It must be clear that the stock market is merely a reflection of the state of the economy. In today’s era of economic war, the future of world economy can be predicted by witnessing the economies of China and United States as both countries are the current leaders as global trade directly impacts both global superpowers.
The global markets have once again slumped as worries over the coronavirus outbreak have aggravated and the implosion of an alliance between OPEC and Russia. This breakdown caused oil prices to crash by almost 30 percent yesterday, the biggest decline in nearly thirty years. Saudi Arabia has declared an all-out price war after its plan to cut production further was rejected by key ally Russia
It all started when the deadly coronavirus first diagnosed in Chinese city of Wuhan and rapidly increased day by day and now has affected almost 48 countries around the world. This deadly virus has affected China’s trade severely. Its economic growth slowed to 4.5 percent in the first quarter of 2020 – the slowest pace since the 2008 financial crisis. Most Chinese industries either stopped production or working below capacity. In this regard, consumption and import of oil have declined to a shocking level. China is the world’s top importer of oil. The COVID-19 also affected other oil importers and countries dependently on oil-related industries. Global oil demand and supply have become imbalanced.
Hereof, a market fear was raised between the oil-producing countries and a new conflict has emerged. Saudi Arabia demanded Russia to cut down its production for 1.5 million barrel, however, Russia didn’t support the production cuts proposed last week by OPEC. That’s the reason Saudi Arabia slashed selling prices and plans to ramp up crude output next month. Russia also claimed that they have 560 billion tones of oil reserves. The global equity market collapsed badly due to this decision. If both countries don’t come with an agreement soon the world will witness a global oil disaster that would severely affect the economies of countries dependent on oil.
The disaster of oil prices could be in favour of Pakistan as the country’s expenditure on foreign reserves usually on oil payments. When the prices of the oil will be decline and the current situation is suiting the prediction, Pakistan can acquire the oil at low prices which will be beneficial for the country. Thorugh these prices of petroleum products can be reduced and the government can give subsidies on electricity and in many other fields.
The oil prices were slashed in 2016 also when the price was standing at $26 barrel. At that instant, the PML-N government didn’t take advantage of the situation due to their flawed policies and didn’t increase the reserve tanks. The PTI-led incumbent government is now repeating the same policies and will miss a great opportunity.
The incumbent government made a loan agreement of $6 billion with IMF and is returning the loan payments through increasing taxes and in-direct tax reforms and also by increasing the prices of petroleum products. Whereas, PTI government decreased the country’s deficit but hasn’t grown the business through due to which the burden of inflation has increased on the economy.
The golden era of Pakistan’s economy during the 1960s when Mahbub ul Haq was serving as an economist. His mechanism was different. He increased the industry ratio in the rural areas of Pakistan after announcing a 5-year tax-free policy. This initiative improved the rural areas in terms of education, living standards and economically.
The main problems of the poorest section of society are electricity, medical, and housing. We always hear that the government always blamed the rich business division of society for increasing inflation. This is right because these people are here for profit and the price will rise if the cost increase.
Another concern is that privatization increases inflation. This is also true. Private companies raise the prices of their respective products, That’s the reason government organizations were introduced to discontinue the rise in prices of the products. For example, PIA always set its price in competition to Air Blue and other airlines. Inflation will further increase for the upcoming 70 years and ‘Roti, Kapra and Makan’ (Food, Clothes, and house) will remain just a hollow slogan.
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