Implication for Pakistan’s economy
Saudi oil ministers are usually right about OPEC policies and their impact on crude prices. And with latest OPEC cuts in place, and the sitting Saudi oil minister predicting rising prices in ’17, it’s pretty certain that the era of cheap oil – as we have known it for the past couple of years – is effectively over for the immediate term. The OPEC intervention was on the cards for a while now. Markets are ridiculously over supplied, and only countries like Pakistan (with 80-plus percentage dependence on imported oil) have been rejoicing.
The minister’s $50-100 range, which he expects oil to oscillate and settle between in the next year, is rather vague. But it means that not just prices at pumps, but input prices all across economies predominantly dependant on imported oil, are going to tick upwards. Pakistan, of course, is among those who benefitted the most from the Brent collapse. And the Nawaz government has been taking credit for it – even though it’s a completely exogenous phenomenon – since it was able to lower prices and score points during Imran Khan’s first dharna days. This collapse subsequently helped keep inflation low, the deficit in check, and growth in a manageable band.
Now, with this window appearing to slam shut so suddenly and so close to the next election, the prime minister and his economic team might have to justify rising prices just when they’d like a comfortable cap on them. Expect the deficit and growth, etc, to reverse also. If only they’d have given some thought to improving revenue collection – something they promised so loudly on the last campaign trail – the domestic balance of payments would not still be hostage to outside events. But it’s not as if the ruling party will, or even can, change course now. It’ll be a bumpy ride, therefore, all the way to the next election if the Saudi oil minister knows what he’s talking about.
