Dream or a stroke of luck? Pakistan finds hope at the bottom of the sea

Just when Pakistan is teetering on the brink of bankruptcy, it has received a new hope. A significant oil and gas deposit has reportedly been discovered in its territorial waters. It is said to be so large that it could change the fate of the country. DawnNewsTV reported that a three-year study was conducted in cooperation with a friendly country to verify the presence of oil and gas reserves.

Pakistan has been struggling with mounting debt and rising inflation for some time now and is heavily dependent on foreign aid, which is often elusive. To make matters worse, political instability and rising terrorism in some provinces are only worsening Pakistan’s economic situation.

Will a new discovery save Pakistan?
The news of the discovery of oil and gas deposits certainly gives Pakistan hope, but this hope lies buried at the bottom of the sea. It will not help Pakistan survive the economic crisis in the near future.

A former member of Pakistan’s oil and gas regulator told DawnNewsTV that while the country should remain optimistic, there is never 100 percent certainty that reserves will be discovered as expected. Asked whether these reserves will be enough to meet the country’s energy needs, he said it depends on the size and rate of recovery of production. “If it is gas reserves, it can replace LNG imports and if it is oil reserves, we can replace imported crude oil.”

Pakistan’s total energy import bill in 2023 was $17.5 billion, which is expected to nearly double to $31 billion in seven years, according to an Express Tribune report. Pakistan currently meets 29% of its gas, 85% of its oil, 20% of its coal and 50% of its liquefied natural gas (LPG) requirements through imports.

The former member, however, cautioned that this was “wishful thinking” until the prospects of reserves were analysed and drilling began. He stressed that the exploration itself required a significant investment of around $5 billion and that it could take four to five years to extract the reserves from the offshore location. In January this year, Pakistan had sought $30 billion for gas production to reduce its fuel import bill. Pakistan has 235 trillion cubic feet (tcf) of gas reserves and 10% of them could be explored with an investment of $25 billion to $30 billion over the next decade to reverse the current declining gas production and replace energy imports, Energy Minister Mohammad Ali said, appealing to foreign investors.

Pakistan’s Economy in Dangerous Condition
A staggering 74 percent of the country’s urban population is unable to meet its monthly expenses from its current income, ARY News reported recently based on a study. This is a significant increase from May 2023, when 60 percent of households reported financial difficulties, according to the study. Ten percent of people have taken up part-time work to supplement their income.

The survey also found that more than half (56%) of people who barely manage to cover their expenses are unable to save any money after meeting their basic needs.

Cash-strapped Pakistan is in talks with Middle Eastern banks to borrow about $4 billion to cover external financial obligations this fiscal year, part of a $7 billion expanded bailout fund currently awaiting IMF approval.

In the current fiscal year, Pakistan has budgeted around $20 billion in foreign loans, in addition to another $3 billion from the UAE, which has been reported separately for the balance of payments. With such large loans, Pakistan’s reserves are expected to rise to around $19-20 billion by the end of the current fiscal year.

The International Monetary Fund said in July it had reached an agreement with Pakistan on a 37-month, $7 billion lending program aimed at strengthening stability and inclusive growth in the crisis-hit South Asian country.

As reported by Dawn, the Pakistan government’s efforts to reform public sector enterprises (PSEs) have been overshadowed by ongoing challenges, as highlighted by recent fiscal data and international financing initiatives. Despite a significant loan from the Asian Development Bank (ADB) to bolster reforms, the accumulated debt of PSEs has risen to PKR 1.7 trillion, with additional borrowings exceeding Rs 43 billion in fiscal year 2024.

The government has identified almost a dozen serious risks to next year’s budget and medium-term outlook, including lower-than-expected economic growth, unexpected natural or climatic disasters, and continued weak performance by state-owned enterprises.

Pakistan’s overall economic growth has fallen short of targets. The economy is estimated to have grown by 2.4% in fiscal 2024, missing the 3.5% target, according to the government’s Economic Survey. That’s an improvement from last year’s 0.17% contraction and is in line with the State Bank of Pakistan’s full-year forecast. The central bank recently cut its key interest rate by 150 basis points to boost the economy.

Persistently high inflation could push Pakistan over the edge. “There is no precedent in Pakistan’s history for such a long and intense period of inflation to grip the country,” columnist Khurram Husain wrote in Dawn.

“This has never happened before. Pakistan has had periods of high inflation, the last one lasting roughly from early 2008 to 2010, depending on which metrics you use to measure growth and decline. But the latest period started in May 2021 and has continued unabated, despite what the CPI measurement might suggest. That’s three consecutive years without an end. Moreover, if the last peak in inflation was around 20%, this period has peaked above 30%. The current period of inflation is not only longer than any in the past, it is also more intense.”

Husain wrote that the inflation gripping the country was no longer just an economic problem but also a threat to social order, and that a tipping point could come at any time.

(With agency guidance)