Pakistan stands to gain significantly from a recent decline in global oil prices, with annual savings projected between $3 billion and $3.5 billion. Crude oil prices have fallen to a three-year low, currently under $70 per barrel, with forecasts suggesting further declines to around $60 per barrel by 2025.
An investment advisory report from Alpha Beta Core highlights that these savings will alleviate inflationary pressures and improve Pakistan’s trade balance, as energy imports account for roughly 31% of the country’s total imports in the fiscal year 2024.
Lower energy costs are expected to enhance the competitiveness of Pakistani exports by reducing production expenses.
Simultaneously, the drop in oil prices aligns with a reduction in borrowing costs, following the Central Bank’s recent cut in the policy rate from 22% to 17.5%. This dual impact of decreased energy and capital costs is anticipated to spur business investments and drive economic growth, potentially surpassing the projected 3.5% GDP growth for FY25, particularly benefiting the manufacturing sector.
Moreover, the report indicates that Pakistan’s current account deficit is expected to remain at a manageable level of 1.5% of GDP. With improved economic indicators, credit rating agencies have upgraded the country’s economic outlook, boosting investor confidence.
The savings from reduced energy costs will provide the government with increased fiscal flexibility, potentially lowering the budget deficit to below 6% of GDP by FY2025 and creating room for investments in essential reforms and development initiatives.
