ISLAMABAD, Aug 16: The government is trying to deal with the serious problem of inflation by reducing government borrowing as well as development and non-development expenditures, according to Minister for Finance and Privatisation Syed Naveed Qamar.

Talking to Dawn, he said the government had decided to curtail borrowing from the central bank, which fuelled inflation.

Borrowings would now be made from other sources, including the national savings schemes.

Inflation calculated on a month-to-month basis was 24 per cent in July, he said. It would be brought down sufficiently so that the target of 12 per cent for the current financial year could be achieved.

However, he said, rising petroleum and food prices in the international markets had caused serious problems, due to which inflation had risen sharply.

But since oil prices had fallen from $146 a barrel to $112 per barrel lately, inflation was expected to come down in the current financial year. The minister said the fiscal deficit also needed to be curbed if the economy was to be stabilised. This would ensure financial discipline.

While non-development expenditures would be reduced, development expenditures too would have to be slashed, said Mr Qamar. He agreed with the contention that the development budget was usually the first casualty in the efforts to improve fiscal deficit.

“I hope that by the end of the financial year, we would achieve our 7 per cent GDP fiscal deficit target,” the minister remarked. He said there had been a 20 per cent increase in the Rs550 billion current PSDP which unfortunately would have to be cut down considerably.

Answering a question, Mr Qamar said that sizable foreign inflows would be secured by shoring up the privatisation programme. “We will get over $2 billion through privatisation in 2008-09,” he said, adding that the government was in touch with various international financial institutions (IFIs) in order to attract adequate financial support.

“Therefore building up of foreign exchange reserves to a minimum of $12 billion in 2008-09 should not be a very difficult task for our government.”

Both bilateral and international donors were being told that due to high prices in the international markets and the political crisis in the country they should help the government put the economy back on track.

Mr Qamar said agriculture was the backbone of the economy but it had been neglected in the last eight years. Numerous policies and measures were now being put in place to ensure provision of relief as well as incentives to the sector so that it might contribute its due share in the economy.

He pointed out that the support price for wheat, which had been increased from Rs510 to Rs625 per 40kg not long ago, had been enhanced further.

Answering a query, the minister said poverty had increased considerably in the last eight years and all claims to the contrary were false. “But we are putting in place a serious plan to reduce poverty. Initially the Benazir income support programme is being introduced across the country.”

He acknowledged the existence of cartels in the sugar, cement and other sectors that, he said, needed to be broken in order to bring down the prices.