KARACHI, Feb 1: Pakistan imported $1.87 billion petroleum crude and its products in the first half of this fiscal year, up $514 million or 38 per cent from $1.356 billion import during the same period of last fiscal year.

Quantity-wise, import of petroleum crude stood at 4.56 million tons in the first half of this fiscal year, up more than 24 per cent from 3.67 million tons imported in the same period of last fiscal year.

Import of petroleum products totalled 2.89 million tons, up 14 per cent from 2.53 million tons during this period, data released by the Federal Bureau of Statistics show.

Upon analysis of this data, one can see that the oil import bill has risen by more than half a billion dollars in July-December 2004 not merely because of higher oil prices but also due to increase in import volumes.

In the absence of information on average price of petroleum crude and its products imported into Pakistan during the first half of this fiscal year, it is too difficult to ascertain the exact impact of the price rise on oil import bill as a whole.

Besides, the details of the petroleum products imported into the country are not known thus making it impossible to analyze how much of $514 million additional oil import bill accumulated because of price increase and how much due to larger imports. But the very fact that oil import bill rose by $514 million during the first six months of this fiscal year is enough to bring into question the State Bank decision to sell dollars to banks for financing monthly oil import bills since November 2004.

In just two months (November-December 2004) the central bank sold more than $807 million to banks for financing oil imports. The SBP continues to provide foreign currency for oil import bills with a view to stabilizing the rupee, which had lost 5.5 per cent value during July-October 2004.

The move, supplemented by tighter controls over day to day foreign exchange business of banks, achieved its objective and the rupee gained 3.5 per cent of its lost value against the US dollar in November-December. But whether the SBP should keep providing foreign exchange for oil imports is a key question the central bankers must answer while framing a sustainable foreign exchange policy.

One view on this issue is that the SBP should continue this to ensure that the resultant weakness of the rupee in case of reversal of the policy does not increase liquidity levels and inflation besides increasing the rupee value of the foreign debts and contributing to dollarization.

Another view is that the central bank should stop selling dollars to banks for oil imports to let the local unit rise to the benefit of the exporters whose financial cost has already been on the rise due to tightening of interest rates.

Those supporting this view say that allowing the exchange rate to reflect the true strength of the rupee is also a must to avoid a rapid fall in its value --when the central bank eventually stops dollar selling for oil imports.

Meanwhile, a phenomenal 15.54 per cent growth in large-scale manufacturing sector during July-November, according to the data released by the SBP, explains why oil import volumes swelled in the first six months of this fiscal year. Obviously, higher oil imports are fuelling greater economic activities.

What is more encouraging is that the import of petroleum products rose by 14 per cent during July-December 2004 despite a huge 16.15 per cent increase in domestic production of these products.

This reinforces the view that the economy is growing faster, increasing the energy requirements of various sectors -- and creating exportable surplus of petroleum products in this process.

Data released by the FBS show that eight out of 11 petroleum products posted an increase in domestic production during July-November 2004. These include jet fuel oil, motor spirits, high speed diesel, furnace oil, lubricating oil, jute batching oil, solvent naphtha and other petroleum products not identified individually. Against this, three petroleum products namely kerosene oil, diesel oil and liquefied petroleum gas showed a decline in production.

It was because of higher domestic production of eight petroleum products that enabled Pakistan to increase its exports of these products by 44 per cent to about 549,000 tons during the first half of this fiscal year.

The export of petroleum products earned $184 million for the country in July-December 2004, up from $103m during the same period in 2003. This $184 million export of petroleum products means that Pakistan's net import of petroleum crude and its products cost it ($1.87bn minus $184m) or $1.686 billion during the first half of this fiscal year.

In the first half of the last fiscal year, net import bill of petroleum and its products stood at ($1.356bn minus $103m) or $1.253 billion. Comparison of the two sets of figures show that in July-December 2004, Pakistan's net import bill of petroleum and petroleum products recorded a growth of ($1.686bn minus $1.253bn) or $433 million.