The federal and provincial governments would be required to control expenditures, and efforts would be put in place to improve revenues for better fiscal management and maintaining fiscal discipline in the country.
Official sources said on Friday that a meeting has decided that both the federal and the provincial governments would end reliance on State Bank of Pakistan borrowing in near future and would meet their financial requirements by getting loans from commercial banks, directly.
It would be instrumental in meeting one of the key conditions of the International Monetary Fund (IMF). The SBP has informed the federal government that it would print new currency according to GDP growth, and would not cross the fixed limit, in any case. The borrowing from SBP by the federal and provincial governments is one of the causes of inflation. Keeping in view this huge borrowing from the banking system, there is nothing available for the private sector to borrow.
"The currency stability is crucial and any increase in inflation would have direct pressure on the currency", officials said. The IMF agreement is an international obligation and its conditionalities have to be met by Pakistani authorities. In this regard, during the 9 months' extension, the government would try to build a consensus for enforcement of RGST. However, sources said that there is no Plan-B as a replacement of the RGST, but some measures are being reviewed on the fiscal side by the concerned authorities.
Sources said that sugar sector obtained only Rs 105 billion from the banking sector, which is enough to hoard the sugar at least for one month's consumption and not beyond. The circulation of Rs 1600 billion excess currency notes was identified as main cause of hoarding of the commodities in the country as people have cash in hand not borrowed from anywhere, and using it for hoarding commodities of daily use.
The meeting was informed that monetary policy alone could not control the inflation until and unless there is a meaningful co-ordination between monetary and fiscal policies. The meeting was also informed that Saudi Arabia, the main supplier of diesel to the world, is switching its power generation on diesel in January and it would become major user of the diesel, and its prices are to shoot up and it would have direct impact on inflation in Pakistan, being major user of diesel.
The monetary policy interventions have helped keep the inflation in the country at a reasonable level and if its interventions were not there it could have gone much higher than the existing level. The government is trying its level best to chalk out a strategy for 2012, for which Pakistan would be required to start making repayments of $11.3 billion IMF SBA loans.