said.
AUTO MAKERS MULLING EXPANSION
Similarly, the fall in oil price is favorable for car assemblers and importers in Pakistan, including Honda, Toyota and Suzuki Motor.
This, together with a significant lower rate of inflation at 4.38 percent for December 2014 may convince many to buy a new car and help the assemblers to increase production.
“A few car manufacturers in the west are seriously considering spending their production amid falling oil prices,” he said.
Moreover, the drop in oil price has increased car-owners’ purchasing power for the fuel and helped many of them to have switched to petrol from comparatively cheaper CNG (compressed natural gas).
Some 20 to 25 percent car owners are believed to have switched to petrol since its price has dropped by 23 to 24 percent in the last three-month against no change in CNG price in the same period. The trend well reflects in the shortened car-owners queues for CNG fuel and an increase of 10 percent in sales of petrol in the year ended December 31.
More importantly, the assemblers were restricted to produce and sell CNG fitted cars. Lowering oil price should be taken positive for car assemblers in Pakistan as well, he said.
However, another expert said, the decreased oil price is negative for local oil production companies and refineries, including Oil and Gas Development Company, Pakistan Petroleum Limited, Pakistan Oilfields, Attock Refinery, Pak Refinery, and Byco Petroleum.
SALES TAX BITES
Industrialists, including Muhammad Adrees, president of Federation of Pakistan Chambers of Commerce and Industry, told reporters last week that local industries may not take benefit of falling oil price after the government increased sales tax on petroleum products by five percent to 22 percent, and surged gas tariff for captive power plants by 53 percent.
He said some 40 percent industrial units have become sick because of chronic energy crisis and law and order situation. And, increase in tax rates will not allow sick units to be revived.
The industrialists urged the government to withdraw the increase in sales tax and the gas tariff in the greater interest of industries.
Ahmed said the low inflationary numbers amid historically low oil price have also stirred expectation for a cut in 50 to 100 basis points in the interest rate by the central bank next week.
RATE CUT
The expected cut would also be positive for the firms carrying heavy banks’ loan on their balance-sheet, including value-added textile mills, fertiliser manufacturers, construction industry, cement manufacturers and car manufacturers.
“Engro Corporation (a group of seven companies) would be the biggest beneficiary of the likely rate cut, as majority of its associated companies are running on loans,” Ahmed said.
The expected slash in the interest rate would be negative for commercial banks, and they have to expand their consumers’ market operations by offering more loans to industrialists and individuals instead of continuing to invest in fixed income investment instruments, like treasury bills and Pakistan Investment Bond.
The rate of return on such fixed income investment instruments has already decreased significantly ahead of the next monetary policy announcement by the central bank.
The low interest rate regime may encourage more banks to offer car and home financing products.