SOME of us had repeatedly questioned the claim of the previous government that it had put the economy on a high-growth trajectory and that the economy would remain on that track for many years to come.

In spite of our doubts, we did not think that the economic situation would unravel so quickly; that the transition from a sense of great achievement to one of utter despair would happen in about a year.

In March 2007, the Newsweek published a story applauding Pakistan’s economic performance. Another sleeping economic giant was waking up in Asia, said the magazine. Now just over a year later, the economy is in deep crisis. What went wrong?

More than one thing went wrong. The policymakers did not really have a strategy. They made many mistakes. I will discuss three of these today. The first was to unquestioningly follow the advice of the IMF and adopt a sequential approach to economic management.

In the three-year period between 1999 and 2002, Islamabad applied breaks to the economy although in terms of the growth rate it was not charging ahead. The economy then was in a bad shape in large part because of the hard sanctions that had been imposed on the country after the decision to carry out nuclear tests in May 1998. The resulting contraction in the flow of external finance created serious imbalances. Had the imbalances been allowed to persist, the economy would have spun out of control. There was no doubt that serious adjustments needed to be made to public policy.

Accordingly, when a new set of political masters took the reins of government in 1999, it decided to seek support from the IMF which always comes with a number of strings attached. The Fund wanted economic balance to be restored by severely restricting government spending and by using a tight monetary policy to reduce demand. This is standard Fund advice — but it is negotiable.

When Pakistan chose to follow the IMF advice, I was at the World Bank responsible for that institution’s programme in Latin America and the Caribbean. Colombia was one of the many countries for which I had responsibility at the Bank. It too was negotiating with the Fund and that country’s finance minister approached me for advice. I told the Colombians to go to the Fund after developing a strategy of their own.

Armed with a strategy that put emphasis on controlling current expenditures while preserving public sector outlays on social programmes and continued care for the poor, the Colombians went to the Fund and were able to negotiate a programme that did not sacrifice their main economic objectives.

Pakistan’s approach to the Fund was entirely passive. The IMF dictated and the Islamabad policymakers took note. They walked away with a condition-rich and resource-rich programme aided by the Fund. The result was a three-year period characterised by painfully slow growth, increasing poverty and a poorly performing export sector. In 2003, Islamabad changed course and decided to lift its foot from the break-pedal and put it on the accelerator.

Experience has taught us one important lesson. It is never healthy to jolt an economy; to break it hard or to accelerate it rapidly. Jolts hurt and what happened to the economy after 2003 was expected. Even then had the economic managers developed a strategy to bring growth back to the economy, today we would not be watching a disaster unfold. This was Islamabad’s second mistake.

Encouraged by the sharp reduction in the burden of debt which reduced interest payments by the national exchequer, policymakers went on a spending spree. ‘Fiscal space’ became a favourite term in Islamabad as all kinds of expenditures increased. Increases in outlays on social sectors and infrastructure were justified but not a sudden spurt in spending on frivolous activities.

Senior government officials visited scores of countries, accompanied by large entourages. Dozens of heavy, bulletproof cars were imported in the name of security. The new prime minister brought into office a cabinet that had more than five dozen ministers. New office buildings were ordered for the ever-expanding federal government in Islamabad. Pakistan behaved as if it had found an oil gusher without oil; it behaved like a country in the Middle East.

If Islamabad had cared to strategise, it would have realised that a growth spurt increases all manner of demands, especially for energy. Once again we know from experience that the ratio of increase in the demand for energy to the rate of increase in GDP is well above one.

If growth is led by more energy-intensive sectors as was the case in Pakistan, the demand for electricity would increase at a rate 50 per cent higher than that of GDP growth. A rate of GDP increase of seven per cent a year would produce an increase in energy demand of more than 10 per cent per annum. No such calculations were made and, in their absence, no plans were made to increase the supply of power. The result, not unexpectedly, was widespread load-shedding.

In Lahore, where I am these days, power goes six to seven times a day, each time for an hour. There is an incalculable loss in productivity and a calculable loss in total output. I would not be surprised if the loss in output is of the order of one per cent of GDP in the current financial year.

The third mistake by Islamabad was to allow an increase in demand for consumer durables. Most of these were imported or made from imported parts. A significant number of these were financed by the banking system.

For the banks, financing automobiles, motor-bikes, air-conditioners, refrigerators and freezers was an easier undertaking than financing investment. Interest rates were high, the deposit rate remained low. The banks made large profits and, as shown by the performance of the Bank of Punjab, some of them became careless. Not much ‘due diligence’ was done by the banks. Islamabad stood silently by as consumer demand for expensive items of consumption exploded and put additional burden on energy supply and the balance of payments.

In sum, what we are seeing today is the product of many mistakes Islamabad made in the 1999-2002 period. I have counted three of these but there were several more. The new government has been forced to take actions that can’t be popular with the citizenry. But they are necessary. However, learning from past experience, this adjustment must be part of a well-thought-out strategy that does not squeeze growth out of the economy and hurts the poor.

