IRRESPECTIVE of which political party or coalition of parties wins the 2008 general elections, it is going to be very tough for the new government to handle economic problems the country faces.

Hence, the major political parties are not making hard economic or social commitments to the masses but talking in terms of rather riddles or in combination of alphabets like the Pakistan Muslim League-Q’s five Ds against PPPs five Es, while Nawaz Sharif’s Muslim League’s election manifesto focuses basically on political issues –– restoration of the old order, politically , constitutionally and judicially.

Jaamat-i-Islami and Imran Khan have chosen not to contest the elections arguing it is a futile exercise. Major parties are talking in terms of slogans and visions instead of making specific commitments to the people who look forward to the return of the civilian political order. Finally, it all depends on whether the elections are rigged, as is feared by the opposition parties, or not and who wins the elections.

The future will be difficult not only because of the difficult economic and political conditions at home but also owing to various adverse international economic factors, beginning with the soaring price of crude oil. The oil, which came down after touching almost a hundred dollars a barrel, is again moving upwards.

The Organisation of Petroleum Exporting Countries (Opec) has refused to increase its oil output for the oil supply in the market is adequate. The situation can be reviewed in February when the Opec chiefs meet. Meanwhile, the ministry of petroleum in Pakistan has indicated that the oil bill may rise to $11 billion, 40 per cent above last year’s bill which will badly strain the country’s balance of payments.

Meanwhile, the foreign exchange reserves of the country came down by five per cent in November or by $750 billion within five weeks. Gold along with metal prices have also been rising. The Pakistan Steel has announced an increase in prices of its products up to 3,000 rupees per tonne. The prices of imported food including vegetable oil, milk and milk products, meat from India and other items have also been rising.

Meanwhile, the ministry of petroleum has suggested to the government to raise the prices of POL by rupees two per unit every fortnight until the domestic prices come at par with international prices and the government stops losing any revenues. President Musharraf has put off the decision for a later date. Any substantial increase in POL prices will increase prices all round.

At the same time, availability of oil in the country is at the rock bottom as large strategic reserve is not being maintained by the government. It is time positive steps are taken by the government to store a large quantity. We are at the moment at the mercy of Saudi Arabia. The Economist of London argues editorially that the days of cheap food in the world are over after a two hundred per cent rise in wheat prices in recent years. All that will make imported food far more costly for the developing countries.

Meanwhile, the Sindh government has announced measures to bring down the price of wheat flour from around Rs26 a kilo to Rs16. It has asked the 145 flour mills in the province to open a stall each and sell Atta at RS16 and requisite wheat will be supplied by it.

The caretaker minister for food admitted that the previous government had supplied wheat to the flour mills at Rs23 to 24. How can then the mills sell atta at Rs16. In other words, the previous government was cheating the people.

The utility stores are also selling wheat flour at Rs16 a kilo but they are few in number and the crowds very large. So, it is a partial remedy.

There are reports that some politicians upcountry are hoarding wheat and the ministry of food and agriculture knows their names but is not willing to disclose to even other ministries, although a caretaker government is expected to be above board.

Dr Salman Shah, caretaker minister for finance, says the government proposes to increase power rates by ten per cent or sixty paisa per unit. That will have an adverse effect on the economy; it will enhance the cost of production; all the factories will raise their prices, shops will raise them further and then the wages of workers will rise.

A report says the government has decided to privatise all hydel and thermal power production plants. If privatising KESC has caused so much chaos how much more confusion will follow if all power plants in the country were privatised. More and more industrial units are closing down for want of gas. They include a hundred textile mills.

All that will affect industrial production critically after the large scale manufacturing has increased only by eight per cent during the first five months of the year.

Meanwhile, inflation is going up further. Banks are to come up with more credit during the second half of the financial year and they are to provide larger credit to the farmers. So what we will have will be a combination of domestic inflation and imported inflation. We are too dependent on large imports including cotton from India, about 500,000 short staple cotton. We are also importing wheat. As a result, the import bill will go up and up.

The trade deficit has reached $7.2 billion in the first five months of the year. The imports are worth 14.58 billion dollars while exports 7.38 billion dollars –– a rise of 32.31 per cent compared to the same period last year.

The impact of this deficit will be felt in the current account. The budget deficit is also increasing and the government is borrowing heavily from domestic sources while there is a check on foreign borrowing. So much so the budget deficit at the end of the year may be 5.4 per cent of the GDP instead of 4.5 per cent. After eight years of military rule, the deficits are back to what they were at the end of the 1990s which are unsustainable. The World Bank and the Asian Development bank have been cautioning the government against such sustained and large deficits.

Such deficits along with the political uncertainties are bound to affect the FDI after reaching its peak of over five billion dollars last year.

The home remittances which also exceeded five billion dollars last year will continue to be large because of fear of the Pakistanis abroad about keeping enough amounts in foreign banks. So they are coming to the help of Pakistan in a big way. But what matters is how well the new government manages the economy and what kind of policies it comes up with.