The softening of commodity prices is better than any state-run stimulus package. It is also more imperative for fragile economies like Pakistan that have lesser room to run such fiscal programmes. Rallying oil prices, nearing $72 per barrel at present, amid weakening value of rupee threaten a double whammy for Pakistan - bourgeoning twin deficits and soaring inflation.
If prices rise any further, then the options left on economic managers plate will be tricky: manage the impact of ballooning crude or revive the ailing real economy? A cursory look at the recent past reveals that our imports move in tandem with global crude oil prices - the chart depicting the inelasticity of our import demand. The pictures gloomy nature is depicted by our vulnerable state of import cover that fell to as low as two months last October, calling IMF to the rescue. When we went to the IMF last year, oil had peaked at $147 per barrel.
Now, after nearly exhausting the institutions lending limits, both for balance of payment and the likely insurance money for fiscal support, the question is where would we go next, if oil inflates again. The commodity is currently testing its 10-month highs and chances are it will continue facing a strong resistance around $75 - $78 level, in line with US Department of Energys 2010 average forecast of $72 per barrel.
Yet, if speculators do what they do best and push prices north, it is feared we would be back to square one. All information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s).
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