CSS Current Affairs | Effects of the Energy Crisis on Pakistan’s Small and Medium Enterprises (SMEs)
The following assignment question for CSS Current Affairs is solved by Zainab Mahmood under the supervision of Howfiv’s Pakistan Affairs and Current Affairs Coaches: Miss Iqra Ali and Sir Ammar Hashmi. She learnt how to attempt 20 marks question and essay writing from Sir Syed Kazim Ali, Pakistan’s best CSS and PMS English essay and precis teacher with the highest success rate of his students. This solved question is attempted on the pattern taught by Sir to his students, scoring the highest marks in compulsory and optional subjects for years.
Outline
1-Introduction
2-Overview of Energy Crisis in Pakistan
3-Importance of Small and Medium Enterprises in Pakistan’s Economy
4-Effects of the Energy Crisis on Pakistan’s Small and Medium Enterprises
- ✓Substantial Reductions in Production and Revenue
- ✓Increased Production Costs
- ✓Reduction in Employment
- ✓Closure of Enterprises
5-Conclusion
Answer to the question
Introduction
Energy is considered to be the backbone of human activities. Providing adequate and affordable energy is therefore essential for the eradication of poverty, improvement of human welfare, and raising the standard of living of human beings throughout the world. The energy sector remains a pivotal driver of Pakistan’s economic and industrial development, impacting productivity, trade competitiveness, and overall quality of life. But the energy crisis in Pakistan is a major national challenge that has weakened the economy, reduced industrial productivity, increased unemployment, and disrupted essential services. Similarly, small and medium enterprises (SMEs) are important to Pakistan’s economy, but their potential remains untapped mainly due to the energy crisis.
Overview of the Energy Crisis in Pakistan
Pakistan is facing a severe energy crisis that threatens economic stability, industrial productivity, and the daily lives of millions. With electricity shortfalls reaching 5000-7000 MW during peak seasons, businesses and households experience prolonged power outages, leading to widespread disruptions. The country’s overreliance on imported fossil fuels, outdated infrastructure, and inefficient energy policies have worsened the situation. According to the World Bank (2025), Pakistan loses over 6.5% of its GDP annually due to power shortages, highlighting the urgent need for reform. Thus, Pakistan is grappling with a multifaceted energy crisis, compounded by political instability and economic stagnation.
Importance of Small and Medium Enterprises in Pakistan’s Economy
Small and Medium Enterprises play a vital role in Pakistan’s economic development by contributing significantly to GDP, employment generation, and poverty reduction. As the backbone of the country’s economy, SMEs account for approximately 90% of all business establishments and employ nearly 78% of the non-agricultural labour force in Pakistan. SMEs in Pakistan contribute around 40% to the national GDP, indicating their crucial role in economic growth. They provide opportunities for marginalized communities to participate in economic activities. Despite their importance, SMEs in Pakistan face several challenges, mainly the energy crisis. This issue hinders their growth potential and limits their ability to compete in international markets. Therefore, addressing such challenges will enable SMEs to become even more effective contributors to the country’s economic development.
Effects of the Energy Crisis on Pakistan’s Small and Medium Enterprises
The energy crisis has severely affected many sectors of Pakistan’s economy. The frequent and severe electricity crises directly hinder the operations of SMEs, leading to substantial reductions in production, sales revenues, and employment levels.
- Substantial Reductions in Production and Revenue
The global energy crisis, triggered by the Russian invasion of Ukraine, has raised natural gas and electricity prices to record highs in some markets, forcing SMEs to adapt to operational challenges and declining productivity and revenues. So, the surgical and leather goods manufacturing sectors in Sialkot cut production capacity to 60%. Without exception, energy prices have risen, creating high inflation and curtailing output with an unclear outlook for the future.
- Increased Production Costs
The largest challenge our SMEs face is inflation and increased energy prices, whether in electricity, gas, or fuel. This has increased production costs. A clear example of this is the Faisalabad power loom sector, where electricity tariffs have risen from around Rs. 19 per unit to over Rs. 55 per unit due to fuel prices. If they can afford it, they pay heavy charges for alternative sources. This shift of price burden is then moved to the shoulders of ultimate consumers. To cope with rising energy costs, the most widely adopted business decision is to raise product and service prices immediately and temporarily.
- Reduction in Employment
To cope with financial pressures, many SMEs reduce their workforce, cut working hours, or delay hiring new employees. This contributes to unemployment and economic instability. In Pakistan, SMEs employ roughly 70% to 80% of the non-agricultural workforce. For example, a reduction in employment is the crisis faced by the small-scale power loom units in Faisalabad. When they cut jobs, it immediately impacts the national unemployment rate.
- Closure of Enterprises
Some SMEs, especially those with limited financial resources for alternative sources like generators, solar panels, etc., are unable to bear the additional costs and losses caused by the energy crisis. Consequently, many businesses either scale down operations or shut down permanently. During the global energy crisis of 2022, the complete closure of enterprises was reported in the Gujranwala and Gujrat industrial clusters, which are known for manufacturing electric fans, washing machines, and small kitchen appliances.
Conclusion
The energy crisis has had a direct negative impact on operating SMEs and reduced their production, sales revenues, and employment. SMEs are a driving force behind Pakistan’s economic growth, job creation, and poverty reduction. To harness their full potential, the government must focus on creating reliable power-generating resources, a favorable business environment, and supporting policies. Also, the SMEs sector should be granted legal permission to produce its own electricity to overcome the shortfall and avoid its adverse effects on production and employment. These solutions will enable SMEs to become even more effective contributors to the country’s economic development.
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