If oil prices surge, Pakistan won’t meet IMF targets: experts

A security guard sits in front of a wall with signs and slogans at the operation building at the Pakistan Steel Mills (PSM) on the outskirts of Karachi Feb 8, 2016.—Reuters

• The country's oil imports from Saudi constituted 26 % of the total import bill last fiscal year
• Pakistan is struggling to meet stringent IMF reforms after signing a $6 billion bailout package this year

ISLAMABAD: Following Prime Minister Imran Khan’s statement on Tuesday that attacks on Saudi Arabia’s oil supply were a threat to the “global economy,” experts believe the government’s efforts to meet its fiscal deficit targets in line with International Monetary Fund (IMF) conditions could be reversed if oil prices increased following Saturday’s attack on two Saudi oil facilities.
“If oil prices surge, Pakistan won’t be able to meet fiscal deficit targets set by the IMF,” Khurram Hussain, economic expert and business editor at daily Dawn, told Arab News.
The pre-dawn attack claimed by Yemen’s Houthi rebels led to an almost 20% increase in global oil prices on Monday, with fears of a surging fiscal deficit in Pakistan where a majority of oil is imported from Saudi Arabia.
“Pakistan’s oil imports constituted 26 percent of the country’s total import bill of $54.8 billion during the last fiscal year,” Hussain said, and added that any escalation in Middle East tensions, would “definitely impact our economy.”
“This government took at least one year to arrest the fiscal deficit and it has yet to bring it to the level as agreed upon with the IMF, but this would be reversed with an increase in oil prices” he said.
On Tuesday however, global oil prices dropped more than 6% with reports of oil production likely to resume fully within weeks, sooner than initially thought.
Still, there are concerns that a brewing conflict with similar attacks in the region could seriously impact Pakistan’s ailing economy, which signed off on a $6 billion loan from the IMF earlier this year and carries stringent reform conditions.
On Monday, an eight-member IMF delegation arrived in Islamabad to review Pakistan’s economic progress two months after singing the deal with focus on the country’s failure to achieve the set revenue collection target.
A senior leader of the Pakistan Peoples Party (PPP), Naveed Chaudhry, said that the attack on Saudi oil facilities threatened the world’s economy and global peace, and a sporadic violation of the Kingdom’s territorial integrity could result in a “full-fledged conflict” in the region.
“The world powers should take it [the attack on Saudi oil facilities] very seriously and take cogent measures to avoid its recurrence,” he said.
The rebel Houthi group in Yemen claimed responsibility for Saturday’s horrific attack, which damaged the world’s biggest crude oil processing plant. On Monday, the Saudi-led coalition said that the attack on Saudi oil facilities was carried out with Iranian weapons, an allegation that Tehran has denied.
“This attack has grave implications for peace in the region, it endangers, at once, both the east and the west. Pakistan particularly, because of an already volatile neighborhood,” Palwasha Khan, deputy information secretary of the PPP, told Arab News.
“Moreover, the increase in oil prices will impact economies that are already struggling. Pakistan will have to be more vigilant to play its role to avoid the spread of conflict,” she added.
On Tuesday, in a telephone conversation between Prime Minister Khan and Saudi Crown Prince Muhammad Bin Salman, Khan strongly condemned the acts of “sabotage,” and reaffirmed Pakistan’s support to the sovereignty and territorial integrity of Saudi Arabia.
Foreign Minister Shah Mahmood Qureshi also announced in a statement that PM Khan would be visiting Saudi Arabia on September 19 to discuss ways forward.