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Pakistan's energy crisis will trim 2015 growth

Thursday, February 5, 2015

Significance

The government is trying to transfer the benefits of low international crude prices to customers without jeopardising the finances of Pakistan's oil marketing firm. It hopes that its moves will restore its public image after a debilitating petrol crisis in January. However, this may prove optimistic: the January crisis exposed the government's continued failure to reform the energy sector, despite power and fuel shortages holding back overall GDP growth.

Impacts

  • The IMF will transfer the next tranche of around 560 million dollars to Islamabad, despite insufficient reform.
  • Inflation will decline with the fall in fuel prices, although the sales tax rise will be a partial offset.
  • The cash-strapped government will not invest in upgrading energy infrastructure; private enthusiasm is likely to be limited.
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