin Deficits

Pakistan's Economy 2008-2010

Hunger: India's Other Growth Story

The International Food Policy Research Institute (IFPRI) reported last week that hunger in India has grown over the last three years.

IFPRI said India's hunger index score has worsened over the last three years from 23.7 to 23.9 to 24.1 and its ranking moved from 66 to 65 to 67 on a list of 84 nations....while Pakistan's hunger index score has improved over the same period reported since 2008 from 21.7 (2008) to 21.0 (2009) to 19.1 (2010) and its ranking has risen from 61 to 58 to 52.

Here's an Indian blogger Abhinav who blogged last February about "Indian Growth Story Nobody Wants To Talk About":

Today’s news on the death of fifty people from hunger at Balangir in Orissa is a grim reminder of the little growth story that India has had. It clearly indicates many negative facets of our system, bureaucracy and the public at large. As per the World Food Program, almost half of the world’s population who are deprived of food live in India. Another website of a well known NGO (http://www.bread.org/learn/hunger-basics/hunger-facts-international.html) offers a grim picture of this particular issue especially when the same is getting the least attention by the policy makers across the world. If 50% of the starving residents belong to India, we do not need to look beyond our borders to nail the culprits.

More than six decades post independence and being counted as one of the key growth engines to the world economy, why are hunger deaths still happening in India? Is it because there is a scarcity of food to offer the ones hungry? Clearly that is not the case.

Those leading a life above the poverty line pay taxes to the Central and the State Governments so that it is used for public facilities, amenities and for the benefit of those living the poverty line. Obviously, those in power have to let go of their hunger for corruption or we have to watch the country going down the drains. Otherwise, it would constantly fail to administer the proper distribution of food and nutrition to people who matter.

We all talk about “3 idiots” and how a college principal is called a murderer who is responsible for the suicide of the students in his college. In the same way, aren’t the following responsible for the demise of people from hunger in our country?

1. Politicians responsible for making food security and food distribution laws.
2. Governmental agencies responsible for proper storage of food grains.
3. Bureaucrats responsible for administration and distribution amongst the right people.
4. Local security agencies which must maintain law and order to ensure proper distribution.

And why is it that they are not punished for these deaths. We have poor being imprisoned for thefts but those in power prosper, while the poor suffer. Is there any accountability for what is being and can be done to break this nexus? Would those in urban cities who are fortunate enough to be writing and reading this blog do something about it? Would they start taking candle light walks in memory of those unfortunate who die in India of hunger every day? Will they go beyond the regular candle marches or force those in power to take responsibility and amend their ways?

Related Links:

Haq's Musings

Pakistan: A Contrarian Investor's Paradise

India Ranks Below China, Pakistan in Global Hunger Index

Low Status of Indian Women

India's Commonwealth Games Mess

Disaster Dampens Spirits on Pakistan's 63rd Independence Day

UNESCO Education For All Report 2010

India's Arms Build-up: Guns Versus Bread

South Asia Slipping in Human Development

World Hunger Index 2009

Challenges of 2010-2020 in South Asia

India and Pakistan Contrasted 2010

Food, Clothing and Shelter in India and Pakistan

Introduction to Defense Economics

Pakistan Economy Hit By Turmoil

The recent political turmoil with Bhutto's return and her tragic assassination in Oct-Dec 2008 period is taking its toll on Pakistan's economy. Weaker textile exports, rising food prices, and ongoing energy crisis have caused the government to scale down its growth target for the fiscal year ending June 2008.



Immediately after Benazir Bhutto's death on Dec. 27, rioters from her native Sind province caused an estimated $1.3 billion in losses, according to Karachi's Chamber of Commerce. Power transmission, telecommunications and roads were affected. Among the recent issues exacerbating the larger energy crisis, the two main power transmission lines were blown up in January 2008 in Sind, creating a shortfall of 1,000 MW. The business community complained that lopsided and unplanned shutdowns resulted in closures in almost all industries. Many factories in Karachi, the heaving commercial hub -- including some owned by Colgate-Palmolive Co. and Philip Morris International Inc. -- sustained damage, according to Tasleemuddin A. Batlay, president of Karachi's American Business Council and a director of Colgate-Palmolive's Pakistan unit, as reported in Wall Street Journal. At Italian garment maker Maxco Pvt. Ltd., a fire engulfed several refurbished buildings, killing eight workers; damage was estimated at $25 million, according to a report in Wall Street Journal.

