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Gulf crisis impact on Pakistan economy.

Gulf Crisis Impact on Pakistan Economy

Pakistan has been hit hard by the Gulf crisis. The oil price hike has given a serious jolt to its economy which was already in dire straits. Pakistan stood to lose 300 million dollars a year in workers' remittances alone while the total impact of the crisis on its balance of payments would amount to at least one billion dollars. The cost of resettling some 100,000 returning workers would run to at least 100 million dollars. An extra loss of 600 million dollars will be caused if prices stabilised around 25 dollars a barrel. There will be a further loss of 100 million dollars for an absence of trade with Irag and Kuwait per annum.

Thus to all appearances the situation is grave. No wonder therefore that Pakistan has been listed among the most severely affected countries by the World Bank and the IMF. In the situation, Pakistan looks forward to the developed countries of the West and the oil-rich Arab countries for bailing it out of this crisis. On its part, the Pakistan Government has tightened its bell to circumvent the situation. Stringent energy conservation measures have been taken, while a number of energy producing plants were being converted from oil to gas system. But the fact remains that the country cannot come out of the present impasse unless the oil-producing countries and developed Western nations besides international aid giving agencies come to the aid of Pak istan as they have been doing in the case of frontline states like Egypt, Turkey and Jordan. It is unfortunate that Pakistan has not been included in the category of most immediately impacted countries (MIICs) by the International Monetary Fund and the World Bank. Pakistan urgently needs two billion dollars to offset the effect of the Gulf crisis. However, Pakistan is making bilateral efforts for bilateral arrangements from various sources. In this connection, great significance attaches to caretaker Prime Minister Mustafa Jatoi's visit to Saudi Arabia and some of the Sheikhdoms. Although he said that he did not ask for anything, he did admit that discussions were held with the Gulf region leaders on matters including the impact on Pakistan economy and the additional resource constraints Pakistan was bearing as a sequel to the Gulf crisis. He disclosed that the Gulf states were mindful of the economic difficulties of Pakistan and viewed them with sympathy. He said that Pakistan's relations with the ECO (Iran and Turkey) countries and the Gulf states had assumed additional importance after the Gulf crisis.

Though no clue has been given by the caretaker Prime Minister about any aid committed by the Gulf countries and Saudi Arabia to help Pakistan out of its predicament, it is assumed that the visit has produced some positive results. Meanwhile, the caretaker Finance Minister Sartaj Aziz is following up the Prime Minister's talks by holding discussions with his Saudi counterpart and other leaders of the Muslin countries in Washington.

Pakistan has already asked the United States, Britain, West Germany and Japan for financial help to cope with a higher oil import bill and a sharp fall in workers' remittances from the Gulf. While Pakistan made out forecasts in the 1990-91 budget on the basis of a price of 17 dollars per barrel, the price has shot up to 25 dollars a barrel and if it stabilised at this level, it would cost the country an extra 600 million dollars.

Despite such a heavy strain on the country's balance of payments, Pakistan has resisted the IMF pressure to increase the oil prices as it would cause acute hardship to the hardpressed consumer. The price hike may have serious socio-political ramifications Pakistan Government, it may be recalled, has already raised the oil price in March this year and any further hike would be resented by the consumers, more so because the oil price in Pakistan was already much higher than the international level. Hence the Government has for the time being decided to absorb the shock of increase in the oil import bill but the burden will have to be shared by the people in case it became unbearable for the national exchequer.

Happily some alternative arrangements have been made to stave off the impact of disruption of oil supplies from Kuwait which met Pakistan's 60 per cent oil requirements at a concessionary rate. Saudi Arabia has agreed to provide 60,000 barrels of oil per day until December 31. What is more concerting is the firm assurance by the Saudi Government to meet all her needs caused by the disruption of supplies from Kuwait. Riyadh would consider an extension of the three-month oil supply agreement for another six months. The Saudis would be providing 20,000 barrels of light crude and 40,000 barrels of furnace oil daily from October 1. Bahrain has also offered to provide 20,000 barrels of crude to Pakistan and the Government was considering the offer. Saudis have also agreed to allow Pakistan to get the crude refined from anywhere and to exchange the furnace oil with petroleum products, bulk of which came from Kuwait. A Saudi delegation would visit Pakistan to assess Pakistan's needs in January. Thus Pakistan which was worried about oil supplies, has got a lot of confidence and encouragement after the Saudi assurance. This has enabled to Government not to raise the oil price.

