Aug
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The government has decided to cut the federal Public Sector Development Programme (PSDP) by Rs100 billion to contain fiscal deficit at 4.7 per cent level and allow a ‘hefty increase’ in electricity tariff to achieve macro-economic stability, says Minister for Finance and Privatisation Naveed Qamar.
“One of the most serious issues is our depleting foreign exchange reserves, which have come down to about $10 billion because of exchange rate pressure, and, therefore, urgently needed to be enhanced through more privatisation and by attracting new foreign inflows,” he said at a press conference in his parliament chambers here on Friday.
The government, he said, had decided to take a number of steps to contain the fiscal deficit target during 2007-08 and for this purpose “we will have to slow down the economic activity.”
He, however, said that oil prices, which had gone down to $112 a barrel after peaking $148 barrel in the international market and then again rose to nearly $120 a barrel, would not be brought down “unless the government achieves an equalization.”"We will pass on the benefit of reduced oil prices when the government starts buying and selling oil at the same price.”
He said all supplementary grants to the ministries and divisions had been stopped along with a directive to cut back on foreign tours and stop buying physical assets.
He said that funds would be withdrawn from development projects which do not have any economic impact.
Terming it unfortunate, he said that the government would have to slash its development budget from Rs550 billion to Rs450 billion to avoid piling up problems.
He said that the International Monetary Fund (IMF), which was insisting on keeping fiscal deficit pegged at 4.3 per cent target, had been told that it was not possible, but it had been assured that the deficit would not exceed 4.7 per cent target which had been fixed in the budget.
The National Electric Power Regulatory Authority (Nepra) is believed to have recommended a 61 per cent increase in electricity tariff, which the government was anxious to pass on to consumers.
Without hinting about the exact amount of the power tariff increase, the finance minister said: “It will be a fairly hefty increase to help remove Wapda’s growing financial difficulties.”
He said that Wapda needed to make payments to Independent Power Producers (IPPs), which had threatened to shut down their plants because of non-payment.
He said the government could not offer sovereign guarantees to the IPPs but that they would be made their due payments by allowing Wapda to go for substantial power increases.
“Pakistan has to survive as a normal country. It also favours the IPPs.”
He said that all government subsidies, including on oil and electricity, would be eliminated by June 2009, and consumers would have to share the burden of increase in prices of all commodities.
“Wapda’s circular debt is increasing, which will have to be cut by allowing the increase in electricity charges.”
The finance minister said that Wapda and Pepco had been ordered to eliminate line losses.
The minister said that the government had decided to control expenditure by reducing unnecessary borrowing from the State Bank, which had earlier tightened its monetary policy.
Instead, he said, the government would borrow from the National Savings Directorate and a target of Rs150 billion had been set which would be achieved by launching new schemes.
Mr Qamar also said that the government would impose more taxes on import of luxury goods and non-essential items, adding that the rate of duty on such items would be increased from 35 per cent shortly after the federal cabinet’s approval.
He said the government would launch a new commercial instrument to mop up Rs300 billion deposits of ministries and other public sector corporations, adding that they had been ordered to withdraw their funds from various savings accounts which would be used for launching the instrument.
Initially, he said, that Rs40 billion would be used for launching the instrument next month.
He said the cabinet was considering approving a five-day work week.
Referring to petroleum export, he said, the export of oil to Afghanistan would be controlled by imposing a regulatory duty on subsidised petroleum products.
“Oil is being bought at a subsidised rate and then exported to Afghanistan and in the process, people are earning considerable profits. This practice will be discouraged by imposing a regulatory duty,” he added.
He, however, clarified that the regulatory duty would only be applied on the subsidy for oil export.
The finance minister also said that the government had worked out a plan for privatisation which would be unveiled on Tuesday next and is aimed at achieving over $2 billion.
“The government will raise Rs52 billion from the privatisation other than big ticketing items.”
He said there would be more foreign inflows, including $26 million coming from privatisation of the PTCL and $750-800 million through the launching of a new bond scheme.
“These new bonds will be securitised against workers’ remittances,” the finance minister said.
He said that the CNG prices are expected to be fixed at Rs49 a kilogramme for which OGRA is finalising details.
In reply to a question, he said that the government was in touch with the government of Saudi Arabia to import 120,000 barrels of oil on deferred payment.
He, however, said that unless the issue was finalised, he could not reveal the cost in dollar terms.
He also disclosed that the US and Canada had offered to give wheat on deferred payment.
“All subsequent wheat imports will be made on deferred payment and this will be in addition to the wheat to be received from the US under the PL-480 programme.”
He said that the IMF had issued a ‘letter of comfort’ on the basis of which the World Bank and the Asian Development Bank would soon start disbursing funds to Pakistan.
But he made it clear that the government did not seek any new IMF programme.
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