The economic managers of the government are having sleepless nights these days as the country is facing a huge budget deficit of over Rs 535 billion in current fiscal year 2007-08. A top budget manager forthrightly admitted to Business Recorder here on Saturday.
"We are facing enormous difficulties in keeping the budget deficit at the targeted level of 4 percent of GDP". He said: "It''s simple arithmetic. The government had budgeted Rs 399 billion deficit in 2007-08 budget, which was 4 percent of GDP."
However, he added that "if the government does not reduce oil subsidy and pass on the high prices of oil products in the international market to the domestic consumers it would have to bear additional burden of Rs 136 billion, with which the budget deficit will shoot up to 5.4 percent of GDP."
He said: "The government has choice of three hard alternatives to meet the situation: (a) pass on the oil price increase to domestic consumers, (b) impose additional taxes amounting to Rs 136 billion or (c) continue to freeze the oil prices at January 2007 level and borrow Rs 136 billion to meet the budgetary shortfall."
He said that in January 2007, oil price in international market was around $56 per barrel. Since then, the oil prices have gone up by 76 percent; diesel and kerosene oil prices by 68 percent and 70 percent respectively. He said the government had not increased domestic oil prices since January 16, 2007, which has put great strain on budgetary allocations.
Economic managers say that Pakistan''s oil import bill during 2006-07 was $7.5 billion which, at the current oil prices between $85 and $90 per barrel, would be $9.5 billion to $10.5 billion, or nearly 50 percent of the country''s total exports.
They said that during the first five months of the current financial year, the government has already taken a hit of Rs 35 billion (July Rs 4.8 billion, August Rs 5.1 billion, September Rs 4.9 billion, October Rs 7.9 billion and November Rs 12.4 billion).
They said that to keep the present level of oil prices from December 2007 to June 2008, the government would have to pay, on average, Rs 14.5 billion per month subsidy. They said that if the government did not do anything to curtail oil subsidy, it would have to borrow a total Rs 600 billion, which would increase public debt, and put pressure on the interest rate and inflate interest payment.
They said that this economic state of affairs and indecision on the part of the political leadership would ultimately hit the next year''s Annual Development Programme and other public welfare projects.
One economic manager was very critical of former Prime Minister Shaukat Aziz for not taking the "unpopular decision" to increase the oil prices since January 16, 2007.
He said that the gradual increase commensurate with international oil prices should have been integrated in the national economy and its affects would not have been so adverse. He said that the sooner the caretaker government increased the oil prices the better it would be for health of the economy.
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