Weekly Corporate Watch
Javed Mahmood (www.pakbanker.com.pk)
The federal government has decided to further reduce the domestic oil prices from 1st of Jan 2015 with the aim to pass on to consumers the benefit of reduction in international crude oil prices.
Up to 10 rupees per liter further reduction is expected in the prices of petrol and diesel as the crude oil price in the OPEC markets has dropped to below 57 dollars per barrel last week.
Since May 2014 the international crude oil price has decreased by slightly more than 50 percent _ a positive development that was not anticipated by the policy-makers and the analysts in the country and abroad.
We can say that it is again a God gifted opportunity for the debt-trapped poor countries like Pakistan that can help the policy-makers in this country to focus on the economic stabilization and giving relief to the masses. In 2008 the crude oil price skipped below US$40 per barrel in the backdrop of economic development, but from 2009, the prices again surged and stayed above 100 dollars/barrel for most of the time before falling gradually to 57 dollars last week.
In three phases the PML(N) government had already trimmed the domestic oil prices by 18 to 20 rupees per liter and another 8 to 10 rupees cut in oil prices would certainly be a great relief for the consumers who had suffered a lot in the past because of spike in the international oil prices.
How much benefit the Organisation of Petroleum Exporting Countries (OPEC) have taken from the spike in world oil prices can be imagined just from the example that in last four years the GDP of OPEC has ballooned by 1339 billion dollars. Crude oil and other petroleum products have increased the Gross Domestic Product (GDP) of the OPEC by 1339 billion dollars in just four years, from 2010-2013. The OPEC members GDP was at 2184.83 billion dollars in 2009 that ballooned to 3524.76 billion dollars in 2013.
Global spike in the price of crude oil and petroleum products magnified the GDP of major oil exporters like Saudi Arabia, Nigeria, United Arab Emirates, Iraq and Qatar during this period.
These days the OPEC, famous as a cartel of the oil exporting countries in the Gulf, is in trouble because of consistent decline in crude oil prices triggered by the increasing use of gas by the consumers in the developed countries.
The strategies and manipulations of the OPEC are bearing no fruits and the prices of the crude oil falling day by day.
Pakistan had been spending a huge amount of the foreign exchange, about 15 billion dollars a year, on the import of petroleum products, including crude oil. , This amount is almost one third of the total annual imports bill _ 45 billion dollars. How the Pakistan would take benefit from the phenomenon of falling crude oil prices? The policy makers and experts in the government must work on this issue to streamline the important strategy that can benefit Pakistan on short to medium term basis.
In 2015 we can see a substantial decrease in the imports of oil and overall imports bill that would lead to improvement in the trade deficit and the current account deficit of Pakistan. For example, in last financial year the country had sustained nearly 19 billion dollars trade deficit that devoured the entire amount _ 15 billion dollars of remittances, foreign investment and foreign assistance as well as the current account deficit of the country was negative by 4.5 billion dollars in FY14.
In the ongoing financial year, the current account is expected show surplus for two reasons _ sharp decrease in crude oil prices that would narrow down the trade deficit and almost zero repayment of foreign loans.
In FY14 the PML(N) government had already made repayment of record loan of about 7 billion dollars to the IMF, the World Bank, ADB and other lenders and further repayment of foreign loans now will begin in 2017.