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IMF warns Pakistan, others of 30pc hike in oil import bill

Updated May 02, 2017 08:57am


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WASHINGTON: The International Monetary Fund (IMF) has warned Pakistan and other oil importers that because of an increase in global prices, their oil bills for 2017 will be almost 30 per cent higher than the last year.

“Any further increases could undermine consumption, increase fiscal risks, and worsen external imbalances,” the IMF warns in its May 2017 Regional Economic Outlook for the Middle East, the Gulf, and North Africa, Afghanistan and Pakistan (MENAP).

But the report also says that this downside risk would be partly offset by higher remittances and other foreign support from oil-exporting countries in the region, principally benefiting Pakistan, Egypt, Jordan and Lebanon.

The IMF places Pakistan among the countries where savings from low oil prices and reduced subsidies have allowed for increased spending on infrastructure, health care, education, and social services. But the IMF warns that it will be increasingly difficult to maintain this spending now that oil prices are expected to be higher.

In the report, the IMF placed Pakistan among the countries that have reduced fiscal deficits and improved the business climate and whose growth is supported by more public investment.

The IMF predicts that growth in the entire region may increase from 3.7pc in 2016 to 4pc in 2017 and to 4.4pc in 2018. In part, this rebound will reflect a fading of idiosyncratic shocks from 2016, which manifested itself in a weak cotton harvest in Pakistan.

The report places Pakistan among the countries that are reaping continued dividends from past reforms and whose growth will be supported by the broader global recovery, which is expected to boost demand from the region’s main export markets. “In Pakistan, the implementation of the China-Pakistan Economic Corridor will boost investment,” the IMF predicts.

But the report warns that the associated debt-service burden is significant for a number of MENAP oil importers, including Pakistan, where it absorbed between 28pc and 48pc of revenues in 2016, leaving less scope for social spending or public investment.

The IMF, however, describes recent fiscal trends for the region as encouraging, noting that the average fiscal deficit in MENAP countries fell from a peak of 9.5pc of gross domestic product in 2013 to about 7pc in 2016.

In large part, this improvement reflects reduced fuel subsidies and lower transfers to energy-related state-owned enterprises. In Pakistan, efforts to increase revenue also helped, the report adds.

The IMF reminds MENAP oil importers that a key priority for them is to generate higher revenues by broadening the existing tax base. This will require measures to rationalise multiple value-added tax rates while Pakistan needs to simplify its tax rate structure and eliminate exemptions. The Fund also places Pakistan among the countries that are required to renew efforts to strengthen tax administration.

Given five consecutive years of subdued growth, along with an uncertain outlook, state banks in Pakistan, Egypt, Jordan and Tunisia face a challenging environment, particularly with relatively high levels of nonperforming loan ratios. The IMF urges them to improve their deposit insurance arrangements.

The report notes that MENAP oil importers are also exposed to changes in global financial conditions. While sovereign spreads for many oil importers have narrowed recently, “US interest rates have risen, and tighter and more volatile global financial conditions could increase borrowing costs for MENAP oil importers and their banks, adding to fiscal sustainability concerns, weighing on bank balance sheets, and undermining private sector activity,” it warns.

The IMF notes that such tightening could be particularly challenging for countries such as Egypt, Jordan, Lebanon, Pakistan and Tunisia, which will be competing for funds in international markets.

The report alerts Pakistan, Afghanistan, Egypt and Lebanon that a worsening of security conditions or social tensions within their borders could derail policy implementation and weaken economic activity.

Published in Dawn, May 2nd, 2017


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Comments (28) Closed

Mohajir May 02, 2017 07:56am

Gains from CPEC are only in aif while loans, interest and 18% profit Guarantee are for real.

Chinese are one of the most shrewed business people so Pakistan better beware.

Katappa May 02, 2017 08:30am

India will sell only electric cars from 2030 to save on fuel costs. One way to decrease dependency on OPEC countries.

murli May 02, 2017 08:36am

Don't worry CPEC will bring dollars for Pakistan. Iron brother China will generously donate it to Pakistan.

Angry Pitbull May 02, 2017 08:40am

CPEC will solve all the above mentioned issues.

Alba May 02, 2017 08:42am

... IMF warns in its May 2017 Regional Economic Outlook for the Middle East, the Gulf, and North Africa, Afghanistan and Pakistan ... Does that include Turkey or Saudi Arabia in the mix? That dim outlook pretty much blankets the Muslim world. _ Indonesia has it's own oil reserves. It produces only 850,000 barrels a day, but amid low oil prices the Indonesian government has been discouraging oil exploration and an accelerated production schedule. If the price of crude is edging up Indonesia can boost production. Indonesia's problem is debt, not oil.

