June 14, 2006	Wednesday	Jumadi-ul-Awwal 17, 1427

KARACHI, June 13: The government will resort to stringent controls on energy saving and its conservation which may even affect the economy in case international oil prices touch $80-100 a barrel, Dr Salman Shah, Prime Minister’s Adviser on Finance, declared on Tuesday.

“As a short-term strategy, we will take extreme measures to counter energy crisis,” the adviser stated in clear words and elaborated on long-term measures which would be to explore alternative energy sources and reduce dependence on oil. “The proposed gas pipelines from Iran and Turkmenistan are one of such alternative options for the government.”

Dr Shah was speaking at a post-budget seminar on Tuesday. Senator Tariq Azeem, Minister of State for Information and Broadcasting, chaired the seminar in which business leaders and media persons also participated in the discussion.

He informed the audience that 43 per cent of the current account deficit was the direct impact of oil price hike. He said oil consumption had gone down by certain percentage points in the current fiscal year but the cost has increased. The import of machinery and raw material also pushed up the import bill and contributed to current account deficit. But these are indispensable inputs of a growing economy.

Dr Shah disagreed with a questioner that the yawning trade deficit of more than $10 billion in the current fiscal year would wipe out Pakistan’s foreign exchange reserves. The adviser explained the country was getting foreign exchange inflows from many other channels and “we hope to push up our foreign exchange reserves to $15-16 billion”.

“Our strategy is to maintain a foreign exchange reserve cushion of six months import bill and the remaining surplus would be invested to expand the national economy,” he explained while pointing out that retaining foreign exchange reserve does not give return, whereas productive investment of surplus foreign exchange gives a return of 25 to 30 per cent.

Sharing his thoughts of future options, the adviser said that the government wanted to enlarge production capacities in the engineering industry for which foreign exchange reserves could be utilized for the import of machinery. “In the next two or three years, this particular segment of the economy will develop enough export potential to pay us back for our investment.” The adviser disclosed that the motorcycles industry was now exploring export prospects which were a good sign.

Dr Shah virtually snubbed the textile industry leaders who were unhappy at their sector being ignored in the budget 2006-07, and quite a few present in the seminar expressed their feelings. Responding to their unending complaints, the adviser pointed out that the package seeking concessions and incentives for the textile industry would have cost Rs50 billion. “Giving such a big money to the textile sector could have been possible at the cost of social sectors,” he told them.

Nonetheless, he pointed out that the Lahore University of Management Sciences (LUMS) had been asked to look at the textile sector as to how it was being managed, the cost of production and how could it be made competitive in the global market. “The government will support feasible strategy to make textile products competitive.”

The adviser disclosed that some of the textile export orders grabbed by Bangladesh have now started coming back to Pakistan and there were some opportunities in that area.

He discarded criticism that the government was taking loans to meet the budget deficit and explained that whatever was being taken as debt was within the framework of Fiscal Responsibility and Debt Limitation Law. Under the law, the government is expected to bring down public debt ratio with GDP by 2.5 per cent every year. “We brought it down by six per cent this year,” he said, adding that the government is well ahead of the target.

“We are working out new interest rates for the provinces to service their federal loans,” Dr Shah disclosed while answering criticism that the federation was overcharging the provinces on repayment of their loans. “These were the rates when the provinces borrowed loans from the federation,” he remarked but added that Islamabad was now taking all factors into account which are market interest rates and the rates on which foreign loans had been borrowed while working out new rates.

He also spoke at length on the budgetary allocations for health and education, manifesting government desire to improve the social sectors. “Spending is not enough but what is important is how effective is the spending,” he said. The defense allocation, he said, had come down from 6.5 per cent of the GDP to 2.8 per cent.