Throughout the history of Pakistan, the major chunk of the import bill has been the petroleum group. Even with a slight reduction in global oil prices, the pressure on the current account deficit is relieved. During recent years, Pakistani economy has been facing huge import bill and the balance of payment has remained a continuous challenge for the officials at the helm of the affairs.
Pakistan is oil importing country and this contributes to major share in import bill. During the previous fiscal year 2018-19 – a year when average oil price remained USD 50 per barrel – Pakistan imported USD 14 billion worth of crude oil which makes almost 27% of its total import bill of USD 52 billion.
At the current average price of oil i.e. USD 20 per barrel, it is estimated that Pakistan can lower its oil import bill to around USD 6 billion. It is important to mention here that Pakistan received its latest shipment of crude oil at USD 16 per Barrel. So, lower international oil prices will help Pakistan to easily manage its balance of payment and resulting minimal pressure on local currency creating stability in whole economy.
Having said that, with international oil prices around USD 20 per barrel means Government is purchasing oil at Rs. 18 to 20 per liter, whereas the consumers are getting slight under Rs. 100 per liter. From macroeconomic perspective it is high time for Pakistan to lower oil prices domestically resulting in lower inflationary pressure and may compel the central bank to further monetary easing – which was criticized until recently for its strong monetary tightening policies.
On the fiscal front, the taxes and levies imposed on petroleum has remained a major chunk of governments’ revenue streams. Government needs to adopt such strategy so it could not disturb its own earnings from petroleum sector while passing on the global oil crisis impact. The developing countries like Pakistan are more depended on oil for its functioning economy. Having largely oil depended energy sector and transportation sector any change in oil prices impact across all segments of economy. Lower oil prices will have positive impact on the power, cement and steel sectors as lower fuel costs and furnace oil costs can bolster economic activity and their profitability.
It is expected that the oil prices will remain lower till a foreseeable future due to COVID-19 pandemic. While exploiting the opportunity at hand the government can collect additional revenue under petroleum levy and also contain the inflation by passing on some of the benefits to consumers.
