ISLAMABAD: According to figures cited by The News on Sunday, Pakistan’s petroleum import bill for the first nine months of the current fiscal year quadrupled to $15 billion from $7.5 billion in the same time the previous fiscal year, owing to rising international prices and gradually rising consumer demand.
Although the price of petroleum products in Pakistan increased by twice as much in dollar terms, both the former PTI-led government and the current PML-N administration decided to maintain prices at current levels, resulting in losses on both the domestic and international accounts.
According to the journal, such a dire scenario necessitates the conservation of petroleum products in order to reduce the import cost, but the governing elites and politicians are unaffected.
Despite knowing that the country is on the verge of bankruptcy and default, they chose to gain political mileage at the expense of the economy, according to the report.
The PTI-led government made a mistake by freezing gasoline and power rates till June 2022 at a cost of Rs400 billion in subsidies.
The new administration of Prime Minister Shehbaz Sharif, on the other hand, decided to leave fuel prices steady in an attempt to please voters with populist policies.
In March 2022, the current account deficit surpassed $1 billion, suggesting that it had reached an unsustainable level.
The current account deficit for the first nine months of the current fiscal year (July-March) was $13.2 billion.
Dr. Hafiz A Pasha, a famous economist in Pakistan, estimates that the current account deficit would be between $19 and $20 billion this fiscal year.
According to official sources, the government purchased four LNG containers at a cost of $27 per mmbtu, resulting in a total expenditure of almost $350 million. This will necessitate a careful examination of how much it will cost per unit of power if LNG is purchased at the highest pricing.
In an interview with The News on Saturday, Dr Khaqan Najeeb, a former adviser to the Ministry of Finance, said that the recent two economic growth episodes in Pakistan, in 2018 and 2022, clearly demonstrated that a current account deficit rising to unsustainable levels was a binding constraint on Pakistan’s growth.
“This demonstrates the need for a new growth paradigm centred on productivity and disincentivizing real estate investments,” said Dr. Najeeb.
“The actual challenge is to improve corporate productivity as well as their inventive potential in order to boost export competitiveness.”
These were the adjustments, he claimed, that were required to integrate with the rest of the world and ensure long-term external account stability. Pakistan’s exports as a percentage of GDP have fallen from a high of 16 percent in the late 1990s to a dangerously low level of less than 10% now.
Dr. Najeeb explained the widening current account deficit by stating that imports of petroleum products climbed by 20% in volume, 92 percent in price, and 111 percent in value in the first nine months of FY22.
“The growing reliance on imported energy, as well as the rise in global commodity prices, has exacerbated external account problems.” Depreciation of the currency and an increase in the L/C margin can assist manage CAD to some extent.”
However, he said that pricing rationalisation and energy conservation had now become critical in taming the country’s oil import pressures, and that the government also needed to reduce the fiscal deficit owing to its link to the current account deficit.
“For a country like Pakistan with limited resources, the current account deficit remains a major source of macroeconomic instability.”
He said the current account deficit of $1.028 billion in March was still large, but lower than the average of $1.5 billion for the first eight months.
“The current account deficit has ballooned much beyond the 2.4 percent projected. “It goes without saying that this decline, anticipated to be about 5% of GDP in FY22, is not sustainable,” Dr. Najeeb said.