Major fall in global crude oil prices to bloom Pakistan’s economy

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Staff Reporter

Karachi

The immense fall in international oil prices are blessing for Pakistan economy, analysts said on Monday. At the opening of international markets on Monday, oil prices declined significantly with WTI down by 26.5 percent to USD 30/bbl, Brent Oil down by 25 percent to USD 34/bbl and Arab Light Oil down by 34 percent to USD 34/bbl. This resulted as a direct consequence of disintegration of OPEC-Plus alliance while major countries could not agree to cut the oil output to reduce its supply to the global markets.
“Pakistan is a net importer of oil with petroleum group imports contributing 25 percent to imports. WTI Oil prices averaged USD 57/bbl during past 12 months and have currently nosedived to USD 30/bbl. Pakistan would be able to save USD 5bn per annum on its imports,” analysts said. A decline in oil prices reduces Pakistan’s import bill hence resulting to lower trade and current account deficits and saves foreign currency.
Consequently, lower oil prices translate to lower inflation demanding monetary easing leading to better consumer purchasing power benefiting other sectors with higher demand. Major benefiting sectors include cyclical sectors like cement, steel and automobiles.
Major sectors which will bear the brunt of lower oil prices would include E&P, Refineries and OMCs. Lower oil prices improve government’s budget balance as it enhances government’s ability to collect taxes and reduces the amount of subsidy the government provides on sale of energy.
In addition, the government would be able to spend the additional taxation on PSDP, improving growth prospects of the economy. The objective of the government should be, in addition to lower inflation, cover tax collection shortfall and implement long-awaited energy sector reforms including gas and electricity.