January 1, 2003	Wednesday	Shawwal 27, 1423

KARACHI, Dec 31: A contingency plan has been prepared to cope with the situation arising out of a possible flare-up of US-Iraq standoff during 2003. Economic planners associated with the present quasi-democratic set-up look battle-ready to face the situation, as and when it comes.

Alarm bells have started ringing with recent reports of spot oil prices crawling up in the world market. Petroleum prices have surged for the first time to $32 a barrel.

The economic planners have obviously gained a lot of confidence after facing an hostile situation in the neighbourhood for more than 10 months during 2002. India deployed its troops on the international borders of Pakistan, after an abortive attack on Indian parliament in New Delhi by a group of desperados who were shot dead on the scenes. On no occasion, Finance Minister Shaukat Aziz showed any signs of nervousness when asked repeatedly in Karachi, Islamabad and Lahore how would the additional expenditure of troops movement would be met. “We will do it within our budgetary resources,” was his reply on all occasions. It was done without any major budgetary shake-up.

The first signal of the contingency plan came in November when the government decided to raise oil storage capacity for 21 days instead of two weeks. In an informal briefing Shaukat Aziz said that the government was seized of the situation which could be created by a flare-up in the Gulf. The subsequent cabinet meeting took stock of oil storage and availability of all the essential items.

“Our petroleum import bill will go up by one billion dollars if oil prices touch 40 dollars a barrel,” Dr Ishrat Hussain, the Governor of State Bank of Pakistan told this correspondent. In last six months the petroleum import bill is more than 1.5 billion dollars and at current prices should range between 3.2 to 3.5 billion dollars.

Roughly one-third of Pakistan’s import bill is financed under Saudi facility which Pakistan will continue to enjoy when Iraq takes the US head-on. Bulk of Pakistan’s crude come from Saudi Arab. The UAE provides a part while petroleum products come from Kuwait which may come under serious strain.

What should worry planners is the increase in shipping freights in sympathy with oil price escalation and a rise in insurance premium. This phenomenon is bound to have a crippling effect on production cost in Pakistan which is already too high. How does government’s contingency plan address the issues of raise in shipping freight and insurance premium plus a host of other problems like keeping sea trade routes secure are not known.

In anticipation of these possibilities the State Bank of Pakistan has advised the trade planners not “to foster complacency” even if trade picture in last six months of 2002 looks good. After more than five years Pakistan’s export is showing a very encouraging upward trend in the current fiscal year. Except for single month of July when exports were 750 million dollars plus, the export earnings in every single month during August to December is 800 million dollars plus. There is a strong possibility of exports exceeding 900 million dollars in December. There are reasons to believe that total export earnings by end of December would be anywhere up to 5.2 to 5.3 billion dollars. Exports are showing this positive growth in face of about 8 per cent appreciation in rupee value. The State Bank continues to hold rupee at Rs59 for a dollar to keep exporters in the business.

Imports, too, are showing encouraging trend. There has been a marked rise in import of raw material and machinery. Total imports for last six months are expected to remain somewhere 5.7 to 5.6 billion dollars by end December.

“In the short term, key textile exports to important markets, specially the US, are threatened by possible anti-dumping actions and import restrictions based on allegations of over-programming of quotas in key categories,” the SBP warns in its first quarterly report of 2002-03 released with inordinate delay on Monday.

Besides fear of import restriction in major markets where Pakistani goods are exported, the State Bank predicts further strengthening of Pak rupee in coming days if current account inflows are sustained. “In such an environment, export growth will require increasing focus on enhancing efficiency and value addition.

Obviously, the political issues are not the subject of State Bank report and hence no mention of possible flare up in the Gulf. But authors of the State Bank are definitely haunted by this possibility. They warn of import restrictions in big markets of Pakistani goods and a possibility of change in domestic environment if the rupee could not be held at present level of Rs58 a dollar and is pushed up to Rs 56 or Rs 55 a dollar, exporters will have to do a lot of hard work to maintain their hold.

How the production cost could be brought down? It is a question, which has been answered by Pakistan’s new Commerce Minister Humayun Akhtar Khan. On more than one occasion, the Commerce Minister has spoken of bringing down utility cost to make Pakistan’s products competitive. The Commerce Minister was in Karachi last week. He was asked to elaborate on the strategy which would facilitate a reduction in utility tariffs.

This question becomes all the more important when world oil prices are on rise. Would the government reconsider surcharge on oil and gas. It is a Rs60 billion question. The 02-03 budget proposes Rs45 billion surcharge on petroleum and Rs15 billion on gas. In last six months, the government must have mopped up about Rs25 to Rs30 billion. The question is how much government can forego in next six months in development surcharge to ensure availability of oil and gas, electricity to the industry at lower cost.

Reports emerging from Islamabad suggest that the cabinet has formed two committees of ministers. One Committee is considering to bring down utility tariffs and the other prices of agricultural products.