The all-time high international oil prices posing a
serious threat to the world economies as the adverse impact may stall
the economic growth obviously Pakistan was not an exception to the
Despite an unusual increase in oil prices in the
world market, which touched a record high at $45 per barrel, the price
level has been kept static in Pakistan for different reasons including
on going campaign for by-elections in which Federal Finance Minister
Shaukat Aziz is a candidate from Thar and Attock. Since he is to assume
the office of the Prime Minister, the issue of increase in oil prices
has been kept aside for the time being to avoid any public criticism;
otherwise the oil prices in Pakistan are tied up with the fall and rise
of price in the international market. The economic experts were of the
view that the oil prices were not increase in Pakistan for the last two
month despite gradual increase, however, now the time has come to pass
on the difference to the consumers because keeping oil prices static
would be contrary to the economic principles.
However, the level of government levies on oil in
Pakistan was also on the higher side as according to target for the
current year to generate revenues from oil and gas sector are estimated
around Rs40 billion. This is the cushion where the economic managers are
in a position to accommodate the exorbitant increase in the world oil
prices, if the hike was allowed to affect, its multi-facet effects on
investment, unemployment and growth rate may badly affect the targets
set for the current financial year.
Luckily, the nature was kind enough to Pakistan,
which has been, gift plenty of natural gas as well as huge coal deposits
beneath the sandy lands of Thar. Now the time has come to accelerate the
efforts for exploiting the given resources at the optimum level to
protect the people of this country who are already facing the harsh
economic constraints in the form of price inflation, unemployment and
low rate of income as compared to the developed nation.
It is also the high time that the Organization of
Petroleum Exporting Countries (OPEC) should be undaunted of the
political pressures and take the notice of unusual oil price hike and
seriously take concrete measures to increase oil production in the
larger interest of the world economy especially the developing and under
developed nations which have already passed through the agonies of the
wave of terrorism having devastating the economic conditions of the poor
Meanwhile it is feared that rising world oil prices
would widen the trade deficit and raise the import bill in Pakistan
while freezing of oil; prices locally would reduce revenue collection
from petroleum development otherwise.
International oil prices remained firm in early 2003,
but have been rising steadily since January 2004. The price of benchmark
brent crude has risen by 38 percent, setting anew all-time record of
$44-45 per barrel.
The global oil prices are touching historic highs.
The main reasons are increasing demand from China, fast approaching
winter season in North America, limited excess production capacity of
OPEC and recent Russian government action against Yukos.
According to an analytical assessment by the Chief
Economist of ABN AMRO Bank Sakib Sherani, the precipitous and
unrelenting rise in oil prices has the potential to generate negative
effects on Pakistan as well.
The transmission channels include higher import
payments for oil and other commodities which would rise in tandem;
possibly lower exports (if the global economy slows and partner country
trade demand is effected, inflation (through the government decision to
freeze domestic petroleum prices has blunted a major portion of direct
impact on consumer prices; a higher fiscal deficit; higher interest
rates (as a result of both the above factors; possibly slower economic
growth and investment; quantifying some of the direct effects if
international oil prices average $35 per barrel throughout the financial
year 2004-05, it will add approximately $600 million in additional
foreign exchange payments.
The pressure is exacerbated by the need to import
furnace oil during the current financial year due to lower hydel power
generation. Higher crude oil prices have two-fold impact on local
economy. Pakistan imported $3 billion, which is about 19 percent of
total import bill last year. If the current high oil prices remain
constant throughout this fiscal year oil import bill is likely to touch
$4 billion at the end of the 2004-05. Another impact is likely on the
growing stock business in Pakistan. Obviously, the oil price increase
would erode the profitability of the industrial sector, which may also
have an adverse effect on the shareholders as well.
One thing which I would like to add here that
governments in the past were using the gas pipeline projects just to
make headlines in the newspapers for over a decade or even beyond that,
however, practically speaking no serious thought was given on this
aspect to make it a reality.
During the last decade countless meetings,
discussions were held besides arrival of delegations from the concerned
countries and the visits by Pakistan delegations to the relevant
countries, but all these visits have proved as a joyride by the
officials at the cost of the exchequer, while the project of importing
oil through pipelines either from Iran or Central Asia practically
speaking is lying in the deep freezer. Had this project implemented we
could avoid price escalation of the project and remain out of the
pressures of the international oil price hike as well.