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Iran’s nuclear deal to benefit Pakistan macros

Published on 20th July, Edition 29-30, 2015

 

Lifting of sanctions to formalize $3-4 billion informal trade between Pakistan and Iran

The historic deal between Iran and P5+1 promises an end to multiplier sanctions imposed by USA, UN and EU since the start of Iran’s nuclear program, likely to bring manifold impact on Pakistan’s overall economy. This historic development, which is most important for Pakistan and other countries in the region will have a positive impact on trade deficit during financial year 2016 i.e. US$20.3 billion, 6.5 per cent of GDP provided possibly lower oil prices to yield oil import gains to the tune of US$5 billion.

Since the imposition of sanctions on Iran it was painful to note that the trade volume with neighboring Iran has not been too significant which was at 2.4 per cent or US$1.2 billion in 2010 pre-global sanctions period.

As a result of the nuclear deal with Iran an additional US$3-4 billion of smuggled goods as per a recent Tax Commission Report could potentially find way into formal trade, which includes bulk quantity of POL products, plastic products, carpets, rice and a variety of food items from Pakistan.

Iran Pakistan gas pipeline project

In Pakistan’s energy perspective, the deal has rekindled hopes of speedy construction of Iran-Pakistan gas pipeline, which promises to bring 1200-2500mmcfd of gas to Pakistan from Iran’s South Pars field. It would be interesting to note that the pipeline project has already been completed across the Iran borders while remaining part of the project within Pakistan could be furnished with in shortest possible time. The cost of the much sought after Iran Pakistan Gas Pipeline project has been escalated manifold only because of US pressures.

However, lifting of sanctions would pave the way for Pakistan to explore funding options, three factors remain crucial for a capital intensive-project provided every thing goes smoothly with reference to international pressures and the conflict of interest between Iran and other oil supplying countries. Although details on Iran sanctions deal and approval process yet to be finalized yet the possible broader direct or indirect implications are expected to have a wide spread benefits on Pakistan macros particularly the completion of much awaited Iran-Pakistan Gas Pipeline project hanging in balance only because of the US pressures depriving Pakistan economy of the affordable energy benefits.

The energy shortage has a crippling effect and stalling economic growth of the country, which is static at 3-4 per cent against the required rate of GDP growth of at least 7 per cent to address in crucial issues of poverty and unemployment in Pakistan.

The large scale manufacturing sector, which is the main pillar of any economy is under performing since long due to acute shortage of gas. The recent closure of Pakistan Steel is only because of gas shortage as well as outstanding dues to the tune of Rs35 billion was yet another shock to the economic growth of the country.

Export from Pakistan

It is strongly believed that lifting of Iran sanctions would further ease low oil price environment that should help inflation remain curtailed at medium-term inflation target of 6 per cent that is of vital importance for stabilizing the economic situation in Pakistan.

The lifting of sanctions and financial gains by Iran should open up of Iran’s restrictive import policy in the near to medium term positive for exportable goods from Pakistan especially auto part cotton cloth, food crops like rice, wheat etc.

 

Trade and industry

The trade and industry in Pakistan has described the recent development of Iran’s successful deal on nuclear issue as an important step towards stability of global economy in general and economic stability in the region in particular.

Commenting on the deal, Iftikhar Vohra, President Karachi Chamber of Commerce and Industry (KCCI), has said that Pak-Iran trade and business relations would rapidly grow in days ahead. The consensus over “Lifting OF sanctions on Iran by the US and other Western countries is bound to have positive impact on the South Asian region,” he said.

KCCI President said sanctions imposed on Iran had an adverse impact on Pakistan’s economy as the harsh step had affected the energy projects in Pakistan resulting in slow down of the economic growth at the cost of the bread and butter of the poor.

Iftikhar Vohra said that Iran-Pakistan Gas Pipeline project would resolve the energy problems of this country. Pakistan Steel Mills, industrial and textile sectors would have sufficient energy after completion of the projects launched in different areas of the country. However, the present government is taking remedial measures to address the energy issues by initiating several projects, which would be completed in near future to boost economy in Pakistan.

Opening of LC to import Iranian products

Mian Muhammad Adrees, President Federation of Pakistan Chambers of Commerce & Industry (FPCCI), has urged upon Governor State Bank of Pakistan to give necessary instruction to commercial banks in Pakistan for LC opening to import Iranian products, in view of recent agreement signed between Iran and USA/EU.

President, FPCCI also asked Minister of Petroleum to speed up the process for Iran Pakistan Gas Pipeline for which agreement between the two countries was signed few years ago, but further progress was stopped due to international sanctions against Iran. This gas pipeline is in the interest of Pakistan, where industries and citizens are suffering due to shortage of energy and no important industries setup in the last 7 years.

“The exports can only be increased if energy is supplied to the industries without load shedding and cities as well as villages are also protected from long hours of power outage.”

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