THE power crisis that has hit Pakistan does not have any quick solution. Power plants in the pipeline will be commissioned later next year at the earliest. In two to three years, the problem could become less severe if the right steps are taken at this stage. As in other areas, the government’s incompetence and utter failure to carry out its responsibilities in the last so many years is evident in the current electricity crisis.

In the short term, one can only talk about the management of the crisis. Energy conservation is the best way of managing and mitigating the adverse effects on the socio-economic sector. More importantly, energy conservation can also help to ensure a sustainable future for Pakistan. The conservation of energy has to focus on both, a behavioural change towards power consumption and technological upgrades. The latter is generally out of reach for most people as apart from the cost factor it requires reliable information, standardised products and a developed market.

The domestic sector consumes almost half the supplied electricity. A significant portion of this consumption involves lighting. Street and outdoor lighting consume a large share. Air-conditioners, refrigerators and entertainment-related equipment are among the major consumers.

Incandescent bulbs have been the main choice in domestic lighting for reasons of economy. Fluorescent tube lights have traditionally been thought of as an energy-saving option. They are widely used in the urban areas of the country. Fluorescent tube lights do consume less power than incandescent bulbs (they emit the same amount of light) although the quality of magnetic ballast used with fluorescent tubes is often ignored in the context of consumption.

Magnetic ballasts, operating with a 40W tube, consume an additional 10-40W. Solid-state (electronic) ballasts are efficient (consuming two watts approximately), noiseless and flicker-free. If used with fluorescent tube lights, they are as energy-efficient as compact fluorescent lights (CFL or energy-saving bulbs). But electronic ballasts for tube lights did not succeed in the market due to their higher price, lack of promotion and low quality of the products. CFL are essentially compact tube lights with integrated electronic ballasts.

Prime Minister Yusuf Raza Gilani in his inaugural speech announced the free distribution of 10 million CFL. Many experts were sceptical about the idea of free distribution. Apart from fears about corruption and theft, the concern was that many low-income households could have opted for selling CFL. In a household with consumption of less than 50 units, a replacement would only save seven rupees a month on the electricity bill. It was recently announced that the free distribution plan has been abandoned. The alternate proposal is to sell the bulbs to consumers on installments. A maximum of six CFL would be sold per household on monthly installments. Consumers would pay back through the electricity bills. Only charitable institutions would receive bulbs free of cost.

Energy-saver distribution will make a small impact on total energy consumption. As a rough calculation, let us assume that all 10 million energy-saving bulbs (of 18W) get properly distributed and replace incandescent bulbs of 40, 60 and 100W in equal proportion. With an average usage of four hours a day, the total daily energy saving will be 1.9GWh, which is only 0.4 per cent of the average daily electricity consumption. Realistically, power saving will be around 25MW, which is only 0.13 per cent of the total installed generation capacity of the country (19.4 GW).

The actual saving on energy through this action might not be huge, but it is a step in the right direction. The current retail prices of energy savers are far too high. Controlled price distribution of energy savers is therefore necessary to spread the use of energy-saving lamps. Moreover, there is a need to create an atmosphere of behavioural change towards energy consumption. The current tide of political change can be used to propel such fundamental changes in society.

Characteristically, change is only expected from the lower echelons of society. Government officials and the elite go on with their business as usual. One rarely sees energy savers in government buildings (Wapda House, for example). Exuberant consumption by high-end markets and commercial outlets is also commonplace. If change has to be brought about in society, it should necessarily start from the top. Government buildings and big commercial outlets should set an example, not only by using energy-efficient lighting, but also by demonstrating overall energy-efficient behaviour.

There is no local production of CFL. Chinese products almost exclusively govern the local CFL market. With an increase in demand, the price of energy savers has almost doubled in the past few years, according to the Pakistan Electronic and Electrical Manufacturers Association (PEEMA). The smuggled portion of the total market has also gone up to 60 per cent from 40 per cent last year. The current wholesale price of CFLs is around Rs130-140.

According to PEEMA, the government charges up to Rs40 in duties and taxes. In the absence of local manufacturing of high quality CFL, imported products, are the only option in the near term. The government should remove import duty and sales tax to curb smuggling and control the prices of CFL. In the medium term, local manufacturing must be encouraged. The retail price can come down to Rs70-80 (as in India where the production cost per CFL is Rs40). Phasing out incandescent bulbs, which cost only Rs13, cannot be done by government distribution alone. It will require effective market mechanisms.

Lighting concerns should only form a small component of an effective energy conservation strategy. A comprehensive, multilateral and long-term plan for energy conservation is required if Pakistan is to develop a sustainable economy. Cosmetic initiatives will not be enough to improve the situation. A national energy conservation policy is needed with well-defined targets and action plans. In the domestic sector, energy-efficient building designs must be promoted through updates in the building codes.

All buildings in the commercial sector as well as urban residential complexes should have energy-efficient designs. Better buildings consume less energy both in terms of air-conditioning (heating/cooling) and lighting. Other measures like enforcing energy auditing, introducing consumption limits, implementing strict commercial sector timings, lowering weekly working hours and, above all, developing conscientious attitudes with regard to the efficient use of energy and resources are required to turn the tide. n

The writer is an energy and environment consultant at the Sustainable Development Policy Institute, Islamabad.