Power Sector Debt and Pakistan’s Economy

Afia Malik and Ghulam Mustafa
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Ghulam Mustafa: Pakistan Institute of Development Economics

No 2024:2, PIDE-Working Papers from Pakistan Institute of Development Economics

Abstract: The electricity sector’s financial stability is crucial for the smooth functioning of power systems. However, in Pakistan, circular debt is holding the sector and the entire economy hostage. To quantify the impact of this problem, a study is conducted using standard econometric techniques to investigate circular debt effects on the industrial sector at both the firm and macro levels. The study also measured the impact of circular debt on different sectors, sub-sectors, and factor inputs in the economy using a Computed General Equilibrium model through cost of production path. The study revealed that circular debt hurts real GDP and all sectors, increasing fiscal deficit and trade imbalance. The study also estimated a total public welfare loss of US$13 billion due to a 10 percent growth in circular debt. At the firm level, circular debt via an increase in tariffs is causing a reduction in profitability due to a significant increase in production costs. At the macro level, this is causing a decrease in industrial output and export competitiveness.

Keywords: Circular Debt; Electricity Tariff; Pakistans Economy (search for similar items in EconPapers)
JEL-codes: C68 D22 Q43 (search for similar items in EconPapers)
Pages: 35
Date: 2024
New Economics Papers: this item is included in nep-ene and nep-fdg
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