web analytics

Advertisement

Mending Pakistan’s economy

The current account deficit shows $ 2.721 billion for the months of July-August 2018. The petroleum price difference stood at $ 2.031 billion.

The increase in petroleum bill is the result of rupee devaluation.

The situation calls for an action to overcome this deficit is to reduce our heavy reliance on petroleum products.

As for rupee devaluation, we cannot immediately control and would not like to control it to give boost to our export.

However, Pakistan would like to bring down the imports bills. The biggest contributor to our import bills is crude oil and refined petroleum products.

Pakistan should prioritize to reduce petroleum products import bills.

The furnace oil lobby proved to be stronger than government of Pakistan, forcing the power sector to use furnace oil instead of LNG, here one should note that electricity produced on furnace oil is less efficient and more expensive.

The government should put its foot down to all syndicates, lobbies and mafias like furnace oil lobby as they hurt the national exchequer by Rs3billion by lobbying for running power houses on furnace oil rather than on LNG due to this reason the LNG imports have gone down.

The orders for LNG placed for half of the committed quantities, that could have been avoided easily otherwise. This also affected the power consumer, as this Rs3billion are transferred to end consumer by increasing Rs 3 per unit in tariff.

The upfront advantage Pakistan can avail from Iran is Iran-Pakistan (IP) gas pipeline. The cost of gas imported through will impact cost of power generation and reduce the import bill too. The benefit will be passed on to power consumer with cheaper power production.

Another aspect will be cheap electric supply to industries and ample gas supply will result in lower cost of production, along with more production hours of the industries contributing to Pakistani exports.

Currently Pakistan faces demand-supply shortfall of 2 billion cubic feet (constrained) and 4 billion cubic feet (unconstrained). The IP gas pipeline will provide maximum capacity of 40 billion cubic meter lot more than our short fall. This will have enormous affect on our industrial production, power sector and exports.

The IP gas pipeline estimated cost of gas import is $11 per million British Thermal Unit (MBTU) compared to $18 per MBTU LNG imports.

The other issue that really hurts Pakistan economy is that Pakistan’s open foreign currency dealers contribute to rupee to dollar parity. In only 2017 currency dealers exported around $ 8 billion dollars overseas, which is 2.5% of GDP.

These dollar remittances are made by individuals constituting 60% to 65%. That means out $ 8 billion, $4.8 billion $ 5.2 sold to individuals which is enormous amount.

The Central Bank should be pushed by government to control this huge amount who bought it as each currency dealers are bound by Central Bank to Know Your Customer (KYC) and Customer Due Diligence (CDD). Proper measures will help in curbing money laundering.

The Government of Pakistan proactively taking up foreign affairs front, the Prime Minister Khan just returned from successful visits of Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE) initiatives for foreign direct investment (FDI) from Saudi Arabia to the tune $ 22 billion.

That is a very positive sign; the major project will be oil city in Gwadar.

This project will take longer time to start giving fruits to Pakistan, however, if Pakistan looks back at the visit by Iran’s foreign minister just after PM Khan took over the PM office.

The KSA oil city project is of immense importance, the Chinese petroleum and by products requirements are huge.

Currently they have transportation time of more than 30 odd days which will be reduced to less than 15 days. It will cater through roads and sea which will definitely be big plus for Pakistan national exchequer and foreign exchange.

KSA along with UAE heading towards heavy FDI in Pakistan bringing unprecedented investment, now government is expected to reconsider the IP gas pipeline project and redrafting of Gas Sales Price Agreement (GSPA) during the current financial year.

The government has to find a middle way to mend the ways in favor of Pakistan and its economy.

Facebook Comments
You might also like