Pakistan’s import of petroleum products, which is the largest contributor to its total import bill, has decreased by 5% to $1.26 billion in February compared to the previous month of January, according to official data reported on Friday. However, despite the decline, it still accounts for almost one-third of the country’s import bill.
Speaking to The Express Tribune, Arif Habib Limited Head of Research Tahir Abbas said, “The drop in commodity import is attributed to a decrease in demand due to a massive rupee depreciation and the imposition of new taxes on the recommendation of the International Monetary Fund (IMF).”
“The rupee has depreciated by 60% in the last year to Rs282 against the US dollar. The government has also imposed a petroleum development levy of Rs50 per litre on petrol and diesel, which was zero a year ago,” he said, adding that, “The government has withdrawn subsidies on petroleum products and has passed on the increased commodity prices in global markets to local consumers. This has led to a decrease in purchasing power and a rise in the cost of doing business, leading to a reduction in the aggregate demand for petroleum products and causing economic slowdown.”
Pakistan Bureau of Statistics (PBS) reported that commodity imports have decreased by over 8% in the first eight months (Jul-Feb) of the current fiscal year 2023 to $11.87 billion compared to the same period of the previous year. However, petroleum products still account for almost one-third of the overall import bill at $40.11 billion in the eight months. This suggests that the import of petroleum products is expected to increase again when the government gradually reopens the partially closed economy in the near future.
The breakdown of data suggests that the import of refined products (petrol and diesel) has decreased by 14.47% to $7.54 billion in the first eight months compared to the same period last year. In volumetric terms, the import of refined products has also dropped by 32% in the period under review. However, the import of crude oil has increased by 10% to $5.17 billion, and in volumetric terms, it has increased by 11%, according to PBS data. The import of liquefied natural gas (LNG) has decreased by 17% to $2.55 billion in the eight months due to an exorbitant increase in its spot price in international markets.
“The government has cut the import of expensive refined products and prioritised the import of crude, which is comparatively a cheaper option, to support local refineries. Overall, the sales of all petroleum products, whether produced locally or bought from global markets, have dropped by 21% alone in February and 19% in the eight months,” said Abbas.
The administrative control on overall imports to manage with low foreign exchange reserves at $4.3 billion, which is almost equal to the total import bill in February, will continue to keep imports and sales low in the remaining four months of the current fiscal year, said Abbas. Additionally, the rupee depreciation, historical high key policy rate at 20%, multi-decade high inflation reading at 31.5% in February, a cut in car sales to half in the first eight months, and economic slowdown will keep the demand for petroleum products low in the next four months.
Abbas said that the demand for products will start to improve from the start of the next fiscal year on July 1, 2024.
Pakistan meets its overall demand for products through 65% imports and 35% production from local fields and at local refineries. Energy experts suggest that local oil and gas exploration firms should expedite their drive to find new oil and gas deposits to reduce reliance on imports. However, the firms have made no significant discoveries over the past two decades.
Published in The Express Tribune, March 18th, 2023.
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