Cash-starved Pakistan fails to secure LNG supply as no company responds to its tender

Pakistan, which is already battling an energy crisis, has failed in its latest attempt to buy liquefied natural gas from the international spot market. Bloomberg, citing people familiar with the matter, said that no companies evinced interest in Pakistan LNG Ltd.’s tender, which closed on Tuesday, to purchase six shipments for October-to-December delivery. This was Pakistan's first attempt in about a year to buy liquefied natural gas from the spot market as global prices eased.

Suppliers did not respond to Pakistan's tender as several overseas banks weren’t accepting letters of credit from Pakistani counterparts to purchase LNG shipments, Bloomberg reported. Letter of credit is a pledge by a lender to repay funds if the buyer can’t.

Along with a political turmoil, Pakistan is also battling with a weakening currency, high external debt, dwindling foreign exchange reserves and an increasing risk of a sovereign default. The South Asian nation's annual inflation rose to a record 37.97% in May, according to data released earlier this month, pushing the average inflation to 29.2 percent during Jul-May FY23, compared to 11.3 percent in the same period last year.


However, the country's central bank kept is policy rate unchanged this month. The monetary policy committee of State Bank of Pakistan noted that higher inflation for April and May were broadly as anticipated and views inflation to have peaked at 38% in May 2023. Barring any
unforeseen developments, the central bank expects it to start falling from June onwards. The International Monetary Fund recently criticized the Pakistan government’s budget as insufficient to meet the goals of its bailout program, a sign that a deadline this month to unlock aid will not be met.

Pakistan's central bank said that inflation remained broad-based, with food continuing to contribute more than half to the overall inflation in May.

"Importantly, core inflation maintained its upward trajectory, albeit at a slower pace, mainly indicating the second-round impact of higher food and energy prices and exchange rate depreciation amid still elevated inflation expectations. Within food, prices of few essential non-perishable items rose quite significantly in May, mainly due to domestic supply chain issues," the central bank said.

But the monetary policy committee expects that reduced demand-side pressures and ease in inflation expectations, along with moderating global commodity prices and high base effect, would help bring inflation down from June 2023 onwards.