Pakistani economy in doldrums and oil prices rise

With a GDP figure of 312.5 billion USD, the economy of Pakistan is in doldrums. The hike in petrol prices in Pakistan has caused petrol to reach a striking rate of 108 PNR/litre. The figures for diesel prices are even worse, as high speed diesel will now be available at a rate of 122.32 PNR/ litre in Pakistan. While the mainstream media had lashed out at the government of India for high prices of petrol in 2017, Pakistan is on the path of facing its highest inflation rate in 5 years.

In economic terms the oil prices in a country has a proportional effect on the consumer basket as well. With the rise in the oil prices, there is a rise in inflation as well. Pakistan already stands with an inflation rate of 8.2% which is expected to increase with the hike in oil prices. The Economic Coordination Committee of the federal cabinet has approved an increase of the petrol price by Rs 9 and diesel by Rs5.  This will raise the oil prices by 14%. The recommendation on the hike was by the Oil and Gas Regulatory Authority of Pakistan.

The economic viability of the hike is skeptical. The inflation rate will become a major concern for the Pakistan economy. The rate which is beyond the acceptable bracket of 3-4% is booming at 8.2%. The Pakistani government is already struggling with its debt issues with China. The rise in oil prices will bring hard times for the people and the sinking economy.

The government said that the hike is due to sanctions imposed by the US. However, the largest import of oil in Pakistan comes from Saudi Arabia (around 10.9%) which reduces its dependence on the countries involved in the US sanctions. Apart from Saudi Arabia, UAE also exports oil to Pakistan. Moreover Pakistan receives subsidies on its oil imports from various oil exporting countries. With all the mentioned background, hike in oil prices in Pakistan portrays the countries inefficiencies to optimally utilize its resources. The prices of petrol and diesel are already at their highest level since the Pakistan Tehreek-e-Insaf government came into power after the party won general elections in July 2018.

In 2017, reports showed that India had higher oil prices than its neighbours like Pakistan. The reports had blamed the NDA government and its tax regimes for the increase in oil prices. While India stood with Rs 69/ litre for petrol and Rs 57.13/ litre for diesel in 2017, Pakistan was at 42.14 PNR and 46.93 PNR respectively. The prices in India gradually stabilized, but Pakistan continued to face high oil prices. Despite getting support from OPEC countries, Pakistan’s government is inefficient in reducing the oil prices.

People are filled with agony, because of the uncontrolled inflation and rise in prices. The effect of the hike will directly be faced by the citizens. The economy of Pakistan is falling into a debt trap as the country is facing huge fiscal deficit. The recent trends show a decline in the foreign direct investment in the country. The net inflow of foreign investment to GDP ratio of Pakistan is also lower than India despite the fact that the economic size of the country is almost one tenth of India’s. Foreign Direct Investment (FDI) in the country touched a six month low of 132.2 million dollars in January 2019. This is a 59 percent drop from the 319.2 billion dollars received in the previous month, reported the State Bank of Pakistan.

With ECC and OGRA recommending the hike in price of oil, Pakistani economy has tough times ahead. It clearly shows the policy failures of the Pakistani Government. The Pakistani officials need to rethink the recommendations provided by them. The economic factor has to be kept in mind while decisions regarding the economy are taken.