November 22, 2024

Overcrowded and Underprepared: Pakistan’s Crisis

By Shahid Sattar and Fatima Aamir

Population growth can be a double-edged sword: it can either provide a growing labor force that drives economic growth or become a ticking bomb waiting to implode. As the population rises, so does the demand for goods and services—especially for necessities like food, water, energy, and public services such as health and education, creating a need for increased business activity to meet increasing demand. Business activities, in turn, generate labor demand, which is fulfilled by an expanding workforce from within the same population that initiated the cycle. This creates a mutually beneficial cycle that circulates wealth in the economy: money flows from population to industry when goods are consumed and returns to population in the form of wages for the labor supplied.

As the economy grows, the role of government regulation and public policy becomes increasingly crucial for this process to work smoothly. Population growth must remain within levels sustainable by economic development. In the absence of comprehensive long-term planning, as is the case in Pakistan, population growth creates a strain on resources that a low-performing economy cannot support, ultimately leading to socio-economic deterioration. If Pakistan continues to grow at its current rate, its ability to sustain its people will diminish, plunging the nation further into poverty, inequality, and social chaos (Figure 1).

Figure 1. Pakistan’s population is projected to double by 2050 if the current growth trend prevails.

The latest population census of Pakistan reports an average annual growth rate of 2.55% from 2017 to 2023, three times the global rate of 0.88%. In contrast, other South Asian countries have reduced their growth rates to align with the middle-income average of 0.8%. Pakistan nearly achieved this milestone as well, lowering its growth rate from 3.1% in 2000 to 1.2% in 2016. However, since then, the trend has reversed, moving closer to the average of low-income countries (Figure 2). The population growth rate has consistently climbed in the years following 2016, raising the question: What happened post-2016 that unraveled decades of progress?

Figure 2. From 3.1% in 2000, Pakistan’s population growth was reigned in to 1.2% in 2016 but has been on the rise ever since.

Frequent political, economic, and social turmoil has shifted national focus away from human development to survival. In the hallways of policymaking, population is then a forgotten agenda. To date, there has been no national population policy that streamlines and guides efforts towards realization of Pakistan’s international commitments, including universal access to family planning services, addressing information needs, ensuring contraceptive commodity security, and mobilizing funds for family planning and reproductive health activities. Statements expressing concern are made every now and then by government officials, but these remain futile without policy prioritization of population planning.

To put the gross neglect in perspective, the government spent $38.6 million on contraceptive procurement[1] from 2014 to 2019 – an average of $7.72 million per year. In comparison, USAID invested about $18 million annually from 2010 to 2016 in contraceptive provision under the USAID | DELIVER Project. After the USAID project ended, subsequent governments failed to maintain stock availability uniformly, diverting two-thirds of the funds planned for contraceptive procurement elsewhere (Figure 3). This highlights the underlying problem in population planning: most progress made is contingent upon donor efforts, as the government appears to waive the cause in favor of other purposes. Funds in this country tend to flow towards projects with the highest political returns, and population planning simply does not make the cut.

The provinces of KPK and Balochistan that exhibit higher population growth[2] rates than the rest of the country spent the least in this regard, despite having greater reliance[3] on public sector provision of reproductive health services. Both supply and demand side problems are at play here: low prioritization of family planning by the government leaves the provinces with higher unmet need for contraceptives (21% in KPK and 22% in Balochistan, compared to 16% in Punjab and 18% in Sinch as of 2018), while cultural norms and remoteness of areas limit access to facilities. Desired fertility (the number of children an individual or couple wants) remains high; UNFPA[4] finds that most couples initiate family planning after the third or fourth child. Demand creation for reproductive health services remains a significant challenge as social norms and geographical isolation create hurdles for service delivery teams, particularly those engaged in door-to-door outreach. This calls for robust public awareness and accessibility programs that encourage and facilitate the use of family planning services.

Figure 3. Funds spent on contraceptive procurement are significantly lower than the allocated budget, especially in Balochistan and KPK.

