ISLAMABAD: Pakistan is increasingly held back by “very high levels” of energy subsidies, a UN report said on Monday, classifying it among the world’s lower-middle income countries. 

Russia’s conflict with Ukraine has transformed energy markets and inflation pressures around the world, with cash-strapped Pakistan and other emerging markets hit hard by the surge in energy prices. It said that global economic pressures resulting from the conflict are expected to worsen public finances and domestic inflation in the region.

Pakistan is struggling to shore up its dwindling foreign exchange reserves by attempting to secure a loan tranche from the International Monetary Fund (IMF) and multilateral organizations. The country is also trying to tackle surging inflation, which hovers above 20 percent, as it grapples with rising poverty in the country. 

In its bid to secure a loan tranche from the IMF, Pakistan rolled back subsidies for the oil and power sector in June 2022, resulting in a surge in inflation across the country. 

“Countries such as Pakistan are also increasingly held back by very high levels of energy subsidies, which weigh heavily on public finances and are failing to reduce poverty effectively,” UN’s report titled ‘World Employment and Social Outlook Trends 2023’ said. 

It said the South Asian region remains “highly vulnerable” to natural disasters, citing the floodplains of Pakistan and Bangladesh as examples. 

Pakistan’s energy imports during the last fiscal year were $23.3 billion, 29 percent of the country’s total imports. During the current fiscal year, the country imported energy products worth $7.7 billion, according to the Pakistan Bureau of Statistics (PBS).

Classifying Pakistan as a lower-middle-income country, the report said that “high and volatile energy prices” have shown how vulnerable South Asia is when it comes to energy imports. “There is a clear need to become less dependent on these imports,” it added. 

Some of the other countries that the ILO report classified in the lower-middle-income bracket with Pakistan are India, Indonesia, Iran, Bangladesh, Kenya, Lebanon, Morocco, Nepal and Nicaragua.