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The Effects of Higher Oil Prices on Pakistan's Economy and Employment

Oil prices have a significant impact on the economic performance and employment level of
Pakistan, a developing country that relies heavily on oil imports.
Higher oil prices can affect the economy and employment in the following ways:

 Lower aggregate demand and output.

Higher oil prices reduce the real income and purchasing power of consumers and
firms, as they have to pay more for the same amount of goods and services. This
lowers the aggregate demand for goods and services, and leads to a contraction in
output and a lower demand for labour. As a result, unemployment rises.
 Higher cost of production and lower competitiveness.
Higher oil prices increase the cost of production for firms that use oil as an input, such
as transportation, electricity, and manufacturing. This lowers their profit margins and
competitiveness, and forces them to cut down on their production and labour force.
This also leads to more unemployment.
 Inflationary pressures and lower real wage.
Higher oil prices raise the general price level and erode the value of money, creating
inflationary pressures in the economy. This reduces the real wage of workers and
lowers their standard of living. It also increases the nominal interest rate and
discourages investment and borrowing, further reducing the demand for goods and
services and labor.
 Worsening balance of payments and fiscal position.
Higher oil prices worsen the balance of payments and the fiscal position of the
government, as Pakistan is a net importer of oil and has to pay more for its oil
imports. This increases the trade deficit and the current account deficit, and reduces
the foreign exchange reserves. It also increases the government expenditure on
subsidies and social welfare programs to mitigate the impact of higher oil prices on
the poor and vulnerable segments of the society. This increases the budget deficit and
the public debt, and reduces the fiscal space for public investment and development
spending.

Oil prices have a significant impact on the economic performance and employment level of
Pakistan, a developing country that relies heavily on Oil Imports. An increase in the price of
product and services due to increase in oil prices would affect the employment level in the
economy of Pakistan in different ways.

First, it would reduce the demand for oil-intensive products and services, such as
transportation, electricity and industrial goods. This would lead to a lower output and income
in these sectors, and hence a lower demand for labor.

Secondly, it would increase the cost of production for all sectors that use oil as an input, such
as agriculture, manufacturing and services. This would reduce the profitability and
competitiveness of these sectors, and hence their ability to hire more workers or retain
existing ones.

Third, it would reduce the real income and purchasing power of consumers, who would have
to spend more on oil and oil-related products and services. This would lower their
consumption of other goods and services, and hence the demand for labor in these sectors.

Therefore, an increase in the price of product and service due to increase in oil price would
have a negative impact on the employment level in the economy of Pakistan, unless there are
some offsetting factors, such as an increase in exports, investment or government spending.

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