Decline in Global Oil Prices to Bring Economic Relief for Pakistan

A sharp decline in global oil prices is set to provide significant economic relief to Pakistan, potentially saving the country $3.0 to $3.5 billion annually in energy import costs. According to a research report titled A Path to Growth amidst Challenges, prepared by investment advisory firm Alpha Beta Core, this drop could ease inflation and reduce the trade deficit.

Crude oil prices have fallen to a three-year low, dropping below $70 per barrel, with further declines predicted to reach around $60 per barrel by 2025. Khurram Schehzad, CEO of Alpha Beta Core, noted that energy imports account for 31% of Pakistan’s total imports in FY24. He highlighted that the savings from reduced energy import costs will alleviate inflationary pressures and improve the trade deficit.

Lower energy costs are also expected to enhance the competitiveness of Pakistani exports by reducing production expenses, which could lead to improved export performance. The report further points out that these developments coincide with a reduction in borrowing costs, as the Central Bank recently cut the policy rate from 22% to 17.5%, with expectations of further cuts. This combination of lower energy and capital costs is likely to stimulate business investments and economic activity, helping GDP growth exceed the projected 3.5% for FY25, especially in the manufacturing sector.

The report also forecasts that the current account deficit will remain manageable at around 1.5% of GDP, bolstering fiscal stability. Additionally, Pakistan’s improving economic outlook has prompted credit rating agencies like Fitch and Moody’s to upgrade their ratings, boosting investor confidence.

As global oil prices continue to fall, Pakistan is presented with a unique opportunity to realign its economic strategies and focus on sustainable growth. Policymakers are encouraged to implement structural reforms to capitalize on these gains and ensure long-term economic stability.