Pakistan’s Persistent Energy Crisis
Pakistan's decade-long energy crisis is rooted in poor governance. Yet the authorities and aid donors alike stubbornly fail to recognize the obvious, and instead continue to pursue costly and ultimately ineffective interventions.
ISLAMABAD – For almost a decade, Pakistan has lacked the energy it needs, with producers and consumers across the country facing power outages for up to 12 hours per day. At the root of this crisis lies poor governance. Yet the authorities and aid donors alike stubbornly fail to recognize the obvious, and instead continue to pursue costly and ultimately ineffective interventions.
Pakistan’s experience is a case study in how poor countries can often struggle to formulate and implement reforms, including reforms needed to escape poverty. And, indeed, Pakistan’s ongoing energy crisis is undermining its economic development: the Ministry of Finance estimates that energy shortages have reduced annual economic growth by two percentage points, on average, over the last nine years.
And it gets worse. Over the same period, the government has spent more than 10% of GDP to cover the energy sector’s financial losses. This means that, had Pakistan’s energy sector been reformed properly, the country’s economy could have grown significantly faster – by about 4% per year – potentially creating a sufficient number of jobs for a young and growing population.