The government can benefit from declining international crude oil prices by hedging, Saqib Sherani, former Principal Economic Advisor when Shaukat Tarin was the Finance Minister, told Business Recorder. He pointed out that Shaukat Tarin as finance minister had suggested to the PPP-led coalition government in 2009 to opt for hedging when crude oil prices in the international market were declining.
The proposal was not implemented due to opposition by the bureaucracy and the country purchased crude oil at higher prices. Sherani, in defence of Shaukat Tarin's proposal, further stated that had the proposal been implementation it could have benefited the country by saving millions of dollars in foreign exchange.
Sherani added that the sole reason for opposing the proposal by the senior bureaucrats was the fear that in the next few years the Economic Co-ordination Committee (ECC) of the Cabinet may be led by someone other than Tarin (who incidentally did resign in 2010) and the bureaucracy would have to face cases in the National Accountability Bureau (NAB) in case of losses.
Saqib Sherani suggested to the government that this was the right time to go for crude oil hedging to benefit from low oil prices in the global market. He quoted the recent statement of the Saudi Oil Minister that oil prices need a correction as the prices have touched the minimum level. Sherani said that the statement of the Saudi Oil Minister must be taken seriously and prices would begin to rise soon.
Talking to Business Recorder prominent economist Dr Ashfaq Hassan Khan said that in developing economies like Pakistan hedging is not possible because of the high risk factor involved in hedging of any commodity. He said current decline in global oil prices was not natural and the commodity prices will move upward once geo-political situation in Arab world, debt crisis in European countries and growth rate in China start improving.