Low prioritization of population planning is one issue, but another significant challenge is the inefficiency stemming from its poor integration into the broader economic development strategy. Population growth is tied to human development, particularly to gender equity and rights. Women who are educated, independent, and have the freedom to make decisions regarding reproduction have lower fertility rates and improved health. Investment in empowerment and autonomy of women through creation of education, employment, and participation opportunities is imperative for the success of population programs[5].

Public investment in human development avenues remains dismal in Pakistan, and socio-economic factors further limit women’s ability to benefit[6] from even these limited opportunities. Education and health expenditure are significantly below regional averages[7]. Female literacy stands at 49%, only 27% of women aged 15-49 years are using any family planning method, and only 25% of women participate in the labor force. Due to lack of employment opportunities, mobility restrictions, workplace insecurity, and a conventional view of gender roles, educated women display lower economic participation – only 25% of women with degrees are working[8].  

The impact of low public spending is exacerbated by the glaring gender disparity among beneficiaries, resulting in subpar performance on development fronts. A quick look at human development indicators shows that Pakistan is lagging in education, gender rights, and family planning compared to its regional neighbors. Countries like India and Bangladesh have much higher use of modern contraceptive methods, greater autonomy for women to exercise their reproductive and health rights, and better enrollment rates at all educational levels (Figure 4). It is no surprise, then, that Pakistan’s fertility rate is significantly higher than both India’s and Bangladesh’s (Figure 5).

Figure 4. Pakistan consistently lags India and Bangladesh in key drivers of population growth.

Figure 5. Despite an overall decline, Pakistan’s fertility rate remains ~1.5 times that of comparator countries.

Bangladesh is hailed as an exemplary model of population control, owing to its gender and social transformation. It augmented its family planning program with gender-focused initiatives[9] that improved literacy among girls, enhanced access to contraceptives, and dispelled traditionally held reservations regarding family planning. India, too, brought its fertility rate below the middle-income average through a framework focused on healthcare services and meeting needs, such as the unmet need for contraceptives.

It is important to note that Bangladesh and India did not achieve these results solely on the back of higher spending. In fact, their expenditure proportions are quite similar to Pakistan’s[10]. The key difference lies in the integration of human development efforts—particularly gender equity—with population planning, coupled with a visible commitment to both causes. These two are not the only lesson in successful population planning despite having limited resources; Thailand, Rwanda, and Costa Rica also share tales of success[11] with three things in common: investment in education and health, increased access to contraceptives, and women’s empowerment.

The question remains: What triggered the change post-2016, and why have policymakers and subject experts not addressed this alarming trend in Pakistan’s population growth trajectory? If a shift of this proportion is overlooked, all plans of economic development today will become unviable within a few years.

[1] Landscape Analysis Of Contraceptive Commodity Security In Pakistan, UNFPA (2020)

[2]  Population Census 2023, Pakistan Bureau of Statistics

[3] Pakistan Population Situation Analysis 2020 (UNFPA)

[4] Pakistan Population Situation Analysis 2020 (UNFPA)

[5] Issue 7: Women Empowerment (UNFPA)

[6] National Report On The Status Of Women In Pakistan, 2023 (NCSW & UN Women)

[7] Economic Survey of Pakistan 2023-24

[8] Policy Brief on Female Labor Force Participation in Pakistan (Asian Development Bank, 2016)

[9] Gender and Social Transformation in Bangladesh, World Bank (2008)

[10] Social spending in South Asia—an overview of government expenditure on health, education and social assistance (UNICEF, 2020)

[11] Population policies that work (Population Matters, 2023)



November 7, 2024

November 4, 2024

By Kamran Arshad

Industrialization is the backbone of economic growth, fueling GDP, enhancing export growth, and creating employment opportunities. Energy lies at the heart of this process. In many ways, energy is the economy, as it underpins productivity and innovation, fueling economic growth and prosperity. History bears witness to this, with the coal-powered Industrial Revolution and the oil-driven expansion of the 20th century both demonstrating the transformative impact of affordable and abundant energy on the economy, productivity, and industrial output.

In Pakistan’s textile industry, affordability and reliability of power supply are not merely growth factors but necessities for survival. The sector now faces a scenario that threatens to erode its competitiveness and lead to widespread deindustrialization. The economic consequences of disconnecting gas and RLNG supplies to industrial in-house power generation facilities would be devastating, as misguided energy policies and resource misallocation ultimately translate into substantial losses in industrial competitiveness, exports, and employment.

