Pakistan may see a histrionic decrease in the prices of petroleum products, followed by a traumatic decrease in the international market.
The world is witnessing a significant drop in oil prices after Saudi Arabia started a price war with Russia by slashing selling prices amid coronavirus outbreak.
Global oil prices fell by almost 30%, and it is the lowest most since 1991, and this sudden decline in prices will definitely create its impact on the Pakistani economy.
Top securities – A fastest-growing brokerage house in Pakistan shared an analysis shared today. The report says that the global drop in oil prices will likely benefit Pakistan’s macro-economic indicators even though oil companies will take a hit due to the drop.
“We believe lower oil prices are a net positive for Pakistan’s macros (especially the external account), as 26% of Pakistan’s imports are oil price-driven,” said the firm in a report published on Monday. It added that if oil prices drop to $20 per barrel, Pakistan’s oil import bill would decrease by $ 38-4.2 billion.
The firm is also forecasting that exports and remittances could see a cumulative reduction by around $1-2 billion.
“Hence, on a net basis, Pakistan’s external account could potentially improve by US$2.2-2.8 billion (50% of the current account deficit) due to $20 per barrel lower oil prices,” said the report. It also expected the greenback to remain stable against the Rupee in the near future.
The securities firm also said that lower oil prices will also help give the ruling Pakistan Tehreek-e-Insaf government enough fiscal space “to sail through at least the next couple of IMF reviews”.
However, the report noted that it was unlikely that the government would pass on the impact of lower oil prices to the consumers. It added that decreased oil prices will also help the government pocket part of lower oil prices in electricity tariffs which would decrease the circular debt.