Pakistan is projected to cut its historical high energy import bill by a notable $2.5 billion in the current fiscal year starting July 1, 2022, in anticipation the oil price would recede to an average of $75 per barrel in global markets during the year compared to $91 per barrel in FY22.
A reduction in energy import bill is a must to narrow down the unsustainable trade deficit and current account deficit, as a share of energy spiked to a record high at 29% ($23.32 billion) in the overall imports worth $80 billion in FY22 compared to 20% ($11.38 billion) in total imports at $56.38 billion in FY21.
Pakistan Business Council (PBC) said on its official Twitter handle on Saturday “with or without the IMF, we need to cut the CA (current account) deficit projected at $15 billion for FY23 by about $7 billion, mainly through cuts in
fuel imports.”
The expected reduction in oil price would help reduce the energy import bill by $2.5 billion in FY23. “Whilst the Ukraine crises will continue to exert pressure on commodities, fuel cost which represents the major part of imports, will benefit from lower global demand and higher supplies,” PBC projected that is the country’s premier business advocacy body, composed of the most significant, long-term, private-sector local and multinational investors, in Pakistan.
The country’s import bill doubled to $23.32 billion in FY22, compared to $11.38 billion in FY21, mainly due to jump in oil prices in world markets in the wake of the Russia-Ukraine conflict began in February 2022 and the reopening of the world from Covid-19
lockdown earlier.
Besides, the energy import bill partially (by about one-third) surged due to volumetric (quantitative) growth in demand, as economic growth hit a high of 6% amid accelerated activities in each of the past two consecutive years (FY21 and FY22) in Pakistan.
The activities are set to slow down in the current fiscal year on the back of the government’s corrective measures to cool down the overheated economy. However, domestic energy firms projected no major cut in demand for fuels
in FY23.
The Cnergyico Pk (formerly known as Byco Petroleum) General Manager Financial Control Muhammad Ali Aslam said last month that the demand for petroleum products would remain high against general expectations for a drop in the aftermath of a sharp increase in petroleum product prices since May 2022 in the country.
A straight 30% depreciation in domestic currency to around Rs205 against the US dollar in FY22 compared to FY21 also contributed to increasing the commodity price in domestic markets.
Aslam projection came true, at least for June, as import of refined products (like petrol and diesel) increased 28% to 2.19 million tons in June 2022 compared to 1.72 million tons in May 2022, according to the Pakistan Bureau of Statistics (PBS).
Similarly, the import of petroleum crude (raw) rose 47% to 1.12 million ton in the month compared to 0.76 million ton in the
prior month.
In full year FY22, the crude and refined products import increased 5% and 28%, respectively, to 9.30 million ton and 18.06 million ton compared to FY21.
Topline Securities said on its Twitter handle said that high energy imports are one of the major reasons for Pakistan’s current economic crisis. “Pakistan gas production is falling. From 4,259 mmcfd (million cubic feet per day) in FY12, it has declined by 20% to 3,388 mmcfd in FY22 due to natural depletion and absence of sizeable discovery.”
“Pakistan could have saved $3 billion to $5 billion a year if gas production was maintained at 2012 levels,” it said.
Published in The Express Tribune, July 24th, 2022.
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