June 01, 2008	Sunday	Jamadi-ul-Awwal 26, 1429

ISLAMABAD, May 31: The ministry of finance has finalised a plan to offer a “targeted subsidy” to 5.8 million households in the new budget to help them fight rising food prices.

Informed sources told Dawn on Saturday that the government was expecting additional financial assistance from the World Bank to create a “safety net” for 40 million people living below the poverty line.

However, the bank is likely to initially provide additional funds for 5.8 million households. Of them, one million will also be given training for skill development.

The Planning Division has recommended Rs1,200 per month in relief to 5.8 million households in addition to some commodity support. The details about 40 million people were being collected from the IT department, NADRA, Baitul Maal and Zakat committees.

The sources said that the Asian Development Bank (ADB), which had disbursed $600 million earlier this month out of its $1 billion assistance lined up for the current calendar year, had been approached for additional budgetary support to help the poorest of the poor.

The sources said the World Bank and ADB had asked the new government to avoid unnecessary bank borrowing and cut development and non-development expenditures during the next financial year to contain inflation.

The inflation target of 6.5 per cent set for 2007-08 could not be met because of rising food and energy prices. The consumer price index inflation, which was 10.3 per cent during July-April 2007-08, has increased to 12 per cent and is likely to stand at 13-14 per cent by June 30 this year. The food inflation was 15 per cent during this period, compared to 12.2 per cent in the corresponding period last.

Officials attributed the sharp jump in inflation to a combination of domestic and external factors. Shortages of essential commodities are the key domestic factor exerting upward pressures on food prices.

On the international front, prices of food items continue to remain high because of the growing demand for key food crops in India and China and their conversion into bio-fuel. Diverting food crops for the production of bio-fuel would increase prices of corn, edible oil and sugar, the sources said.

The non-food inflation is due to rising prices of crude oil and steel products in the international market.