ISLAMABAD (ABC) – Pakistan currently faces the critical issues of soaring interest rates and skyrocketing energy prices, which have gravely affected the industrial sector.
Talking to WealthPK, Dr. Muhammad Afzal, Economic Advisor at the Ministry of Planning, Development, and Special Initiates, said a mere one percentage point increase in the policy rate triggered a staggering Rs250 billion surge in government debt-service payments, painting a bleak picture for fiscal stability.
He emphasized that the real matter was the pressing need for debt restructuring, particularly on the domestic front.
Alarmingly, the government’s debt-service payments now surpass its net federal revenues, placing immense pressure on the policymakers to explore unconventional avenues for resource mobilization.
“The options on the table include renegotiating resource allocations with the provincial counterparts or implementing radical revenue-generation measures,” he pointed out.
However, failure to secure a breakthrough could inevitably lead to restructuring talks with the creditor banks – a move fraught with the risks of market instability.
Alternatively, substantial reduction in the interest rates could offer the much-needed breathing space, potentially rendering restructuring unnecessary.
Yet, prospects for immediate relief seem bleak. The State Bank shows no inclination to lower rates until year-end, citing concerns over inflationary pressures and exchange rate stability – a stance traditionally frowned upon by the IMF.
Talking to WealthPK on the condition of anonymity, an executive member at the Ministry of Industries and Production highlighted that the energy sector reeled from a staggering gas price hike, crippling industries already grappling with high borrowing costs.
Private sector credit uptake plunges to alarming lows, which signals a dire need for intervention to prevent further economic downturn.
“The main problem starts with how much the government controls everything to do with energy.
They have a big say in buying and selling electricity and gas, and they set the prices. Because of this, things are kind of messed up.
“Electricity prices are calculated in an old-fashioned way that doesn’t make sense, and gas prices don’t match its value.
To make up for this mismatch, the government gives out subsidies and takes on debt to cover the difference between what consumers pay and what it costs to make energy,” he elaborated.
As the nation grapples with these challenges, policymakers face a daunting question: how long can Pakistan sustain the current economic trajectory?
While visions of sweeping reforms promise a brighter future, past experiences caution against idealistic approaches.
Whether it’s the dreamer’s optimism, the cynic’s pragmatism, or the manager’s conservatism, the path ahead demands careful navigation to avoid exacerbating structural vulnerabilities that threaten to plunge the economy into a deeper turmoil.