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Rising
cost of terrorism, the energy crisis
“US
wants to help with jobs and building infrastructure, health care, energy
supplies and energy shortfalls which undermine economic growth and
development” – Hillary Clinton
By
M. Sharif
Terrorism and chronic energy crisis have
emerged the two major factors that have negatively impacted the national
economy during the past more than two years. According to a study carried
out by IPP (Institute of Public Policy), the two, have cost colossal
losses of around Rs380 billion and Rs210 billion respectively to the
economy during 2008 alone. The point of concern is that end of these
crisis is not in sight notwithstanding the fact that there has been
substantial inflows of aid by the US and a few friendly countries and also
loans by multilateral organisations and remittances by expatriates to
strengthen the national economy. Lately, there is a visible shift in US
aid policy as reflected in Kerry-Lugar Law. Its focus is on
micro-management of the aid by US officials and diversifying it to energy
and social sector to make its best use. Improvement in energy sector is
aimed at by encouraging US investors to invest in the sector and taking
refurbishing and upgrading targeted components at some of the electricity
generating units with US financial assistance and technical assistance.
Visit of the US Secretary of State during last week
also focused on the shift of US aid. She is reported to have said, “US
wants to help with jobs and building infrastructure, health care, energy
supplies and energy shortfalls which undermine economic growth and
development.” She further said, “In the first phase there will be a
signature energy programme and there will be projects with the Pakistan
Government to repair and upgrade electric projects. We will help with new
equipment for the Tarbela Dam and repair 10,000 tube wells to increase
agriculture production.”
US administration has unveiled on 28 October 09, $125
million energy plan for the first phase. It will cover six projects
ranging from replacing or repairing of, “11,000 irrigation tube well
pumps across the country, rehabilitating, refurbishing and upgrading of
components at Jamshoro, Muzaffargarh and Guddu thermal power stations to
recapture around 300 MW of their lost capacity that could save around $38
million in fuel cost per year. Replacement of spare parts at Tarbela will
increase capacity by 80 mw.
Without raising eyebrows about the fate of new found
commitments about the US aid in view of Pakistan’s past experience, it
is natural to ask about the perceived timeframe of the aid and its
probable quantum. The answer partially lies in the Kerry-Lugar Law. But,
more important than it, is willingness of the people and government to go
along with the aid objectives that generally accompany stringent
conditions and modus operandi of providing it. Unless there are serious
reservations micro-management level of aid, commitments if earnestly
executed, should benefit the people and economy substantially.
Rising cost of terrorism
The war on terrorism is presently deeply entrenched in
the length and breadth of Pakistan with serious effects on national
economy. It manifests itself through suicide attacks on important official
and commercial buildings, centres and hotels, target killing of civilian
personnel and thickly populated areas in big cities with heavy human and
financial loss, damage to business environment and loss of public
confidence in the government to provide security to general public.
The war has deep short and long term economic effects
that translate into decline in growth and productivity, increase in cost
of doing business because of enhanced security costs and disruption in
supply of services and labour. They also negatively affect exports,
confidence of domestic and foreign investors. FDI during first quarter of
current fiscal year has drastically reduced to $463 million (FDI) compared
to $1.117 billion during corresponding period of last fiscal year. Exports
are also suffering because importers of Pakistani products are sceptical
about the capability of domestic exporters to fulfil their commitments due
to worsening law and order situation and energy crisis. They are even
reluctant to make a business trip to Pakistan for reasons of insecurity.
Consequently, exports during first quarter of current fiscal year have
declined by 19.0 per cent, from $5.711 billion to $ 4.634 billion compared
to exports during first quarter of last fiscal year during which export
target of $22.9 billion could not be met. It stood at $17.78 billion.
Terrorism also costs public exchequer through quantum
increase in security related expenditure by the military, police and other
law and order maintaining organisations. This expenditure is met by
squeezing expenditure on public sector development because of lack of much
fiscal space available to the government that is already under pressure
from the IMF to bring it down to 4.9 per cent for the current fiscal year.
According to the figures released by the MoF, during first quarter of
current fiscal year only Rs16.9 billion were released for various public
sector development projects against the projected amount of Rs62.0
billion.
Will shift in the US aid policy with focus on social
sector development bring a quantum change in social sector development? It
is difficult to make an optimistic assessment at this timeframe because it
is too early and because of the quantum of aid; only $1.5 billion or Rs186
billion a year compared to the yearly loss between $7.0 billion and $8.0
billion, estimate by the Planning Commission of Pakistan.
Cost of war on terrorism is on the increase because of
indiscrete targeting of general public during last few weeks. The military
operation launched in South Waziristan clearly reflects increase in
security related expenditure. Return to normalcy as early as possible, is
the need of the time because despite so much infusion of foreign capital
coming in the form of aid and loans, the national economy remains stuck
up. The main reason is that private sector can’t fully participate in
the economic activity. It weighs return to normalcy as the first priority.
Energy crisis
The American energy experts on persuasion of their
government have last week concluded their visit to Pakistan. Their focus
was to have an understanding of the chronic problems faced by the energy
sector and suggest measures to resolve them. It should not surprise any
one that not only they but no one else could suggest quick solutions to
some of the chronic problems faced by the sector.
The experts emphatically suggested ensuring a balanced
energy market, found power purchase price too high and that electricity
generation plants needed to be more efficient. They found integrated
energy plan presented by the ministry of water and power that envisages
electricity generation through domestic resources including oil, gas,
coal, hydro and renewable sources as workable for private sector. But,
their advice to reduce operational losses and to discourage political
interference, before seeking private investment in the energy sector
speaks a lot as to how public utility outlets are managed in the country
irrespective of their consequences and constraints that exist to attract
foreign investment in the sector.
Ending circular debt was a thorny issue and has
supposedly been resolved by involving nine commercial banks to opt for
purchasing TFCs worth Rs84.0 billion. Hopefully, the government will
ensure no further accumulation of the debt in future. But, reducing
political interference and operational losses might be a somewhat tough
assignment for the government.
Conclusion
US aid and commitment to improve the social and energy
sectors certainly reflect a quantum change in the outlook of US
administration that could directly appeal the people and business
community. But, the real point is about fulfilling the commitments for
which the administrations in the US and Pakistan need to have a better
understanding particularly at the level of stakeholders in the economy. It
is only then that there might be an opportunity to benefit from the shift
in the US policy.
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