PAKISTAN’S ECONOMIC OUTLOOK AMID ESCALATING GLOBAL OIL PRICES
The economic prospects of Pakistan are becoming increasingly challenging due to the escalating global oil prices. The Pakistani Rupee is anticipated to face significant obstacles, particularly if global energy commodities maintain elevated prices. Increased oil prices and a weaker PKR may lead to higher prices for petroleum, gas, and electricity. Additionally, forex reserves, debt servicing, and fiscal balances may face ongoing pressure.
To address these predicaments, Pakistan has implemented various steps for economic recovery. For instance, SIFC has been established as a convenient platform for investments in the agriculture, mines and minerals, IT, and energy sectors to assist entrepreneurs.
Pakistan possesses abundant mineral resources such as copper, iron, gypsum, sulfur, marble, coal, and gold etc. Of the 92 identified minerals, 52 are commercially extracted, with an annual production capacity of 68.52 MMT, as reported by the Trade Development Authority of Pakistan. Balochistan, a resource-rich province, and the country’s northwestern regions are estimated to contain mineral deposits worth $6 trillion.
Efforts are underway to enhance investment facilitation, with the feasibility of projects like Reko-Diq in Balochistan being explored. The Reko Diq mine is a copper and gold treasure trove that will be a valuable asset to Pakistan’s economic future. By leveraging these natural riches, Pakistan can overcome the challenges of rising global oil costs.
Moreover, the government’s implementation of an oil refinery policy to upgrade facilities and enhance the production of petrol and diesel was praiseworthy. The potential benefits of upgrading and expanding oil refineries extend beyond the elimination of gasoline imports, as they can transform Pakistan into a fuel exporter.
According to the FBR, the illicit trading of Iranian hydrocarbon products cost Pakistan over $1.5 billion in tax income. To revitalize the national economy, Pakistan’s government collaborated with the armed forces and prioritized the deployment of a strict enforcement policy against illicit activities, focusing on smuggling, money laundering, and stockpiling.
The present government is formulating a twofold strategy to implement structural changes to enhance the Tax to GDP ratio. The finance ministry is engaged in a collaborative effort with the law ministry and FBR to tackle the problem of tax revenue leakage. This collaboration aims to establish a track and trace system and digitize the ministry’s activities. The government is prepared to establish a partnership with China in the sphere of Taxation to foster robust and mutually advantageous collaboration.
The state-owned enterprises incurred significant losses to the federal exchequer. For instance, in the fiscal year 2022 the provision of subsidies, loans, and equity investments by the government to SOEs constituted 18% of the federal budget deficit and 25% of GDP. Therefore, the privatization of SOEs and the outsourcing of airports are making notable progress to mitigate these losses.
According to the World Bank’s latest Pakistan Development Update: Fiscal Impact of Federal State-Owned Enterprises released on April 2, 2024, Pakistan is currently in the process of implementing an ambitious, credible, and well-communicated economic reform plan that is deemed crucial for achieving a strong recovery and reducing poverty.
As per WB, the current economic recovery is attributed to the implementation of stringent monetary and fiscal policies. It is projected that Pakistan’s economy will experience a growth rate of 1.8% during the fiscal year concluding in June 2024.
However, on April 4, 2024, a significant economic survey conducted by the United Nations indicated a forecast increase in the nation’s GDP growth rates of 2% for the present year and 2.3% for 2025. Additionally, it forecasted a decrease in inflation from 26% in 2024 to 12.2% in 2025.
While Pakistan has achieved stability, it remains precarious and has not yet overcome its impediments. The current government must expedite the planning and execution of reforms to address the escalating global geopolitical uncertainties and economic conditions.
The current macroeconomic project growth is below Pakistan’s potential, indicating that there is still room for further expansion. The outlook is still at risk due to various factors, such as uncertainty regarding policy commitments and the implementation of reforms, risks in the financial sector, the of higher global energy and food prices due to intensified regional geopolitical conflicts, slower global growth, and more stringent global financing conditions than anticipated.
There has been a notable recovery in economic activity over the initial six months of fiscal year 2024, primarily driven by robust agricultural production. The WB report indicates a favorable forecast for Pakistan’s economy, nevertheless, the escalating oil costs may pose economic difficulties for the country. The necessary structural improvements to achieve a sustainable improvement in the economic outlook are well-established. It is crucial to have a well-defined plan for implementing reforms that are ambitious, credible, and demonstrate rapid progress to regain trust.
In navigating the escalating challenges posed by surging global oil prices, Pakistan must expedite the implementation of structural reforms to bolster its economic resilience. While stabilization efforts have been undertaken, the vulnerability of the Pakistani Rupee and the potential for sustained high energy commodity costs necessitate swift action to address underlying vulnerabilities. To achieve a long-lasting economic recovery, it is necessary to implement a careful combination of macroeconomic policies and reforms. These reforms should aim to enhance the quality of spending, expand the tax base, tackle regulatory limitations on private sector activities, and privatizations, tackle issues in the energy sector, and increase public investments to enhance human development outcomes.