Since the emergence of the 1994 Power Policy, industries have been incentivized to invest in their own energy solutions, enabling them to meet production energy demands essential for growth. This shift has allowed businesses to tackle persistent issues of power outages, reliability, and quality while providing affordable on-site energy with zero line losses. No subsequent policy has discouraged or banned in-house power generation, underscoring its role in industrial growth. Export-Oriented Units (EOUs) increasingly rely on these facilities to ensure an uninterrupted energy supply and consistent production.

However, as Pakistan plans to phase out gas-fired captive power plants (CPPs) from the gas sector to meet structural benchmarks of the 25th IMF Program, it risks stifling an essential lifeline: exports. This decision will further destabilize Pakistan’s economic foundation rather than strengthen it, as the country faces foreign exchange shortfalls of up to $25 billion annually for the next five years. With soaring grid electricity costs, increasing outages, and declining reliability, industries are grappling with significant financial burdens and operational disruptions. This policy will not only hinder industrial output but also directly impact exports and employment levels, raising concerns about potential inflation as power prices are expected to rise further.

According to data from the Ministry of Commerce, 34 leading exporters, consuming 65.65 MMCFD of gas at nearly double the prescribed rates, generated $7.51 billion in exports. Additionally, 137 firms used 98.63 MMCFD to contribute $5.33 billion. Together, these companies produced exports worth $13.31 billion in FY 2022, highlighting their substantial contribution to the national economy and underscoring the critical role reliable energy plays in sustaining export growth.

Table 1. Export Proceeds of Industries with Gas-Fired Onsite Generation.

Export Range No. of Companies No. of Connections Average Consumption (MMCFD) Exports (US$ in billions)
US$ > 100 million 34 108 65.65 7.51
US$ > 10 million 137 208 98.63 5.34
US$ > 1 million 97 120 27.14 0.43
US$ ≤ 1 million 81 87 12.34 0.02
Grand Total 349 523 203.77 13.31

Source: Ministry of Commerce

Industrialization as an engine to Economic Growth:

Export-led economies like China and Vietnam prioritized industrialization to drive economic growth, increase employment, and expand their global market share. In contrast, Pakistan’s industrial sector’s contribution to GDP is on a declining trend, slipping from 19.1% in FY2022 to 18.4% in FY2023 and further to 18.2% in FY2024, indicating weakening industrial momentum and competitiveness. Instead of creating an export-friendly environment, the policies and economic landscape in Pakistan have pushed industries to the verge of collapse.

The policy to shut down gas supply to industrial in-house power generation facilities will exacerbate the situation, as the financially unviable and unreliable grid supply cannot support this transition. This move will immediately impact Pakistan’s largest export sector, risking damage to $3 billion worth of exports.

Pakistan’s textile industry is already confronting a myriad of challenges that jeopardize its competitiveness and sustainability. An overall unfavorable business environment and tax policy distortions accompanied by soaring energy prices has significantly damaged the industry’s export potential.

These challenges are exacerbated by soaring energy costs and the lack of a reliable, uninterrupted power supply essential for textile manufacturing. From FY 2019 to FY 2024, electricity tariffs for B2 and B3 categories have risen by over 100%. Cutting off the gas supply to self-generation facilities forces industries to transition to a financially unviable grid or face complete shutdown. Ultimately, the former will push industries toward the latter.

Energy Dynamics in the Textile Industry: The Importance of Gas/RLNG

Gas and RLNG are essential energy sources for the textile sector, serving as the primary fuel for many industries. Since the Power Policy of 1994, in-house power generation facilities have been critical in providing the affordable and reliable energy needed for high-quality textile and apparel production. These facilities ensure smooth operations by preventing outages, interruptions, and voltage fluctuations that could disrupt manufacturing processes and damage expensive machinery, while also stabilizing production costs and ensuring export-quality products – essential for meeting international market demands. Transitioning entirely to grid power and shutting down in-house facilities would increase downtime, maintenance costs, and risk international export orders.

