EDITORIAL: Saudi Arabia has signed an oil payment deferral deal with Pakistan, estimated at 1.6 billion dollars, witnessed by senior members of the Pakistani Cabinet, including the Prime Minister, the Deputy Prime Minister and the Finance Minister, while the witness from the Saudi side was Chief Executive Officer of the Saudi Fund for Development.
The kingdom has previously provided oil to Pakistan on deferred payments several times, indicative of sustained fragility of the economy sourced to foreign exchange reserves dipping below the required three months of imports, which, in turn, is the outcome of boom-bust cycles dealt with by curtailing imports with negative implications on domestic industry reliant heavily on imported raw materials.
Today the country is on a similar policy path as imports were curtailed through administrative measures (though many have been lifted since) and the Fund has urged the authorities to “unwind the January 2022 shortening of the period for repatriation of export proceeds (which is assessed as an outflow Capital Flow Management according to the IMF Institutional View on the Liberalisation and Management of Capital Flows) once macroeconomic and Balance of Payment stability is restored.”
It is a matter of public record that in June 2022 the then Joint Secretary of International and Joint Ventures at the Pakistan Petroleum Division Syed Zakria Ali Shah stated that: “we are trying to take our existing facility with Saudi Arabia from 1.2 to 3.6 billion dollars.
The government of Pakistan has this facility for oil and liquefied natural gas imports under the framework agreement with International Islamic Trade Finance Company since 2017-18 and the last framework agreement was signed for this facility between our economic affairs division and ITFC on 21 February 2022. It is a total of 4.5 billion dollar facility for three years from 2022 till 2024 which is around 1.5 billion dollars annual on the best effort basis.“
In other words, neither the amount in question has been raised, nor has the witness from the Saudi side.
The question is whether the facility will enable the government to better balance its books? Total imports of petroleum products July-December 2024 as per the State Bank of Pakistan website are of 7,353,539 thousand dollars (a time when the framework agreement on deferred payment was applicable) against 7,283,696 thousand dollars – or a marginal decline of less than one percent.
Pakistan Bureau of Statistics (PBS) data reveals that both petrol (super) and high speed diesel prices did not rise during the week ending 30 January 2025 from 23 January 2025 while LPG price declined and registered negative 3.21 percent the week ending on 23 January.
This has augured well for the Sensitive Price Index data for the lowest income quintile (income up to 17,732 rupees), which registered a negative 0.52 growth compared to negative 1.04 percent in the week before.
The combined total however was negative 0.36 for the week ending 30 January compared to negative 0.77 the week before.
A word of caution is however necessary, a caution that was highlighted in the IMF documents uploaded on their website on 11 October 2024: “important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of Government Finance Statistics.”
Economists have consistently urged administrations, incumbent and previous, to desist from manipulating inflation data as a means to spread a feel-good factor – a manipulation that is relatively easy to identify as associated sectors are shown to have markedly different growth rates (cement rise while construction declines) and the weightage given to an item that is a challenge to verify; for example, rent.
While the trend has been to consider grants and loans, concessional or otherwise, as achievements perhaps it is about time the government highlighed a cut in its own expenditure as an achievement rather than focusing on raising tax revenue from the already heavily taxed.
Copyright Business Recorder, 2025