The Root Causes of Instability and the IMF Cycle

For almost its entire history as an independent state, Pakistan has been beset by recurrent economic crises. Going to the IMF for a record-breaking 24 bailouts, one more than second-place Argentina. One of the major factors contributing to the instability faced by Pakistan, from the standpoint of macroeconomics, is its dependence on foreign energy, thereby making it vulnerable to changes in international energy prices. But over the past couple of years, it looks like Pakistan may have finally gotten hold of a fast solution to its age-old problem.

So, in order to understand how transformative this solar boom has been for Pakistan, some sort of context is needed. In short, Pakistan’s long-standing dependence on energy imports, especially fossil fuel imports, is one of the main reasons that its economy has been so crisis-prone. That’s because, since the 60s, oil and gas have accounted for the vast majority of Pakistan’s energy consumption. Even the electricity generation, which is essentially a subset of total energy consumption, gas and oil are still two of Pakistan’s three main sources of electricity, with the other being hydro power. Although the share of electricity generated by hydro power has actually fallen over time. 

Market Driven Energy Revolution 

Unfortunately, Pakistan has limited reserves of crude oil, and while it does have some natural gas reserves, including most notably the Sui gas fields in Balochistan. However, a lack of discoveries in existing fields has meant that Pakistan’s domestic gas production essentially peaked in 2012 and is now down by about 25%. This led Pakistan to import more gas, and since 2014, Pakistan’s natural gas imports have skyrocketed.

 Oil and gas account for a majority of both Pakistan’s total energy consumption and electricity generation, but the country doesn’t produce enough domestically to meet demand, which has left Pakistan dangerously reliant on imports. And this is one of the big reasons that Pakistan has faced recurrent macroeconomic........

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