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Power Sector Debt and Pakistan’s Economy

Author

Listed:
  • Afia Malik

    (Pakistan Institute of Development Economics)

  • Ghulam Mustafa

    (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.

Suggested Citation

  • Afia Malik & Ghulam Mustafa, 2024. "Power Sector Debt and Pakistan’s Economy," PIDE-Working Papers 2024:2, Pakistan Institute of Development Economics.
    • Handle: RePEc:pid:wpaper:2024:2
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    References listed on IDEAS

    as
    1. Rehana Siddiqui & Hafiz Hanzla Jalil & Muhammad Nasir & Wasim Shahid Malik & Mahmood Khalid, 2008. "The Cost of Unserved Energy: Evidence from Selected Industrial Cities of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(3), pages 227-246.
    2. Afia Malik & Amena Urooj, 2022. "Electricity Tariff Design: A Survey (Policy)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 61(4), pages 663-680.
    3. Tahir Basharat Cheema & Nadeem Ul Haque & Afia Malik (ed.), 2022. "Power Sector: An Enigma With No Easy Solution," PIDE Books, Pakistan Institute of Development Economics, number 2022:12.
    4. Kessides, Ioannis N., 2013. "Chaos in power: Pakistan's electricity crisis," Energy Policy, Elsevier, vol. 55(C), pages 271-285.
    5. repec:pid:wpaper:2012:4 is not listed on IDEAS
    6. Syed Sajid Ali & Sadia Badar, 2010. "Dynamics of Circular Debt in Pakistan and Its Resolution," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(Special E), pages 61-74, September.
    7. Afia Malik, 2012. "Power Crisis in Pakistan: A Crisis in Governance?," PIDE Monograph Series 2012:1, Pakistan Institute of Development Economics.
    8. Afia Malik & Amena Urooj, 2022. "Electricity Tariff Design: A Survey," PIDE Knowledge Brief 2022:81, Pakistan Institute of Development Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Circular Debt; Electricity Tariff; Pakistans Economy;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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