Besides oil import from Saudi Arabia, Pakistan has invited short-term tenders for the import of oil upto December 31 next. The situation was so demanding that the Government focussed its attention on the procurement of oil despite problems of storage capacities. Pakistan is looking forward to the oil producing countries to come to its rescue and has decided to send delegations to these countries. A message of the President of Pakistan has already been delivered to King Fahd of Saudi Arabia.

Pakistan feels that it has been hit hard as much by the Gulf crisis as any other front line state like Turkey, Egypt and Jordan and hence it should not be discriminated against in matter of provision of additional aid to meet the emergency. Happily Prime Minister Jatoi's visit to Saudi Arabia has proved highly productive and now modalities were being worked out with the Saudis to secure additional funds to back up the country's immediate economic needs.

It is also hoped that the country's plea to 18 major international donor nations to provide urgent financial aid totalling 1.1 billion dollars to offset impact of the Gulf crisis would evoke positive response Pakistan immediately needs one billion dollars to offset balance of payment deficit. Besides, 100 million dollars are required for the evacuation of Pakistanis from Iraq and Kuwait.

It is good to note that Pakistan's plea has not gone unheeded. Japan has already committed 22 million dollars for repatriation efforts but so far developed countries have not responded on the balance of payment problem of Pakistan. It may be pointed out here that in view of Pakistan's foreign exchange reserves having come down to only 500 million dollars, enough for imports of two weeks only, it needs immediate cash.

The European community is reported to be working on a special aid programme aimed at helping Asian nations to cope with the economic fall-out from tensions in the Gulf. These countries have already agreed on a two billion dollar aid package for Egypt, Jordan and Turkey, the three frontline nations. The US has written off Egypt's 7 billion dollar loan but has ruled out the possibility of extending this concession to any other country. It is estimated that the three frontline states stand to lose 9 billion dollars because of the oil price hike and as a result of suspended exports caused by the international trade embargo against Iraq. Pakistan's hardship is no less acute. It therefore hopes that the countries like Saudi Arabia, Qatar and the United Arab Emirates which stand to gain up to 40 billion dollars in additional oil earnings would help extricate it from its economic predicament. Even otherwise, the developed nations are pressing these countries to contribute upto two-thirds to the international effort to help nations affected by the Gulf crisis. The ramining one-third is to come from the Western nations and Japan.

Pakistan needs assistance not only to overcome balance of payment difficulties but also to reintegrate the returning migrant labour force. thus Packistan is not only trying to get immediate relief from the World Bank/IMF and other donor countries but is also making an earnest endeavour to earn at least 500 million dollars through additional exports to help fill the additional trade gap. Ideal export opportunities for leather goods, towels, readymade garments, hosiery etc. have opened up in the wake of deployment of foreign troops in Saud Arabia.

However, that will be insufficient to meet the Gulf crisis-related economic crunch, the size of which is estimate to be about three billion dollars. In all fairness, Pakistan should be extended help by the developed and the Arab countries more or less on the scale of the three frontline states, Turkey, Jordan and Egypt. Like Egypt, it has also sent its tropps to Saudi Arabia, committing 5000 troops against 3000 of Egypt. Moreover, like the frontline states, it is also suffering greatly from the ouster of its nationals from Iraq and Kuwait. Also like these three countries Pakistan's foreign trade is going to suffer significantly in the wake of the Gulf crisis. One rough estmate has put the losses at about one billion dollars in respect of foreign trade dislocation and another one billion dollars due to increase in international oil prices. Thus Pakistan is sailing in the same boat as Jordan, Egypt and Turkey and suffering enough, if not as much as these three countries.

A number of delegations are expected to visit various countries including the United States, Japan, Korea, Germany and the United Arab Emirates to explain Pakistan's economic position which has been hit hard due to Gulf crisis. Unfortunately, Pakistan which is one of the most affected countries has not so far been extended any help by any of these countires. The total suspension of 120,000 barrels of refined petroleum products and refined oil from Kuwait, trade out off with Kuwait and Iraq, termination of remittances and increasing oil price in the world market has hurt the country badly. Hence it is obligatory on the part of these countries to come to the country's assistance forthwith. Saudi Arabia has set an example worthy of emulation and they should take the cue from it. Since Pakistan's efforts regarding supply of oil have borne fruit, the immediate danger of oil supply crisis has been averted.

Paskitan is also purchasing crude oil from Malaysia and taking it to Singapore for refining. France has also come out with a long-term oil supply plan. Pakistan has asked French oil company to extend necessary credit for this purpose.
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Author:Jabir, Rafique
Publication:Economic Review
Date:Oct 1, 1990
Words:1822
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