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June 2022 was the third time when monthly imports (PBS) crossed $7.5 billion. In earlier instances, there were one-off vaccine imports and some classified hardware. This time around, it’s the petroleum group which constituted 46 percent of imports against an average of 27 percent in the past twelve months.

One reason for higher petroleum imports is higher oil prices. What is ironic is that the import in quantitative terms is at all-time high for crude and perhaps the same is the case for petrol and diesel. Then to show speedy performance, LNG spot cargos were bought at all time high prices.

Petroleum group imports stood at $3.6 bn – 20 percent higher than country’s total goods exports. On one hand, SBP is trying hard to not let its foreign exchange reserves fall too fast while the government and refineries are importing record high number in volume terms. Now LCs of previous months’ expensive energy imports are retiring and banks are facing shortage of dollars in the interbank market. Thus, the currency is in the free fall.

Pakistan imported 1.12 million tons of crude oil which is the highest ever import in a month at peaking prices. Refineries have good margins. They imported to milk profits. Then the petroleum products imports stood at staggering 2.2 million which is twice as much as what is recorded by OCAC (Oil Companies Advisory Council) data. There is a gap of around 20 containers of 60,000 tons each between PBS and OCAC data. That is simply not possible. Either the timing of the recording has a mismatch, or some other classified hardware is being hidden here.

LNG imports stood at $700 million – again the highest ever monthly import. LNG imports have also taken place at record high prices. And in May and June, government generously imported at peaking prices to end load shedding. But it never did end. And the high imports bill of LNG is contributing to the fall in PKR.

Lately, the Finance Minsterhas been offering comforting statements that the country has two months of petroleum products in reserve and due to this, overall imports in first 18 days of July fell by $2.6 billion. That is true. However, unfortunate part is that the country has built the reserves at peaking prices. And with some drop in petroleum products and crude prices, the government is importing less. There is an opportunity loss. And timing could not be worse.

On the other hand, the good thing is that now imports pressure is low. And the recent pressure on the currency was due to LCs maturing of last month’s oil imports. If the government receives commitment of $4 billion from friendly countriesand get IMF’s board approval, SBP may use some reserves to not let the rupee fall freely. All eyes are on friends’ commitments!

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Abdullah Jul 22, 2022 03:59pm
Perhaps once again a signal that domestic demand is too high. Further hikes in interest rates are necessary.
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