Pakistan Braces for Fuel Shortages Amid Liquidity Crisis

According to traders and industry insiders, Pakistan may experience a fuel shortage in February as banks have stopped financing and facilitating payments for imports as a result of declining foreign exchange reserves.

Imported goods are costing more money because of the nation’s balance of payments crisis and the weakening value of the rupee. The cost of imports is largely made up of energy costs.

More than one-third of Pakistan’s annual power requirements are typically met by imports of natural gas, whose prices soared after Russia invaded Ukraine.

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There are plenty of things this week. According to a senior executive at one of the oil companies, if we don’t already have LCs (letters of credit) open, we might experience shortages over the following two weeks.

A letter of credit issued by the banks of the importer is a typical type of payment guarantee for the exporter in the oil trade.

However, oil traders are avoiding nations like Pakistan and Sri Lanka due to a severe lack of foreign currency. In addition to raising the price of gasoline and diesel by 16% on Sunday to Rs249.80 per liter, Pakistan is currently negotiating a restart of a halted bailout program with the IMF.

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In the past few months, a flurry of fuel tenders has gone unawarded by state-owned refiner Pakistan State Oil (PSO) and Pakistan LNG Ltd.

Officials from the State Bank of Pakistan cited the “serious liquidity problems” the nation was experiencing as the cause of payment delays at a meeting with the business community about the financial challenges faced by petroleum importers.

According to Kpler data, Pakistan only purchased 223,000 metric tons of gasoline in December, compared to 608,000 metric tons during the same month last year. In January of this year, 270,000 metric tons of fuel were anticipated to be imported, compared to 393,000 metric tons in January of 2022, the report stated.

While several banks have denied the existence of LC issuing delays, SBP did not respond to a request for comment from Reuters.

A top executive from one of the oil companies questioned, “If there are no problems with LCs in Pakistan, then why have the SBP and sector been holding meetings all last week?”

PSO claimed last week that it had plenty of supplies and was assuring a continuous flow of gasoline and oil throughout the nation.

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