Home / This Week / Cover Stories / Upwards Spike In Oil Prices: Imf’s Warning To Pakistan And Others

Upwards Spike In Oil Prices: Imf’s Warning To Pakistan And Others

Pakistan’s economy is heavily dependent on oil importing. Around 80 percent of the total oil requirement is met through imports. Crude oil and petroleum products play an important role because of their widespread use in the economy. The higher international oil prices increased the fuel cost content to a great extent. It led to increase in transportation cost, which feed the food and energy content of consumer basket.

The International Monetary Fund (IMF) has recently warned the Pakistani government and oil importers of a huge hike in oil prices. IMF has notified Pakistan that due to the increase in global oil prices, the country’s oil bills will increase by almost 30 percent during 2017. In its May 2017 Regional Economic Outlook for the Middle East, the Gulf, and North Africa, Afghanistan and Pakistan (MENAP), the IMF has stated “Any further increases could undermine consumption, increase fiscal risks, and worsen external imbalances.”

Pakistani government has been regularly increasing prices for petroleum products since the start of the year despite relatively minor fluctuations in oil prices. Currently, oil prices are at their lowest level since the start of April and are predicted to fall even further in the coming weeks. However, petroleum prices in Pakistan are still higher than what they were a few weeks ago.

The circular debt became an issue since then. The higher the international oil price, the higher was the pace of accumulation of circular debt. The decline in international crude oil prices slowed down the accumulation of circular debt in the recent past. Leaving aside the circular debt, the import bill of petroleum products resulted from higher international oil prices. Higher crude oil prices translate into food and energy inflation.

The agriculture sector heavily depends on petroleum products. The government used to subsidise the farmers to protect them from higher oil prices. The agriculture, industrial and transportation sectors depend on the petroleum products in every economy. Moreover, Pakistan’s electricity generation also heavily depends on petroleum products. The heavy dependence on petroleum products creates shortages at different intervals and leads to crises.

The International Monetary Fund (IMF) warns Pakistan and other oil importers against oil price hike. It places Pakistan where savings from low oil prices and reduced subsidies have allowed for increased spending on infrastructure, health care, education, and social services. IMF says that it will be difficult to maintain this spending now that oil prices are expected to be higher. Pakistan is among the countries that is generating profit from past reforms and whose growth is supported by the global recovery.

 

The IMF reminds Middle East, North Africa, Afghanistan, and Pakistan. (MENAP) oil importers that a key priority for them is to generate higher revenues by broadening the existing tax base. IMF says that MENAP oil importers are also exposed to changes in global financial conditions. It warns that more volatile global financial conditions could increase borrowing costs for MENAP oil importers and their banks, sheets. This could be particularly challenging for Pakistan which will be competing for funds in international markets.

Inflation has shown increase during October due to surge in oil prices as it recorded at 3.8 percent during last month over a year ago. The inflation measured through Consumer Price Index (CPI) has recorded at 3.8 percent during October against same month of the last year, according to the latest data of Pakistan Bureau of Statistics (PBS) released. The inflation has recorded increase due to continuous hike in petroleum products prices. The inflation is likely to fuel in the month to come, as the government once again has increased oil prices for November. The government has increased the price of petrol by Rs2.49 per litre. High speed diesel price was enhanced by Rs5.19 per litre, light diesel oil by Rs3 per litre and kerosene oil price increased by Rs5.19 per litre for November.

The government believed that inflation would remain under control despite increase in oil prices. Inflation rate is still under the target. The government had kept the inflation target at 6 percent for the ongoing fiscal year 2017-18. According to PBS, the CPI based inflation has recorded at 3.5 percent during first four months (July-October) of the current fiscal year. The Sensitive Price Indicator (SPI), which gauges rates of kitchen items on weekly basis, has increased by 0.89 percent.

Similarly, the wholesale price index (WPI) based inflation enhanced by 1.39 percent in the period under review. The break-up of inflation of 3.8 percent showed that food and non-alcoholic beverages prices have increased by 3.24 percent. Similarly, health and education charges went up by 10.57 percent and 11.46 percent, respectively. Similarly, prices of utilities (housing, water, electricity, gas and fuel) increased by 4.88 percent in last month. The prices of alcoholic beverages and tobacco went down by 16.21 percent. Price of clothing and footwear increased by 3.79 percent and furnishing and household equipment maintenance charges 3.06 percent.

Recreational charges and those related to culture went up by 0.32 percent in the period under review, while amounts charged by restaurants and hotels by 6.57 percent in October 2017 when compared to the same month last year. In food commodities, prices of tomatoes increased by 31.43 percent, betel leaves and nuts by 2.57 percent, potatoes 2.25 percent, eggs 2.04 percent, onion 1.9 percent and gram whole prices surged by 1.59 percent. In non-food commodities, prices of kerosene oil enhanced by 3.9 percent, education charges by 3.7 percent, motor fuel 1.91 percent and house rent went up by 1.34 percent during October as against September.

According to the PBS figures, price of pulse mash decreased by 5.11 percent, pulse moong 2.04 percent, fresh vegetables 1.9 percent, and sugar price down by 1.11 percent during October as compared to the September. In another report the International Monetary Fund (IMF) has warned Pakistan and other oil importers that because of an increase in global prices, their oil bills for 2017 will be almost 30 percent higher than the last year.

Check Also

UAE’s investments dominate energy, telecom, shipping, finance and construction industry

UAE’s investments dominate energy, telecom, shipping, finance and construction industry

Among the seven Gulf Cooperation Council (GCC) countries, the UAE is the biggest investor in …

Leave a Reply