Low global oil prices have provided the Nawaz Sharif government an unexpected economic and political breathing space and, at the same time, affording it the ‘opportunity’ to stimulate growth. “The government could not have asked for more [at this moment],” concluded Sayem Ali, senior economist at Standard Chartered Bank. “The tumbling global oil prices should have a significant positive impact on the economy.
Oil prices have plunged over 40pc to five-year lows in the last few months. Many analysts are predicting prices to fall further as Opec, the cartel of oil-producing countries, tries to put shale gas producers in the United States out of business amidst forecasts of a major cut in oil demand next year.
Pakistan meets 80pc of its total energy requirement by importing oil. During the last fiscal, the country’s oil import bill of $14.8bn constituted more than one-third of total imports of $42bn. Also, oil is used to generate more than two-fifth of electricity, forcing most consumers to pay a high price for power and the government to pick up a big, subsidy bill to support low-end users.
Former State Bank of Pakistan Governor Ishrat Hussain argues that low oil prices will significantly improve the country’s balance of payments situation, stabilise the exchange rate, narrow the fiscal deficit through a reduction in energy subsidies and slow down inflation.
Volatile oil prices has been the single most important factor responsible for stalling growth, growing the energy shortage, widening the current account and budget deficits, spiralling prices, and eroding business confidence in Pakistan since 2007.
