It’s a pretty simple equation for Pakistan’s economy really—low oil prices are great news for our economy and currency; while high oil prices mean the contrary. It wasn’t a coincidence then that Thursday saw both oil prices rise by 7%, and the rupee crosses 180 against the US Dollar for the first time.
The reason why the rupee and oil prices are inextricably linked is that oil is our nation’s biggest import. In the Fiscal Year 2020-21, total imports added up to USD 54 billion, of which petroleum and petroleum products were the largest categories with an import bill of USD 10 billion. In short, nearly a fifth of our country’s total imports is just fuel. This heavily affects our perceptions of government performance.
The PML-N government, for instance, had an easier ride on the macroeconomic front during its time in government, primarily due to oil prices plummeting from USD 107 in June 2014 to USD 30 by January 2016. Despite a subsequent recovery, they didn’t rise remotely to the levels that the PPP government had to face in its tenure, when oil prices remained consistently above USD 100. The PTI government also benefited initially, with oil prices dropping to historic lows in 2020 due to Covid-19. But, with political defections on one side, and Brent crude rising above USD 107 on the other, it is fair to say the good times for PTI are over.
KSE-100 fell this week, due to growing political turbulence at home, and the persistence of the Russia-Ukraine conflict abroad. PKR depreciated again this week to record lows, as international oil prices continued to skyrocket. Local gold prices also fell this week.
Increase in prices of Ghee (+6.25%) and Cooking Oil (+3.62%) contributed to weekly inflation. A fall in the price of Electricity (-9.81%), Chicken (-8.39%) and Tomatoes (-12.0%) helped moderate inflation this week.
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