Govt should now buy crude oil to boost reserves, reduce CAD
2 min read
Oil is the most major contributor in the cost-push-inflation, and our 85 per cent of energy needs are met through imports in the shape of crude oil and petroleum products. The Oil import bill is the single largest contributor to the Current Account Deficit (CAD) which is exceedingly high and well beyond control of Economic Managers.
Imbalance of trade, Hot-Money led inundated Currency Devaluations, Cost-Push-Inflation, exorbitant prices of goods and services are some of the trees whose fruits are equally shared amongst the ruling elite and state operators.
Because of the Corona Virus and standoff between Russia and Saudi Arabia, the Crude Oil is losing roots by leaps and bounds.
Pakistan is a victim of an implanted trading-economic-model with an equally inverse level of executional-competence. The dealing of Ministry of Finance with the issue of Hot-Money and absence of policies and procedures to lock-in the gains of extra-ordinary declined-oil-prices are the hidden treasures that nation has to benefit—each now and then.
Dollar denominated Oil is a blank-check in the hands of OPEC countries to write whatever on the debt-notes of oil importing economies. At a time, when a scuffle amongst OPEC countries is serving as a perfect opportunity to curb the ills of cost-push-inflation, and significantly improve SPI and KPI, we are busy formulating committees and finding consultant / banks to perform the task of financial hedging of oil price against an increase.
The Q block alone cannot be held accountable for the lack of vision, timely actions to manage the financial security of the country, the legislators also share the burden by not being able to provide the framework of policies and delegate authorities and duly protect maker and executors of good policy-moves.
Given the situation, the government should buy 3-6-month long-call-options and pay the premium from the hot-money that the central bank possesses at a hefty cost and in great abundance. In this situation, the government will not be required to pay only a portion of the whole-cost i.e. known as “premium” which shall give right to the government of Pakistan to buy at the current low levels within 3-6 months, even if prices do move up-exponentially.
About The Author
