Daily Times

In the previous part of this article, I emphasised the international aspect of oil supply and refinery capacity that may have led to its globally higher prices. However, the impact of rising oil prices on Pakistan can not be ignored. With a swindling political situation and looming uncertainty over the IMF loans, we are now beginning to see the impact of inflation, fuel price hikes and devaluing rupee.

Two, petroleum products are one of the largest import categories. Petroleum products contributed $11.36 billion, or 20.14 per cent, to the nation’s total import bill in 2020-21. In one of his latest tweets, the Finance Minister, Mr Mifta Ismail said, “Imports in Pakistan as of July 25 were $3.758 billion and our total imports are likely to be $4.824 billion. This number will be less than our exports plus remittance.” Consequently, the rise in global fuel prices will increase Pakistan’s import payments as well as its trade and current account deficits.

According to the SBP, the merchandise trade and current account deficits for the first seven months of the current fiscal year reached $25.12 billion and $11.58 billion, respectively, compared to $13.71 billion and $1.02 billion (in surplus) for the same period of the previous fiscal year.

The situation has left the government a bit frazzled forcing it to take an abrupt decision including the lifting of the ban on most import items. This is being done in the light of a relatively smaller import bill in the month of July. Pakistan is projected to reduce its historically high energy import bill by a significant $2.5 billion in the current fiscal year beginning on July 1, 2022, in anticipation that the average price of oil on global markets will decline to $75 per barrel during the year, compared to $91 per barrel in FY22.

International economists argue that the un-documentation of Pakistan’s economy is its biggest challenge.

To reduce the unsustainable trade deficit and current account deficit, a reduction in energy import costs is essential, as the proportion of energy imports reached a record high of 29 per cent ($23.32 billion) of total imports worth $80 billion in FY22, up from 20 per cent ($11.38 billion) in FY21. On Saturday, the official Twitter account of the Pakistan Business Council (PBC) stated, “With or without the IMF, we need to reduce the projected $15 billion CA (current account) deficit for FY23 by approximately $7 billion, primarily through reductions in fuel imports.”

Amongst all of the politics behind oil, we need to consider the statistical data on Pakistan’s oil consumption. In 2016, the oil consumption of the country was recorded at 556k barrels per day and in December 2020, it was recorded at 437.337 Barrels/Day. Well, one may assume that a fall in oil consumption is not a bad indication. But for a country like Pakistan, where the number of motor vehicles has increased, our import bills of petroleum products have surged and our industrial reliance on energy has not reduced. What this reflects is a fatal flaw in policies and data collection. There have been many instances where international economists argue that the un-documentation of Pakistan’s economy is its biggest challenge. Since we are not truly certain about the size of our economy, any economic strategy policy made will not be truly effective in bringing the desired change.

Also, I said this years ago, “Before we go green, we must go black.” But falling under the international pressure of green practices led governmental actors to shun coal use and increase other energy resources instead. After the Russia-Ukraine conflict, once the European energy supply chain was chocked, we saw an immediate fall back from several countries on their coal reserves. This was taken in the larger interest of the public. Why doesn’t the same rationale apply to a developing economically crunched country like Pakistan? Our leadership needs to take firm action in its economic interest and engage Chinese Officials to immediately restore the halted coal projects under the CPEC.

As the arrangement of oil imports gets tougher by day as foreign banks refuse to provide financing against the letter of credit (LCs) opened by oil marketing companies (OMCs) and refineries with the local banks, the situation has further deteriorated. Apart from Pakistan State Oil (PSO) and Pak-Arab Refinery Limited (PARCO) – all remaining OMCs and refineries are struggling to arrange the import of petroleum products and crude oil. This is a situation where the government simply cannot wait for the IMF loan and needs to intervene to ensure that oil companies are supported to release the existing pressure on the fragile economy. Also playing its part in the impact are circulating rumours in the market. Almost six to seven cargoes worth $50-75 million each were held up because of increased risk following critical statements from relevant ministries regarding the tough fiscal and foreign exchange position of the country. It is this extremely irresponsible behaviour that further weakens the country’s already fragile economic narrative which is already threatened by the worsening credit situation, high inflation and rupee devaluation.

The crux of the matter is that whether oil or any other critical product, there will be international and national politics behind it. But the Pakistani think tanks, economists and strategists must start to work together to develop a pro-Pakistan economic narrative backed up by solid strategies and an understanding of the local and global economies.

(Concluded)

The writer is the Foreign Secretary-General for BRI College, China. He tweets @DrHasnain_javed.