Growing petroleum demand offsets benefits of low world oil prices

ISLAMABAD: Government’s decision to keep oil prices unchanged led to more than 25 percent increase in gasoline consumption during the last fiscal year of 2016/17, but soft international oil prices couldn’t translate into any larger benefits to the economy, a senior finance ministry’s official said on Friday. 

“And, so we have convinced the government that the keeping oil prices unchanged is a flawed policy that needs to be changed as we have already evaporated gains of reduced oil prices in international market,” the official told The News.

The official said the finance ministry, in a briefing to the Prime Minister Shahid Khaqan Abbasi and federal cabinet earlier this month, informed them about the macroeconomic situation. Therefore, the government had decided to partially increase oil prices from September 1 in order to discourage rampant consumption of petroleum products, the official added.

The finance ministry’s wizards told PM Abbasi that oil prices remained lowest in Pakistan during the last three years compared to other regional states, including India, Turkey, Sri Lanka and Bangladesh.

Finance ministry’s calculations showed that average oil prices stood at around $0.61 a litre in Pakistan in 2016 as compared to $0.93/litre in India, $1.51/litre in Turkey, $1.12/litre in Bangladesh and $0.88/litre in Sri Lanka.

In 2015, average oil prices in Pakistan stood at $0.74/litre as compared to $1.51/litre in Turkey, $0.95/litre in Sri Lanka, $1/litre in India and $1.22/litre in Bangladesh. The finance ministry’s data further revealed that oil prices were hovering around $0.93/litre in Pakistan in 2014 as against $2.11/litre in Turkey, $1.26/litre in Sri Lanka, $1.11/litre in India and $1.07/litre in Bangladesh.

International oil prices witnessed a major decline to below $30 a barrel on an average from around $120 a barrel during the last four years, but Pakistan’s oil import bill couldn’t decrease in the same proportion mainly because gasoline consumption increased in the domestic market.

The country’s oil import bill stood at $10.606 billion in FY2017 as against $8.357 billion in FY2016. Oil imports, in terms of quantity, also surged and that offset the dividends of reduced oil prices in the international market.

Pakistan imported 8.122 million metric tonnes of petroleum crude in FY2017, up 37 percent as compared to FY2016. Import of petroleum products soared 46.12 percent to 14.79 million metric tonnes during the last fiscal year. 

The Federal Board of Revenue (FBR) also had to face a major revenue shortfall for the fiscal year of 2016/17. Initially, the parliament had approved the tax revenue collection target for FBR at Rs3,621 billion for FY2017, but the actual collection by the apex tax authority was Rs3,362 billion, depicting a seven percent shortfall.

The official said the finance ministry expects that now the government would continue to raise oil prices for local consumers on monthly basis instead of doling out billion of rupees in petroleum subsidy that militates against taxation measures.

International Monetary Fund’s economic reforms programme, which ended last year, encouraged economic managers to cut short subsidies given as social assistance to help people afford high prices of energy. Share of subsidies declined to 0.8 percent of GDP in 2015/16 from three percent of GDP in 2011/12.