With the fall in oil prices being the most important economic development this year, why has Pakistan not been able to capitalise on it? Falling oil prices are good for consumers and household budgets. It’s almost like a free stimulus to the economy, allowing funds to flow towards consumer spending creating a virtuous cycle of spending within an economy. Oil interests only end up hoarding those extra profits. According to the Organisation for Economic Cooperation and Development (OECD), a $20 drop in price adds 0.4 percentage points to growth in the global economy. With a $50 drop since June this year, we can expect a full percentage point increase in global GDP next year. Here is what should have happened in Pakistan. Farming costs should have reduced, our import bill should have reduced (estimates suggested a saving of $5 billion over the next year, over 1.5% of our GDP), and inflation should have decreased.

We have a serious problem of foreign exchange while falling oil prices produced an opportunity for the government to save dollars. Instead, our oil import bill soared during the first five months of this fiscal year, from July to November, compared to the same period last year. Inflation in November fell below 4% in Pakistan, creating an opportunity for the economic managers to allow maximum liquidity to boost growth. However, the Central Bank, still cautious, did not reduce the interest rate significantly. The interest rate remains high, and banks are using most of their liquidity to invest in government papers. If the government does not stop borrowing from the banks, the benefit of low oil price will be wasted. This is the time for a cautiously expansionary policy; we have been in contraction for so many years, especially since the IMF started its programs in the 1990s that it will take us months to understand how to generate wealth from the oil bust and take a U-turn in policy. This is a stimulus that the government does not have to give- it’s a gift. They just need to make sure State Bank policy and price regulation is on track so that the masses have access to the benefits of lower energy costs.