Increase in international commodity prices adversely affects Pakistan’s economy

ISLAMABAD: Although the economy of Pakistan has started recovering from the shocks it suffered in the recent past, the unfolding international scenario has caused macroeconomic imbalances and elevated risks and inflation in the country, WealthPK reports.
The geopolitical tensions and future market trends suggest further increase in international commodity prices, impacting the inflation outlook. The prices of food items have increased globally owing to the shortage of supplies while rates of petroleum products are on the rise as a result of the conflict between Russia and Ukraine.
In an interview with WealthPK, Muhammad Zakaria, a professor of economics at COMSATS University Islamabad, said that the coming months would be extremely challenging for people because of rising inflation and increasing unemployment.
In April 2022, he said, international rice prices increased by 2.3 percent compared to March, driven by strong domestic demand from several Asian exporters, purchases by Chinese consumers and weather-related problems in America.
The slight decline in prices of palm oil in April was mostly caused by slowing down global demand for the import amid high costs as well as a dimming forecast for Chinese consumption. Although Indonesia is the world’s largest exporter of palm oil, concerns regarding export availability restrained further decrease in global prices.
Pakistan has also been sustaining a trade deficit in goods with Ukraine. When compared to the goods worth $252 million imported in the first eight months of the financial year 2020-21, the value of goods imported from Ukraine in the corresponding period of the financial year 2021-22 was $685 million. The most vital import for Pakistan from Ukraine is wheat.
Prof Zakaria said that Pakistan bought wheat worth $522 million from Ukraine in the first eight months of the financial year 2022. “However, given the Russia- Ukraine conflict, we anticipate that this amount will drastically decrease. Since there is currently a severe shortage of wheat in Pakistan, the country has been dependent on imports,” he added.
The conflict between Russia and Ukraine may lead to a flight of money from emerging markets to developed ones. The Pakistani rupee may also decline further. Many other macroeconomic variables, like inflation and the current account deficit, are nevertheless susceptible to changes in the environment.
“Fundamentally, it is not surprising that the Pakistani rupee is declining. Due to persistent twin deficits, a lack of potential capital inflows, other structural problems, and a drop in foreign exchange reserves, the rupee has been under pressure. The recent significant devaluation, however, might be a sign of rising strain on Pakistan’s external instability and worries about macroeconomic fundamentals,” said Prof Zakaria.
The prognosis for global commodity prices is also fraught with enormous uncertainty, which has been made worse by the crisis between Russia and Ukraine.
The economy of Pakistan has also been impacted by the global scenario because it imports wheat, sugar, lentils, edible oil and petroleum products. Domestic prices are largely influenced by movements in world pricing. However, by subsidising the production of commodities, the government has done its utmost to reduce the effect of the global rise in prices on domestic consumers.