Pakistan's Finance Minister Salman Shah says economic fundamentals remain strong and growth should still exceed 6%, which would outstrip many of Pakistan's peers in Asia. Last year, the Karachi Stock Exchange's benchmark index advanced more than 40%.

Karachi share market on Monday started on a positive note on the back of foreign interest, coupled with increasing oil prices in the international market, and the KSE-100 index breached through 14,000 psychological level to hit 14,053.46 points intra-day high level, reports Business Recorder, Pakistan's Financial Daily.

The Pakistani economy has, so far, shown a lot of resilience in absorbing a number of shocks in the last few years. It is likely that there will be post-election violence in Pakistan regardless of the outcome. We'll have to wait and see if the economy can ride out this potential storm as well.

Pakistan's Energy Crisis

Pakistan’s economy has recently been growing at 7-8% per year, doubling its GDP over the last 7 years. The industrial growth rate has been closer to 12.5% per year during this period, contributing 38% of the total economic output of Pakistan. Per capita energy consumption of the country is estimated at 14 million Btu, which is about the same as India's but only a fraction of other industrializing economies in the region such as Thailand and Malaysia, according to the US Dept of Energy 2006 report. To put it in perspective, the world average per capita energy use is about 65 million BTUs and the average American consumes 352 million BTUs. With 40% of the Pakistani households that have yet to receive electricity, and only 18% of the households that have access to pipeline gas, the energy sector is expected to play a critical role in economic and social development. With this growth comes higher energy consumption and stronger pressures on the country’s energy resources. At present, natural gas and oil supply the bulk (80 percent) of Pakistan’s energy needs. However, the consumption of those energy sources vastly exceeds the supply. For instance, Pakistan currently produces only 18.3 percent of the oil it consumes, fostering a dependency on imports that places considerable strain on the country’s financial position. On the other hand, hydro and coal are perhaps underutilized today, as Pakistan has ample potential supplies of both.

Pakistan’s rising energy demand, according to the U.S. Department of State’s Paul Simons, creates opportunities for regional cooperation. To this end, the U.S. Trade and Development Agency convened a meeting a couple of years ago in Istanbul that produced an agreement on examining options for exporting Central Asian electricity to Pakistan. It should be noted here that US does not favorably look upon any Iran-Pakistan cooperation in the energy sector. At an Asia Program event organized by Wilson Center in 2006, Vladislav Vucetic of the World Bank provided a troubling assessment of the state of Pakistan’s electricity sector—demand is approaching maximum production capacity, while institutional capacity for policy development and implementation remains low. Worse, failing to resolve these problems may cause investment delays and hamper Pakistan’s economic growth. Sanjeev Minocha of the IFC, a major source of private sector financing, noted the paucity of domestic private sector initiatives in Pakistan. The IFC has sought to raise investor confidence through its funding of private Pakistani energy companies, including the new firm Dewan Petroleum. Ultimately, stated Minocha, it is crucial that investment projects take into account the interests of local communities.

In early 2008, Pakistan's industrial consumers are facing an electric power deficit of up to 3,600 megawatts (MW)due to low water levels at hydroelectric dams and damage to two main power lines attacked during the three days of violence following Bhutto's assassination. More than anything, this represents the failure of long term energy planning to go with the economic growth forecasts.

Among the temporary issues exacerbating the larger power crisis, the two main power transmission lines were blown up in January 2008 in Sind, creating a shortfall of 1,000 MW. The business community complain that lopsided and unplanned shutdowns have resulted in closures in almost all industries. Subsequent production losses will be reflected in further pressure on exports and lead to increased imports.

Water levels have fallen by 32% compared with last year, according to the Pakistan Electric Power Company (PEPCO). Pakistan's current installed capacity is around 19,845 MW, of which around 20% is hydroelectric. Much of the rest is thermal, fueled primarily by gas and oil. PEPCO also blames independent power producers (IPPs) for the electricity crisis, as they have been able to give PEPCO only 3,800 MW on average out of 5,800 MW of confirmed capacity. Most of the IPPs are running fuel stocks below the required minimum of 21 days.

While there are many economic successes of the Musharraf-Aziz administration in terms of reviving the Pakistani economy and putting it on a growth path again, the energy sector represents its biggest failure. This failure has the potential to threaten Pakistan's economic future, unless immediate steps are taken to bring this crisis under control over the next few years.