Muhammed Asim Rao May 02, 2017 08:47am

Govt should put its act together - create consistent policies and improve law and order, reduce corruption (if not eliminate it altogether) - this would create an atmosphere of inward investment. Govt should also make external contracts with countries to improve exports

Angry Pitbull May 02, 2017 09:07am

CPEC will make Pakistani rupees stronger than US dollar.

Angry Pitbull May 02, 2017 09:11am

@murli Why dollars , Pakistani rupees will become stronger than US dollars.

Angry Pitbull May 02, 2017 09:14am

@murli What is the need of dollars when Pakistani rupees become stronger

kd May 02, 2017 09:21am

Why does everyone feel CPEC will solve all problems, or that China will 'give' money to Pakistan. There is no such thing as a free lunch. I can only hope that Pakistan has done it's homework, and has seen 10-15 years down the line. There is a debt trap looming, and Pakistan must take all efforts to avoid that. Some say the debt can be converted to equity, in which case China will effectively take over the country, economically speaking. Look what is happening in Sri Lanka.

Wajahat May 02, 2017 09:43am

Once CPEC is complete Pakistan will give oil to OPEC countries for free of cost.

Ashraf May 02, 2017 09:52am

The rest will be stolen by the new civilian govt anyways

bhagvat May 02, 2017 10:00am

after CPEC complete Pakistan donate dollars to other country like china and USA... and barrow Pakistani rs.

Mukund May 02, 2017 10:03am

Indian Railways has rapidly electrifying tracks to reduce the oil use...

Strongbow May 02, 2017 10:12am

Money generated from CPEC will enough for our next generation to sit at home and lead a lavish life style

Moksha May 02, 2017 10:36am

CPEC will make more oil wells in Russia, Sudan and some hoter places of Antartica

tahir saleem May 02, 2017 11:25am

Pakistan has the biggest young labor force and with the advent of technology coming through CEPEC, it is expected that GDP will get decent raise.This can take care of debt burden. The only thing is to let CPEC happen smoothly as people at the eastern side have become sleepless to see the developments taking place in our country

Global Peace May 02, 2017 11:56am

No problem, CPEC will cover all expense.

GOKU May 02, 2017 12:34pm

Load of sarcastic post regarding Pakistan's blind faith in CPEC.

Govind May 02, 2017 01:22pm

With CPEC , Pakistan can manage 300% increase in Oil prices also. Have confidence . Best of Luck

Chirag Patel May 02, 2017 01:45pm

no worries chinese will distribute free petrol along the CPEC and plus everytime you fill up your tank chinese will give you $50 gift along with a thank you note and a smiley

South Asia May 02, 2017 02:25pm

@tahir saleem Do you know that projects bigger than CPEC are happening in India? Its just that we are so used to such things that we do not need to boast. We can easily boast of North South Transportation Corridoe or Golden Quadrilateral or Cotton Route or $75 billion UAE investments or $100 billion Chinese investments (Not Loans) etc etc.

PKS May 02, 2017 02:40pm

IMF should also comment on the latest train project of china. Entire world is laughing at their Cargo train connection to london. Instead of sending 3000 containers via ship, they sent 30 containers via train. What feesablity study?

Indain Bhai May 02, 2017 03:14pm

@GOKU Yes they are. The reason probably is that when most Indians write logically against CPEC , some of our Pakistani brother take otherwise. As we see it pakistan is clearly being taken for a ride by China. Remember US aid to pakistan is never met with sarcastic posting.

KK May 02, 2017 03:38pm

How can one road to nowhere solve a Nations economic crisis.

Dr. Salaria, Aamir Ahmad May 02, 2017 03:49pm

Scaring tactics to offer more loan for enslavement of nations all over the world by the IMF.

How can they predict the rise and fall of prices pertaining to any product or service in the world? If they are so confident of their "forecasting" expertise, why don't they head towards the New York Stock exchange instead?

South Asia May 02, 2017 04:27pm

@Dr. Salaria, Aamir Ahmad This is called forseeing and forcasting. It helps in risk management. It is the thing that Pakistan does not have, else your country would have been somewhere else. And that is why you do not know how it is done.

kevin May 03, 2017 12:44am

Indias growth predicted in 2017 is 7.2 % and 2018 is 7.7 % by IMF & WB. pakistans growth will be 4 % & 4.2 % in the same period. India will be a developed nation in 10 years time.