Combating Trade Deficit

There is a long list of items where we can work and give boost to the trade deficit recovery. To start with Steel imports where the FBR collected more than Rs65 to Rs 70 billion, contribution from 11 million tons to 12.5 million tons of steel iron imports.

The Government of Pakistan has to turn towards the steel industry with special emphasis on revamping Pakistan Steel Mills to restore and enhance its production capability. Currently it has 2.2 million tons production capacity, which is peanuts contribution to national demand of steel supply. The Government should plan and implement policies, strategy to steel industry.

Another major outflow of foreign exchange is import of generators which was on increase in 2016 and 2017, amounting to Rs 282 billion

Now with beginning of last quarter of calendar year the Oil prices are expected to go up to $100 per barrel. Since USA sanctions against Iran is pushing pressure on Oil prices. Iran is third largest Oil producer, around 2 million barrels production. If you remove 2 million barrels per day from market the outcome is quite obvious. The current futures for Brent crude is reaching $80 per barrel, this peak is first time in last 3 to 4 years time and expected to reach $90 by year end. This could reach $100 per barrel early next year.

This Oil market situation is going to directly hit Pakistan current account status. The Government should revisit its alternate energy to counter it. This spike in oil price will directly impact the inflation, foreign exchange reserves and balance of payment.

One way of countering it is increasing petroleum products prices the other way is to speed up the gas production or procurement process.

The option of Iran-Pakistan pipeline could be the right option that could be a good option. The government can also renegotiate $18 MBTU LNG price to lower it and bring to the level $11 to $13 MBTU.

The government needs to take necessary steps to make sure that power houses utilize the cheap source of gas in producing electricity instead of furnace oil. Specially should consider legislation for lobbying for use of furnace oil in producing electricity.

So it is evident the government has to take drastic steps on power sector to increase uninterrupted supply, lower the cost of production that will not only keep going the manufacturing sector, textile industry, on the other hand it will reduce the import bill by reducing import of oil the heaviest of import bill also controlling the related imports.