Islamabad: As the dollar liquidity crisis continues and their costs of doing business soar due to the devaluation of the rupee, Pakistan’s oil corporations have issued a warning that the sector is “on the brink of collapse.”
The government lifted the dollar limit in response to the International Monetary Fund’s (IMF) request, which caused the rupee to plunge to a record low of Rs276.58 in the interbank market.
The Oil Companies Advisory Council (OCAC) claimed in a letter to the Oil and Gas Regulatory Authority (OGRA) and Energy Ministry that the “sudden depreciation” of the local rupee has resulted in losses to the industry amounting to billions of rupees because their letters of credit (LCs) are anticipated to be settled at the new rates, “whereas the related product has already been sold.”
Due to declining foreign exchange reserves, which as of January 27 were only $3,086.2 million and sufficient for 18.5 days, the government has also imposed restrictions on LCs.
Due to the rupee’s sharp decline in value, Pakistan is currently experiencing a balance of payments crisis, which is driving up the cost of imported commodities. A significant portion of Pakistan’s import bill is made up of energy. Over a third of Pakistan’s annual power needs are normally met by imports of natural gas, the cost of which skyrocketed when Russia invaded Ukraine.
The OCAC claimed that these losses have an effect on the sector’s existence as well as its already severely strained profitability since in some situations, they may exceed the “entire year’s profit for the sector.”