DECELERATION IN GDP GROWTH RATE

SHORTAGE OF ENERGY PRODUCTS AND HIGHER PRICES CRUMBLING PAKISTAN'S ECONOMY

SHABBIR H. KAZMI
Mar 31 - Apr 06, 2008

Pakistan's oil import bill has touched a record level of US$ 6.338 billion level for the first eight months of the current fiscal year, depicting 33.68 per cent growth over $4.741 billion for the corresponding period last year.

According to the figures released by the Federal Bureau of Statistics an increase of 43.55 per cent was recorded in the import bill of manufactured petroleum products to US$ 3.416 billion during the period against US$ 2.379 billion during the same period of last year.

As against this, crude oil import soared to US$ 2.922 billion up by 23.74 per cent compared US$ 2.361 billion during the same period of last year.

The hike in import bill is mainly attributed to skyrocketing prices of petroleum products in international market. Analysts forecast an upward trend import bill in the coming months because of high prices of oil in global market.

Although, international oil prices have receded to some extent the real impact of highest ever oil price during March would be evident when the figures of oil import would be released.

During last financial year oil import bill was around US$ 7 billion but this year the finance ministry estimates that it may exceed U$ 11 billion mark by the end of June 2008. Some of the analysts go to the extent of saying that it could even go beyond US$ 15 billion mark if price continue to hover around US$ 100 per barrel.

At end February, Pakistan's total import exceeded US$ 24 billion from US$ 19.8 billion last year reflecting a growth of almost 22 per cent. Cures for the trade imbalance are unlikely to be forthcoming in the short term.

The looming energy crisis, long hours of electricity and gas load shedding with sky rocketing tariff exports are likely to come further under pressure. As against this imports are expected to take quantum leap due to the government being forced to import wheat - amid steeply rising global prices for the commodity. Higher prices for food and oil are hurting workers while exports are unlikely to show much growth in any case as they battle against international competition.

International financial institutions are already expressing concerns over Pakistan's increasing current account deficit. The World Bank in its latest report said: "Current account positions worsened in a number of countries over the course of 2007, with deficits reaching close to 5% of GDP in Pakistan and about 2% in India." The IMF has predicted that the external current account deficit will increase with recent gains in oil prices, which is affecting current account deficits in a number of countries.

According to one of the Merrill Lynch report, Pakistan's oil import bill and current account deficit is expected to rise by another US$1.5 billion, if average oil price assumption is raised to US$ 75 billion barrels (bbl) for the full 2007-08 financial year. Pointing at a possible current account deficit of US$ 7.7 billion in 2007-08, the Merrill Lynch has calculated that every 10% rise in oil prices will add $700 million to the import bill and the current account deficit.

Foreign investment inflow in Pakistan has been estimated a little above US$ 5.1 billion for 2007-08, compared with US$ 8.4 billion for the previous year, leaving the remaining $4 billion or so of current account deficit to be funded through a mix of reserve withdrawals and external debt.

There is a growing consensus that the risk of a pronounced second round of inflation cannot be ruled out due to the significant increase in food and oil prices. Global wheat prices have more than doubled and prices of the grain have risen more than 20% since November in Pakistan, the world's sixth-largest consumer of the dietary staple.

OIL PRICES

From 2004 onwards, crude oil price has been soaring in the international market, and for the first time in October 2004, oil prices crossed the benchmark of US$ 50 per barrel. It continued to fluctuate but kept moving up each year and in 2007 briefly crossed US$ 100 per barrel. For the past few days it has been hovering around US$ 105 per barrel.

The oil industry has been plagued by two main deficiencies 1) drop in exploration activities coupled with the global refining capacity did not keeping pace with the rise in demand by developing countries, especially in China, India and the Far East. On top of this OPEC and the vertically integrated oil industry have displayed no interest in increasing the output, which needs additional investment in exploration and at last 4 to 5 years to build additional refining capacity.

All oil-consuming countries, particularly the third world countries have suffered due to the consistently rising energy cost and Pakistan could not remain immune. In fact Pakistan is among the worst hit countries due to rising energy cost.

The domestic energy generation sources are restricted to hydropower, limited production of oil and gas, and negligible use of coal as the input for power generation. Even the conversion of cement industry to use coal did not help much as the required quantity was being imported.

Pakistan's oil production during July-January grew by 7.5% over the same period last year to reach 72,354bpd (barrels per day) as against 67,324bpd.

Gas production on the other hand grew by 2.6% during this period to reach 4,018mmcfd (million cubic feet per day) from 3,916mmcfd. LPG production of the country increased by a meager 0.3% taking the total oil and gas production of the country to 784,407boepd (barrels of oil equivalent per day).

A number of strategic policy decisions could not be made due to completion of term by the last government, interim set up and delay in forming new government. Since most of the crucial moves have been, people expect from the new government immediate steps.

The government must ensure uninterrupted supply of energy products at affordable cost. The recent load shedding of electricity and gas has affected Pakistan's economy in the worst possible manner. Pakistan is blessed with enormous alternate energy resources, particularly renewable ones, why waste time?