The uncertainty is testing the temperament of investors, speculators and business persons alike. The supposed lack of policy direction, ambiguity on foreign flows from friendly countries, pending decision on IMF programme and high oil prices are sending jitters to the equity and foreign exchange markets. 
The desperation is showing from slide in the currency in the open market where rupee dollar parity crossed 128 and the gap between interbank and kerb market has widened. In the last month or so, when the sentiments were positive, rates in open market were better than interbank, it was an anomaly which is self correcting now.
Yesterday, the SBP team met the exchange companies and usually after such meetings the gap in currency rates between two markets narrows, but it is widening this time. The apparent reasoning is that the SBP is losing its steam; as Dar used to control the currency movements, virtually after every meeting with exchange companies.
However, that is not happening now. This could be a good omen as the SBP might not have backing of finance minister in controlling currency which implies that the SBP is independent in making foreign exchange policy and in turn market forces to come in play.
The volatility is good as the market adjusts promptly for the system to not suffocate. Having said that some comfort by finance minster to ease the pressure by announcing some policy direction is good. At first, he might need to present the sliver lining in high oil prices.
Apparently, higher oil price is the biggest worry at the moment as there is no respite to the upward movement in oil prices. People are well cognizant of the adverse impact of higher petroleum group import bill, inflationary consequences due to pass on impact of the prices to consumer and in turn currency depreciation to result in broad base inflation and slowdown of economy.
But there is an opportunity in the bull commodity market which Asad and team are required to capture. High oil prices are making alternative energy avenues more attractive and here Pakistan can fetch some foreign exchange by formulating right policy framework.
Pakistan has a wind potential of about 50,000MW; out of which a small fraction is exploited yet. The wind tariff has come down to as low as 4.25 cents per unit and it takes just six months to erect a wind power plant. Foreign investors are hungry for wind corridors. Similarly, high oil prices give an opportunity to work on solar power too.
Thar coal projects can be expedited and more investors can jump in to capture high returns in days of higher hydrocarbon prices. The one good thing done by previous government is to reduce the reliance on furnace oil by coming up with RLNG based power plants. The new government should explore more RLNG and other resources of energy.
Government may start working on secondary offerings of OGDC to foreign investors to fetch some valuable foreign exchange and non tax revenues. And the viability of exploring more wells for oil and gas for both OGDC and PPL enhances with higher prices. The urgent need before delving into reshaping E&P companies is to clear the circular debt.
The other benefit of higher oil prices could be higher remittances growth. Growth in remittances almost muted in the past three years as there was a case of slowdown in GCC economies. One of the prime reasons for slowdown in those economies is the low oil prices. Expectation of higher prices can increase the investment climate in GCC countries to create more jobs with an opportunity for absorbing fresh Pakistani labour.
Since FY04; there were five years when the remittances growth was not in double digit, and barring one, in all the years, average oil prices were lower than $65 per barrel. This might be a good time to negotiate with the UAE and KSA to absorb higher Pakistan labour for sustainable growth in foreign inflows and that can help curb the current account deficit.
The next question is how significant are the petroleum imports in the whole equation of curtailing twin deficit. Higher prices adversely impact the CAD through higher imports and have fiscal repercussions through fast accumulation of circular debt. Upward revision in power tariffs and administrative measures including limiting the losses of DISCOs in their respective jurisdiction can plug in the holes.
The case of imports growth is overplayed by oil prices. 2018 is not 2008; as at that time petroleum imports at $10.5 billion was 30 percent of overall imports while the toll at $13.2 billion in FY18 is at 24 percent of overall imports. The point is that curtailing non-oil imports and jacking up remittances can more than offset the uptick in oil imports.
The economic slowdown can even lower the current account deficit even in days of very high oil prices. For example, in FY13 and FY14 where average oil prices were $109 per barrel, the current account deficit was a mere $2.5 billion and $3.1 billion respectively. The petroleum imports were at highest level at $14.1 billion (FY13) and $14.8 billion (FY14) and these were 35 percent of overall imports in each year.
But the current account deficit was low because of lower other imports (due to slow economic growth at 3.7% and 4.1% respectively), better exports and healthy growth in remittances. It is pertinent to note that all the commodity prices move in tandem and if imports are high, exports grow as well. The problem in the past three years was that exports were not growing as commodity cycle was not helping it but other imports (especially machinery) growing rapidly. Case in point is Pakistan’s peak exports at $25 billion in FY14, when oil was high and GDP was low. There is no reason why that silver lining cannot be highlighted again.
Thus, in FY19-20, the higher oil prices may not be as dangerous as it is perceived; if remittances and exports grow in tandem, and government explores other benefits. The finance minister should boost the confidence by exhibiting the silver lining to subside the pessimism.
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