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Macro-economic Policies and Energy Security—Implications for a Chronic Energy Deficit Country

Listed author(s):
  • Inayat U. Mangla

    (Western Michigan University, Kalamazoo, Michigan, USA.)

  • Jamshed Y. Uppal

    (Catholic University of America, Washington, DC, USA)

The paper assesses the energy sector’s foreign exchange requirements for meeting energy consumption and for capital expenditures, and identifies its implications for the country’s macroeconomic policy and management. We develop a conceptual model for projecting the energy sector’s long-term requirements for foreign exchange. The model indicates that the country’s chronic dependence on oil imports is likely to expose the economy to high and volatile oil prices. A fundamental issue for Pakistan is how the energy projects requiring large inflows of foreign capital and technology will be financed. The main implication of our analysis is that there will be continuing pressure on the country’s foreign exchange resources. The demand for foreign exchange by the year 2024-25 is projected to be US$ 20-21 billion without the FDI in new power generation. However, when we include the requirements of foreign exchange for capital expenditure, the total FX requirements are in the range of US$ 23- 24 billion. An implication of the country’s chronic energy deficiency is that the macroeconomic policies, particularly the foreign exchange rate policy, need to be redefined to reflect the projected demands on hard currencies and their expected scarcity value. It is likely that Pakistan will remain dependent on foreign imports to meet its energy requirements for a long time and will need to generate commensurate foreign exchange resources to ensure longterm energy security.

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File URL: http://www.pide.org.pk/pdf/PDR/2014/Volume3/255-273.pdf
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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 53 (2014)
Issue (Month): 3 ()
Pages: 255-273

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Handle: RePEc:pid:journl:v:53:y:2014:i:3:p:255-273
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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
  2. Rajan, Ramkishen, 2011. "Management of Exchange Rate Regimes in Emerging Asia," ADBI Working Papers 322, Asian Development Bank Institute.
  3. Farid Makhlouf & Mazhar Mughal, 2013. "Remittances, Dutch Disease, And Competitiveness: A Bayesian Analysis," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 67-97, June.
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  7. James Daniel, 2001. "Hedging Government Oil Price Risk," IMF Working Papers 01/185, International Monetary Fund.
  8. Irfan ul Haque, 2011. "The Capital Account and Pakistani Rupee Convertibility: Macroeconomic Policy Challenges," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 95-121, September.
  9. Ziad Alahdad, 2012. "Pakistan’s Energy Sector: From Crisis to Crisis-Breaking the Chain," PIDE Monograph Series 2012:6, Pakistan Institute of Development Economics.
  10. M. Ashraf Janjua, 2007. "Pakistan’s External Trade: Does Exchange Rate Misalignment Matter for Pakistan?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(Special E), pages 126-152, September.
  11. Mark Finley, 2012. "The Oil Market to 2030--Implications for Investment and Policy," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
  12. Jamshed Y. Uppal, 2011. "Government Budget Deficits and the Development of the Bond Market in Pakistan: Issues and Challenges," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 159-198, September.
  13. Shahid Hussain Javaid, 2009. "Dutch Disease Investigated: Empirical Evidence from Selected South-East Asian Economies," SBP Working Paper Series 31, State Bank of Pakistan, Research Department.
  14. Rehana Siddiqui, 2004. "Energy and Economic Growth in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(2), pages 175-200.
  15. Bielecki, J., 2002. "Energy security: is the wolf at the door?," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 235-250.
  16. Hamna Ahmed, 2009. "Capital Flows and Real Exchange Rate Overvaluation - A Chronic Ailment: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(Special E), pages 51-86, September.
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