Productive use of energy critical to reviving economy

The new government faces the daunting challenge of navigating its complex economic landscape. The country’s foreign debt, while seemingly modest at US$124.5 billion or 42 percent of its GDP as reported by the State Bank of Pakistan in mid-2023, belies an undercurrent of fiscal strain.

The crux of the dilemma lies in the country’s foreign exchange earnings, which fall short of bridging the gap between export revenue and import costs. The previous fiscal year saw a current account deficit of US$30.5 billion, a gap only narrowly closed by the remittances from the Pakistani diaspora and further borrowing on the international front.

On the domestic front, internal economic challenges have thwarted efforts to boost export earnings in 2024. The textile industry, a cornerstone of Pakistan’s exports, has been particularly hit, with surging electricity costs leading to widespread mills closures and a dip in export production throughout 2023. Regulatory measures aimed at stabilising the currency have had the unintended consequence of dissuading overseas Pakistanis from utilizing official remittance channels.

In the face of static export earnings, the government’s most pressing priority is to catalyze exports through economic stability and growth. This is where the country’s energy consumption patterns emerge as both a challenge and an opportunity.

The sectors of industry, transport, and residential living have experienced notable shifts in their energy demands over the past two decades.

A discernible rise in energy consumption within residential areas, a sector that traditionally does not feed directly into economic productivity, calls for a strategic reallocation of energy resources. The following graph illustrates the need for an energy paradigm shift towards sectors that promise to revitalize the national economy.

The confluence of findings from academic literature on global energy consumption offers a robust framework for Pakistan’s energy policy.

The examination of OECD countries’ energy use illustrates the impact of economic activities on energy demands and highlights the potential for energy efficiency to mitigate these demands. The study on developing countries’ energy growth factors emphasizes the significance of balancing economic development with efficient energy use, pointing to a sustainable path forward.

Additionally, the investigation into major energy-consuming countries offers a blueprint for Pakistan, indicating that comprehensive energy efficiency and the transition to renewable sources are key to achieving a more sustainable energy footprint.

Lastly, the comparative analysis of energy consumption patterns across different regions spotlights the need for developing countries, including Pakistan, to stimulate growth in the industrial sector for socioeconomic development, shifting away from a reliance on the residential energy use which characterizes less developed economies.

Comparatively, the case of Vietnam stands out. Once marred by similar challenges, Vietnam has dramatically shifted its energy utilization towards manufacturing and technology sectors, resulting in an impressive average annual GDP growth rate of over 6% in the last decade.

This rechanneling of energy has been fundamental to its emergence as a manufacturing hub in Southeast Asia. The spotlight was on the industrial sector, which grabbed more than half of the country’s energy use, showing its key role in driving economic growth.

On the other hand, in 2020, its energy use in transportation dipped, likely because the pandemic kept people from traveling, hinting at a chance to move energy use towards more productive activities. Also, the slight rise in energy used by households suggests an opportunity to shift some energy use to boost the economy.

Vietnam made impressive progress in industrial, agricultural, and services sectors. It was the result of broad-based economic transformation, which opened the Vietnamese economy to international markets and foreign trade. Global exports of Vietnam have surpassed $370 billion, while its global imports have crossed $358 billion.

We have a lot to learn from the Vietnamese economic model, which underscores the importance of integrating into the global economy and leveraging sectors that can drive substantial economic growth.

Bangladesh’s journey towards greater energy efficiency is evident through strategic investments in energy-intensive industries, such as the textile sector, which now remarkably accounts for around 80% of the country’s export earnings. This deliberate push has seen the industrial sector’s energy consumption rise, catalyzing a boost in economic activity and job creation.

The shift in energy use reflects a broader economic transformation, where energy previously utilized for less productive means is now powering sectors that directly enhance the country’s GDP and export capabilities.

Furthermore, an analysis of Bangladesh’s gas consumption paints a clear picture of prioritized resource allocation: about 40% is directed to the power sector, with industry and captive power following closely. This judicious distribution of energy resources, favoring industrial over non-productive use, contributes to a higher energy to GDP conversion rate, setting a commendable example in the region. Such deployment of energy should serve as a blueprint for Pakistan.

The energy intensity graph, which measures primary energy consumption per unit of gross domestic product (GDP) in kilowatt-hours per dollar, illustrates the economic efficiency in Vietnam, Pakistan, and Bangladesh. Vietnam exhibits an ascending line, indicating rapid industrialization and economic growth accompanied by increased energy usage per unit of GDP. This suggests a phase of development characterized by heavy industry expansion.

Conversely, Pakistan and Bangladesh maintain lower energy intensities. Bangladesh’s prioritized resource allocation strategy contributes to its superior energy efficiency compared to regional counterparts. The declining energy demand within Bangladesh’s industrial sector reflects greater energy efficiency in industrial processes, bolstering the country’s overall energy performance.

While Vietnam’s model of industrial growth is enviable, it argues for a strategic approach in Pakistan: emulating Vietnam’s aggressive economic development while concurrently investing in energy efficiency technologies and practices. This dual focus would ensure that Pakistan’s economic growth, powered by increased energy use in productive sectors, does not come at the cost of environmental sustainability or long-term economic viability. It’s about finding a balance between the necessary energy consumption for growth and the efficient use of energy to ensure that every kilowatt-hour contributes as much as possible to Pakistan’s GDP.

Tailored energy policies are imperative, with Pakistan’s current trajectory pointing towards a higher proportion of renewable energy in its power mix and the adoption of energy-efficient practices. Measures such as implementing minimum energy performance standards (MEPS) for appliances and promoting renewable energy alternatives are crucial steps towards enhancing energy efficiency in the residential sector and thereby lowering household costs and making valuable energy for industrial use.

Similarly, attention to the transport sector, through the adoption of electric vehicles and improvement in public transport infrastructure, can bolster energy productivity while mitigating environmental impacts.

However, realizing this vision necessitates policy synchronization, requiring coordinated efforts across ministries and sectors. Revamping outdated policies, incentivizing renewable energy adoption, and implementing stringent energy efficiency standards are vital steps towards achieving energy resilience and economic prosperity.

Pakistan’s journey towards economic revival through productive energy use is both a challenge and an opportunity. By drawing lessons from Vietnam and Bangladesh, Pakistan can navigate towards a brighter economic future, where energy is not merely consumed but harnessed as a catalyst for growth and development. The path forward is clear: strategic energy reallocation, coupled with a focus on efficiency and sustainability, will energize Pakistan’s economy, driving it towards prosperity and resilience.

Copyright Business Recorder, 2024