A 2022 study estimated that a one-hour power outage results in a revenue loss of approximately 24% for the textile industry (Yasmeen et al., 2022). Between 2014 and 2018, high energy costs and frequent power outages led to the closure of around 100 textile manufacturing units (PIDE, 2021), causing exports to stagnate during that period. As of 2024, over 40% of spinning mills have announced operational shutdowns due to escalating energy costs. With an unreliable grid and limited access to gas, industries are compelled to rely on alternative fuels such as coal, diesel, or furnace oil, further undermining their competitiveness. Additionally, since power sector merit orders prioritize imported coal power plants over RLNG plants, shifting demand from gas-fired self-generation to the grid will increase the dispatch of these coal plants, leading to higher carbon emissions, inefficient gas usage, and a setback to climate goals and distributed generation.

A study by Socioeconomic Insights and Analytics finds that in the immediate aftermath of cutting off gas supply to industrial self-generation facilities, over 1,400 large units and countless smaller ones are likely to shut down, leading to approximately 3 million job losses and $3 billion export losses per annum. These figures could rise even further when including smaller units. This drastic measure will lead to widespread deindustrialization and socioeconomic instability.

The benefits of in-house power generation for industries, lifeline consumers and the national exchequer

Approximately 50% of industrial gas is utilized for electricity generation in in-house facilities, while the remainder supports various other manufacturing industries, including fertilizers, cosmetics, plastics, pharmaceuticals, and synthetic materials. About 20% to 22% of the gas consumed in the industrial sector is specifically used for electricity generation in facilities not connected to the national grid.

The exit of high-paying bulk consumers of RLNG, such as CPPs, is projected to create a significant revenue shortfall of PKR 390.8 billion for Sui companies, threatening the financial sustainability of gas utilities. This shortfall jeopardizes the cross-subsidy mechanism that currently allocates over PKR 140 billion to subsidize residential consumers. Furthermore, shifting bulk gas consumers to retail could significantly raise Unaccounted-for Gas (UFG) due to the negative impact on the bulk-to-retail ratio, affecting both the profitability and sustainability of Sui companies.

This situation could lead to ‘Take or Pay’ penalties on LNG cargoes because of the absence of a gas diversion plan, which is likely to cause demand destruction as these penalties are passed through to RLNG consumers per the Petroleum Division guidelines. The lack of strategic planning in the gas sector and sudden policy shifts could seriously compromise the stability of the entire energy sector. This further risks a cascading collapse of state-owned entities in the Petroleum Division, emphasizing the necessity for an integrated energy plan and strategic direction.

There are a total of 1,386 CPPs, of which 1,265 are connected to the grid. It is essential to note that not all CPPs are dual-fuel engines for electricity generation; therefore, distinguishing between the gas used in industrial processes and the gas used for electricity generation can be challenging. Consequently, in most cases, the non-availability of gas implies a complete shutdown of industrial operations.

 

The power generated by CPPs has been essential not only for the industry but also for lifeline consumers. As of February 1, 2024, the current notified consumer gas sale prices, revised in August for CPPs, indicate that industries served by SNGPL and SSGCL will pay approximately 39% above the average sale price, while CPPs will face costs around 193% of the average prescribed price. In addition, CPPs are receiving RLNG at a distribution tariff that includes costs from illegal fertilizer diversions and inaccurately calculated UFG in the ring-fenced RLNG price. This disparity in tariff highlights a cross-subsidy that primarily benefits the lower six slabs in the domestic sector, potentially leading to social and political repercussions. Consequently, eliminating gas supplies to CPPs will have ripple effects on lifeline consumers, resulting in increased gas prices that will ultimately translate into higher headline inflation.

 

In conclusion, cutting gas supplies to industrial self-generation facilities poses a grave threat to the textile sector, gas sector sustainability, and the broader economy. The discontinuation of gas to these facilities could lead to significant job losses, a decline in export revenues, and the bankruptcy of gas utilities. As industries grapple with soaring electricity prices, high taxes, and unreliable power sources, their competitiveness hangs in the balance. It is crucial for government authorities to reevaluate this policy and formulate long-term, sustainable strategies that protect Pakistan’s industrial and export sectors.


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