- Given federal revenues were at 13.4% of GDP last year, the 14.7% budgeted this year is ambitious – fiscal deficit could be up to 2% higher than the 6.3% expected for 2022
- While projected growth is encouraging, the focus on consumption alone, reflected in the expected increase in sales tax revenue, will hurt the economy in the long run
- Reliance on provincial surplus of PKR 570 B in 2022 does not seem prudent – provinces are only expected to bring in surplus of PKR 145 B in 2021
- Within current expenses, increase in power sector subsidies, lack of spend on housing and expanded coverage of Ehsaas program stand out
- Allocated development spending of PKR 900 B is sure to not be utilized when under-performance on revenues comes to light in the coming months
Deep dive into electricity in Pakistan with focus on how high prices have hurt businesses, what investments have been made and why circular debt is an issue
Electricity Price is over 25% higher than average comparable countries
Industrial Electricity is 26% higher than average in comparable countries
Source: Engro Energy Thought Paper, Bloomberg New Energy Finance
Residential Electricity is 28% higher than average in comparable countries
Source: Engro Energy Thought Paper, Bloomberg New Energy Finance
In the latest BaKhabar episode, we provide an overview of the value chain of electricity generation, transmission and distribution in Pakistan, with a focus on electricity cost, excess capacity and circular debt. From 2020 onward, Pakistan’s electricity generation will exceed peak demand. Circular debt is estimated at PKR 2.1-2.2 trillion, with further build up expected due to increasing capacity charges. Subscribe to our YouTube channel to stay up to date on Pakistan’s economy.
Last week, the KSE-100 was expected to rise by over 2,000 points but rose by less than 500 points after the pro-growth budget announcement. This week, it has fallen back to its pre-budget announcement level as the enthusiasm behind the budget fades. Fears of weaker external balance and renewed strength of the US dollar, caused the PKR to lose over a rupee in value. The US dollar is gaining strength off the back of the Fed’s announcement to manage inflation earlier than anticipated. The stronger dollar also led to a selloff in USD denominated commodities such as gold. While international prices of gold fell, they currently remain stable in Pakistan.
The annual change in Sensitive Price Index is down to 14.52% vs. 15.38% last week. This was the first time since mid-March 2021 that change in SPI fell below 15%. On a weekly basis, however, prices rose slightly by 0.28%. Families in the lowest expenditure quintile, spending less than PKR 17,732/month, continued to face the highest burden of inflation.
As Chicken prices reversed their falling trend to rise this week (+6.28%), overall SPI also rose on a weekly basis. Amongst other food items, prices of Tomatoes (+14.76%) and Potatoes (+2.01%) continued to rise. Energy prices are also up this week, with Petrol (+1.89%) contributing the most to inflation. Slight fall in prices of Eggs (-0.36%) and Sugar (-0.18%) failed to contain inflation.
What Else We’re Reading (Local)
- Every time petroleum prices increase, GDP growth has slowed down – making the case for not passing through increase in international oil prices (Business Recorder)
- Federal budget lays an excellent foundation for growth in the short run but ignores very real risks on the external account front (Dawn)
- Government plans to contain circular debt by bringing in private sector management in distribution and multi-seller multi-buyer model in generation (GVS)
What Else We’re Reading (International)
- Big tech firms should start to worry as Joe Biden appoints Lina Khan, best known for ‘Amazon’s antitrust paradox’, to head the Federal Trade Commission (Economist)
- Fed officials this week reacted to unexpectedly strong inflation data by moving forward their forecasts for when it might start raising interest rates (Financial Times)
