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Rising oil prices: how it impact on Pakistan?

The World Bank officials revealed in a statement that the prices for energy commodities like oil, natural gas and coal are estimated to jump by a whopping 20 percent in 2018. The rise in energy prices is predicted to have an adverse impact on India, because it heavily depends on these commodities. The officials also predicted that the oil prices are forecast to average USD 65 a barrel over 2018, up from an average of USD 53 a barrel in 2017, on strong demand from consumers and restraint by oil producers, while metals prices are predicted to increase 9 percent in ongoing year, also on a pickup in demand and supply constraints.

Although prices are predicted to decline from April 2018 levels, they should be supported by continued production restraint by OPEC and non-OPEC producers and strong demand, the officials added. It has been also mentioned in the first quarter of 2018, global oil consumption is predicted to have risen 1.6 per cent. Consumption growth accelerated to 1.4 percent in OECD members with gains mainly in North America, as cold weather boosted heating oil demand.

Consumption growth in non-OECD countries in the first quarter rose 1.8 percent over the corresponding period, led by China, although its consumption growth slowed amid environmentally motivated production cuts and the late New Year holiday season. Although, India’s consumption, up 11 percent, also increased strongly.

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If we talk about developing countries such as Pakistan which is mainly an oil importing nation, spends large chunk of its precious foreign exchange reserves, almost $14 billion yearly on oil imports.

Economists also believed that the fall in oil prices is therefore an opportunity to be cashed in for saving up money and spurring economic growth in Pakistan. The government official urged that during Jul-Feb 2017-18, Pakistan imported 60.4 million barrels of crude oil, while it locally extracted 21.8 million barrels oil. It is also urged that the yearly consumption of petroleum products in Pakistan was around 26 million tons during the last fiscal year. The economists also see that the indigenous crude oil met only 15 percent of the country’s total requirements, while 85 percent requirements were met through imports in the shape of crude oil and refined petroleum products.

 

Different research studies also mentioned that Pakistan is much sensitive to oil prices. A series of changes followed in its macroeconomic condition since the declining trend recorded in the global oil market. The effect of the recent changes is diverse and far reaching, affecting numerous spheres of the country’s economy chiefly in a positive way. It is important to mention here during February 2018, the circular debt had piled up to Rs 534 billion even after payment of Rs 53 billion to IPPs and PSO. In actual terms, the circular debt reached at about Rs 991 billion which included the Rs 510 billion in loans acquired from banks by Power Holding Private Limited (PHPL) to settle the earlier debt. In March this year, PHPL borrowed Rs80 billion to decrease liabilities of PSO and the IPPs, but only Rs53 billion was paid to the IPPs, nuclear power plants and PSO whereas the remaining Rs27 billion was used to bear the cost of debt servicing.

As a result, unluckily Pakistan needs almost 15,000 to 20000 MW power for each day, nonetheless, at present, it can create approximately 11,500 MW daily consequently there is a shortage of almost 4000 to 9000 MW daily.

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Different sources also urged that the crippling circular debt has been haunting different governments since the 2000s. Due to upcoming general elections in sight, the government of Pakistan proclaimed that the petrol price has been reduced by Rs2.07 and that of diesel by Rs2.00 per litre which have been effective from April 2018. The new prices of petrol have been set at Rs86 per litre and HSD (high speed diesel) at Rs96.45. However, the prices of kerosene and LDO (light diesel oil) have been sustained at level of Rs76.46 per litre and Rs65.30 per litre, respectively.

Economists also mentioned that at present, two types of taxes are being charged from consumers like petroleum levy and general sales tax. The Government of Pakistan is charging a higher rate of general sales tax at 31 percent on high speed diesel which is widely used in agriculture and transport sectors. It is charging 17 percent GST on other petroleum products. In addition, the government is charging Rs 8 per litre petroleum levy on HSD, Rs 10 on petrol, Rs 6 on light diesel oil and Rs 3 per litre on kerosene, they added. It is also believed that the Government of Pakistan is making all attempts to bring improvement in existing refineries also attracting foreign investment in this sector of Pakistan.

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