Sep 1 - 7, 2008

Pakistan is currently passing through the most difficult times on the back of uncertain domestic polices which are in a way adding to the external account vulnerability. The economy is confronted with massive deterioration in liquidity due to sustained surge in trade which consequently causing high current account deficit estimated at $13 billion.

In fact, it was the unusual depreciation of exchange rate being witnessed by Pakistan in the entire region adding fuel to the fire in the face of high cost of oil imports. Informed sources told PAGE that Saudi Arabia has extended oil facility of 110,000bpd on deferred payment to Pakistan , the third of Pakistan's daily requirement. This facility will be available from first week of September. The facility will expire on 30 June 2009 and should substantially ease the pressure on the balance of payments and government borrowing from the SBP.

According to financial analysts, the macro impact of the facility At US$106/bbl oil, will certainly help easing Pakistan's current account deficit by US$4.2billion to US$9.7billion (5.3% of GDP). Although the oil prices are falling and would hopefully keep the up the trend in the face of forthcoming winter however an assumption in worst conditions of oil prices at US$150/bbl, the deficit is expected to fall by US$6.0billion to US$13.4billion (7.2% of GDP) yet it is an assumption and oil prices are seen declining in the international market.

However the impact of dollar due to steep fall of rupee against dollar and rising imports have altogether resulted strong headwinds driven by the oil price storm and global credit squeeze clearly signaling for tough time ahead.

Taking an optimistic view of the things being managed by the present government, it is expected that the rupee downslide will be offset to a great extent by Saudi oil facility from first week of September however the situation calls for speedy action to trigger external cash flows for the which present government was in dialogue with the World Bank, Asian Development as well as the IMF besides accelerating the pace of privatization of some prime state owned organization like energy giant OGDC. Such plans to strengthen financial base are needed to be done to top up reserves which re already depleting fast and to ensure medium-term sustainability of the external account.

People are attaching great hopes that Saudi Oil Facility would help lift investors confidence and tame concerns about sharp exchange rate depreciation.


Actually the mounting pressure on the rupee exchange in the absence of foreign inflows recently weakened the rupee to a record low however this also provide an opportunity to the speculators who are diverting their resources from share market, mutual funds and the banking sector towards purchase of dollar in hope of making short term profits. However, it is expected that an average exchange rate of Rs70-72/US$ would prevail in the second half of current financial year.


Pakistan's trade deficit has reached the alarming level of 13.0% to GDP (to US$20.74billion in financial year 2008, touching double digits for the first time since 1996.

In the previous fiscal year, the import bill reached US$39.96billion (up 31% YoY), while export receipts surged to US$19.22billion. Consequently, the increasing number of

import led the trade deficit to widen by 53% YoY. In the current scenario the trade deficit is feared to increase to a new high and likely to remain double digit at US$20billion and current account deficit at US$14.0billion.

The economy however can weather these global shocks having an epicenter in the US by strongly pleading country's position due to war on terror. Opinion leaders feel that Pakistan should talk to the US in a firm tone regarding the shocks faced by its economy and should ask for sold financial support to save the sinking economy.

It is the time that the new democratic government put more time and energy and efforts for economic reforms by initiating aggressive measures for speedy and transparent privatization of state owned entities which has become imperative to support its falling reserves.

Sources disclosed that working on these lines with a focus to revive its privatization program, the government is considering the options for privatization of energy giant OGDC as there is a long queue of foreign buyers keen to buy this goldmine.

In order to seek quick results one option is to seek a strategic buyer of 51% share with management control while the other option is to sell one of its field namely Qadirpur gas field on a fast-track basis.

In the face of mounting pressure on its external account the government is likely to focus on privatization of one field to get quick results. It may be noted that Qadirpur field is located in the province of Sindh with total reserves of 3.5tcf of gas and 7.95mmbbl of oil reserves, Qadirpur is third-largest field in the country.


The total liquid foreign reserves held by the country stood at $9,382.1 million on 23rd August, 2008. The break-up of the foreign reserves position is as under: -

i) Foreign reserves held by the State Bank of Pakistan :

$ 6,007.9 million.

ii) Net foreign reserves held by banks (other than SBP):

$ 3,374.2 million

iii) Total liquid foreign reserves:

$ 9,382.1 million