Implications of falling oil prices

Global oil prices have come down almost 50 per cent in the past few months and Middle Eastern economies, which are major exporters of oil, are expected to take a hit because of this. The growth in their economies is going to slow down in the wake of the plunge in prices. Consumers in Pakistan, however, are reaping the benefits, albeit partially, of the dip as they enjoy fuel at a less expensive rate. The government, in its attempt to provide ‘relief’, has slashed prices for November and December and is expected to do the same for January. Power tariffs have also been notified to become lower.

November’s provisional figures, according to the Pakistan Bureau of Statistics, reveal around a 26 per cent decrease in the value of imports in the petroleum group in dollar terms. This is a substantial dip and should serve as an opportunity for the government to spend at least some of its development budget to provide some real relief for the people. Taking credit for the plunge in global oil prices is hardly going to fool anyone in this day and age. While one could imagine the Middle Eastern economies to tighten the noose around their imports, which would hurt Pakistan’s foreign exchange earnings, the time is ripe for the country and its businesses across major sectors to eye an expansion. With lowered costs of production, preparations need to be made for when the prices go back to their old levels. The government will save on the subsidy it provides in the power sector. Those savings can be utilised to complete projects and fix the transmission and distribution networks before enhancing capacity. The performance, during this time, will set the tone for the future. Load-shedding, power theft and incomplete projects amid lowered costs should be the authorities’ main focus. The GSP Plus status that Pakistan enjoys in the European Union has earned it an additional $900 million this year. It is time to enhance other sectors as well since the textile sector has been the backbone for far too long and there is a need to diversify.

Published in The Express Tribune, December 24^th, 2014.

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