Pakistan is set to benefit significantly from a drop in international oil prices, with projected annual savings of between $3 billion and $3.5 billion. As crude oil prices have fallen to a three-year low, currently below $70 per barrel, forecasts suggest further reductions could bring prices down to around $60 per barrel by 2025.

According to a report from investment advisory firm Alpha Beta Core, these savings will help ease inflationary pressures and improve the trade deficit, as energy imports make up about 31% of Pakistan’s total imports for the fiscal year 2024.

The decrease in energy costs is expected to enhance the competitiveness of Pakistani exports by lowering production costs.

Additionally, the decline in oil prices coincides with a reduction in borrowing costs, following the Central Bank’s cut of the policy rate from 22% to 17.5%.

This combination of lower energy and capital costs is anticipated to stimulate business investments and boost economic activity, potentially allowing GDP growth to exceed the projected 3.5% for FY25, particularly benefiting the manufacturing sector.

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The report also indicates that the current account deficit is expected to remain manageable at around 1.5% of GDP, and credit rating agencies have begun to upgrade Pakistan’s economic outlook, improving investor confidence.

As the government saves on energy costs, it will have increased fiscal flexibility, potentially lowering the budget deficit below 6% of GDP by fiscal year 2025 and enabling investment in critical reforms and development projects.