State Bank of Pakistan (SBP) Governor Dr Shamshad Akhtar has urged the federal government to take ''draconian measures'' to bring the country''s derailed economy back on track, including withdrawal of subsidy on POL prices, well-placed sources told Business Recorder.
"The country''s economy is in a crisis and draconian measures are needed to put it on track," sources quoted her as recommending to the Economic Co-ordination Committee (ECC) of the Cabinet in its meeting held in Lahore on July 15.
Sources said some of the ECC members resisted the government''s strategy to pass price escalation on to the general public, but the finance minister and the SBP governor defended the government decision. The government has already withdrawn subsidy on petrol whereas subsidy on diesel and kerosene oil would be phased out gradually.
Giving an overview of the country''s economy, the SBP governor stated that foreign exchange reserves were down to $ 10.7 billion, which can meet imports of a few months. Shamshad Akhtar was of the view that to rectify the prevalent economic situation it was imperative for the government to pass on oil subsidy to consumers to control the fast pace of fiscal hemorrhaging. She also urged the government to cut down its expenditure, enhance exports, minimise imports, and attain these objectives the federal and provincial governments must work together in a co-ordinated manner.
The SBP governor''s advice regarding a cut in government expenditure came at a time when the prime minister appeared to have set the trend of holding Cabinet and ECC meetings in provincial capitals, for which air tickets are being given to all supporting officials.
Unconfirmed reports suggest that two meetings of the Cabinet and the ECC in Karachi and Lahore cost the nation about Rs 7 million. Sources said some of the members of Economic Advisory Committee (EAC) were dismayed at the Cabinet and the ECC meetings out of the federal capital, putting undue pressure on the economy.
The ECC also discussed the proposals for providing a relief package to the poorest of the poor in consultation with the provinces by making integrated efforts through the Benazir Income Support Program (BISP) and its linkage with the provision of at least four basic kitchen commodities by the Utility Stores Corporation (USC) outlets and mobile utility stores. The ECC was also briefly apprised about the main features of BISP, which is likely to be launched shortly.
During the meeting, it was revealed that in 2007-08 exports recorded a growth of 13.2 percent and increased to $ 19.2 billion, thereby exceeding the target of $ 19 billion.
Imports in previous fiscal year rose to almost $ 40 billion from $ 30.5 billion in 2006-07 showing a 30.9 percent growth, mainly due to extraordinary surge in the price of petroleum products, food imports, fertilisers, etc. The trade deficit showed unprecedented deterioration of 53 percent, or a hefty $ 20.7 billion as against the deficit of $ 13.56 billion last year.
In order to minimise the gap it was suggested that import of non-essential goods be discouraged by imposing taxes/regulatory duties and oil bill be reduced by conservation of fuel of power.