ISLAMABAD HIT BY JAKARTA’S BAN ON PALM OIL EXPORTS
With Pakistan already struggling with high food prices, Indonesia’s move could become a political issue for the new prime minister, analyst says
Pakistan is banking that Indonesia’s government will lift the ban it imposed on palm oil exports last week before its historically low stocks run out.
Retail prices of branded edible oil in Pakistan rose by 6 per cent to 530 rupees (HK$22.31) per litre within hours of Indonesia’s announcement on Thursday.
Pakistan’s population of some 220 million depends on Indonesia for between 55 per cent and 60 per cent of the edible oil it consumes.
After neighbours India and China, Pakistan is the world’s third-largest palm oil market, with imports reaching 3.2 million tonnes in the financial year that ended in June 2021, according to industry figures.
At a meeting of an urgently formed prime ministerial task force last weekend, representatives of Pakistan’s edible oil industry told Commerce Minister Naveed Qamar that their stocks were only sufficient to meet two months of demand.
No data was given in the press statement issued after Saturday’s meeting, but according to prior statements issued by industry representatives, Pakistan’s stocks of edible oil rapidly depleted to a historic low at the end of March.
Pakistan’s palm oil reserves fell to 150,000 tonnes at the end of March, compared to typical holdings of 250,000 tonnes ahead of the start in early April of Ramadan, the Muslim month of fasting, when edible oil consumption peaks.
Refiners said they had been forced to run down their inventories because of financial pressure caused by spiking international edible oil prices, following the loss of sunflower oil supplies from Russia and Ukraine, and volatility in the exchange rate of the rupee.
In a press statement issued after the meeting, Qamar said he had been given reassurances by his Indonesian counterpart that the palm oil export ban would be lifted by the third week of May.
To compensate for the loss of Indonesian supplies, Pakistani importers would seek to secure alternative palm oil shipments from Malaysia, the statement said.
Edible oil refiners promised to work with the government to put off further increases in the retail price of cooking oil.
“It’s a really big problem,” said Mohiuddin Aazim, an independent economic analyst based in Karachi, Pakistan’s main port city and its commercial and financial hub.
He said about half of Pakistan’s palm oil imports were sourced primarily from commodity traders in Singapore, with Indonesia making up most of those indirect supplies.
Directly sourced supplies from Indonesia made up “a little more” than 25 per cent of imports, while Malaysia supplied “a little less” than a quarter, he said.
Indonesia’s ban on palm oil exports would “initially hit the 25 per cent direct supplies and make the 50 per cent indirect supplies from Singapore uncertain and pricier,” Aazim told the Post.
“This could turn out to be a political issue” for Pakistan’s new prime minister, he added.
“But I believe that increasing local prices of fuel oil would prove more problematic for him than dealing with an already high food inflation,” Aazim said.
The recently anointed government of Prime Minister Shehbaz Sharif is desperately working to mitigate the inflationary impact of high global energy and food prices on the Pakistani electorate.
Sharif took power last month after a bitter power struggle with his predecessor Imran Khan.
Having installed the former cricketing superstar as prime minister amid numerous claims of manipulating the 2018 general election, the military pulled the rug out from underneath Khan’s administration earlier this year in part because of public anger at its mismanagement of the economy.
Sharif took power on April 11 vowing to do his best to mitigate the effects of more than three years of double-digit inflation on Pakistan’s poor and white collar workforce.
He immediately increased the minimum monthly wage of lowpaid civil servants by 10 per cent to 25,000 rupees.
The new government also decided to maintain subsidies on expensive fuel imports for the remainder of the financial year ending on June 30.
Food inflation rose by almost 16 per cent in urban centres in the 12 months up to April 30, and hit 18.2 per cent in poorer rural areas where about 60 per cent of the 220-million population lives. Overall inflation reached nearly 13.4 per cent, its highest level in more than two years, according to a Pakistan Bureau of Statistics report issued on Monday.
However, Pakistan is struggling to meet its international trade and debt payments because its foreign exchange reserves in April dipped under US$11 billion – the equivalent of less than two months of import payments.
To keep Pakistan’s economy solvent, Finance Minister Miftah Ismail agreed on April 22 to the International Monetary Fund’s demands that Islamabad reduce fuel subsidies, in return for a oneyear extension of a 2019 balance of payments support programme and an extra US$2 billion in help.