Imports of petroleum products, the largest contributor to Pakistan’s total import bill, fell 5 percent to $1.26 billion in February compared to the previous month in January, according to official data on Friday. However, despite the decline, it still accounts for a third of the country’s import bill.
Speaking to The Express Tribune, Tahir Abbas, Head of Research, Arif Habib Limited, said, “The drop in commodity imports is due to the massive depreciation of the rupee and the fall in demand due to the imposition of new taxes as suggested by the International Monetary Fund. IMF).
“In the last year, the rupee has depreciated by 60% to Rs. 282 against the US dollar. The government has also imposed an oil production tax of Rs 50 per liter on petrol and diesel, which was zero a year ago,” he said. “The government has removed subsidies on petroleum products and moved to increase crude prices. global markets to local consumers. This has led to lower purchasing power and increased cost of doing business, which has led to lower overall demand for petroleum products and caused a slowdown in the economy.”
The Pakistan Bureau of Statistics (PBS) reported that merchandise imports in the first eight months of the current fiscal year 2023 (July-February) declined by 8% to $11.87 billion compared to the same period last year. However, petroleum products still account for a third of the total import bill of $40.11 billion in eight months. This suggests that imports of petroleum products will increase again when the government gradually reopens the partially closed economy in the near future.
Analysis of the data shows that the import of refined products (gasoline and diesel fuel) decreased by 14.47% and reached 7.54 billion dollars in the first eight months compared to the same period last year. In volume terms, imports of processed products also decreased by 32% during the period under review. However, crude oil imports rose 10% to $5.17 billion, and in volume terms, they rose 11%, according to PBS. Imports of liquefied natural gas (LNG) decreased by 17% in eight months and reached 2.55 billion dollars due to excessive growth of its spot prices in international markets.
“The government has reduced imports of expensive refined products and prioritized crude imports, which are a relatively cheaper option, to support local refineries. “In general, sales of all petroleum products produced locally or purchased from the global market fell by 21% in February alone and by 19% in eight months,” Abbas said.
To manage with low foreign exchange reserves, administrative controls on total imports of $4.3 billion, almost equal to February’s total import bill, will continue to keep imports and sales low for the remaining four months of the current fiscal year, Abbas said. . In addition, a depreciating rupee, a historically high key policy rate of 20%, multi-decade inflation at 31.5% in February, a halving of car sales in the first eight months and an economic slowdown will keep demand for oil products in check. down in the next four months.
Abbas said that demand for the product will start to improve from the beginning of the next financial year on July 1, 2024.
Pakistan meets its total product demand with 65% imports and 35% production from local fields and local refineries. Energy experts believe that local oil and gas exploration firms should accelerate their search for new oil and gas fields to reduce their dependence on imports. However, firms have not innovated significantly over the past two decades.
Published in The Express Tribune on March 18th2023.
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