Pakistan economics

IMF says Pakistan needs to cut oil subsidies

Inflation was at 17.2 percent year-on-year in April, a level not seen since the 1970s.

ISLAMABAD: Pakistan has to focus on decreasing its oil subsidies in the coming 2008/09 fiscal year to cut its fiscal and current account deficits, Henri Lorie, a senior representative at the IMF mission in Pakistan, said on Friday.A new government, sworn in at the end of March, is due to present its first budget on June 11.Lorie said it should take investor friendly steps to help drive growth, but he feared a turbulent political climate had stalled policy makers.“What seems to (have) happened is that political uncertainty and political debate probably has made it more difficult for the authorities to react quickly to the economic policy front,” Lorie told Reuters in an interview.There is intense speculation that President Pervez Musharraf, who came to power as a general in a coup in 1999, will quit in the next few weeks or months, and leave the new civilian leadership to run the country’s affairs.“Our hope is there is... a greater focus on economic reform and also macro-economic adjustment policies,” Lorie said.He said one of the most pressing requirements, because of high global commodity prices, was to reduce domestic demand for oil so as to bring down the country’s large current account deficit.

Government figures released in May showed that Pakistan’s current account deficit in the first 10 months of the fiscal year (July/June) ballooned to $11.586 billion from $6.628 billion in the same period last year.The figure is equivalent to about 7.3 per cent of Pakistan’s GDP.

Analysts say Pakistan suffered from a paralysis in decision making during the last months of the previous government, and during a caretaker administration that held the reins until the new government was formed after an election in February.Their failure to trim food and fuel subsidies exacerbated spending overshoots, while revenue collection has lagged and after averaging 3.7 per cent of GDP for the previous five years, the fiscal deficit ran out of control in 2007/08.The fiscal deficit is on course to stand at around 9 to 9.5 per cent of GDP in 2007/08, but the government is hoping loans from foreign lenders in the next few weeks will drag the deficit down to 6.5 percent, still well above a target of 4 per cent.The current account deficit is expected to come in somewhere between 7.3 and 7.8 per cent of GDP for the year, compared with a target of 4.8 per cent.Inflation was at 17.2 percent year-on-year in April, a level not seen since the 1970s.