LONDON, May 9: The coalition government has ordered a ‘massive cut’ in budget expenditure across the board, including military spending, to cope with the rising cost of fuel and food subsidies, Finance Minister Ishaq Dar told the Financial Times.

In an interview with the daily, he said the country was also seeking to raise $3 billion or more from international lenders and foreign investors to bolster its foreign exchange reserves, because of a sharp deterioration in the current account and its balance of payments.

Mr Dar accused the previous government of “inaction, mismanagement and underestimation” of the scale of the crisis caused by soaring oil and food prices, and the inflationary effect of a rapid rise in borrowing from the central bank.

The minister said the government was pursuing a twin strategy of passing on the increased cost of oil imports to consumers, and cutting back public expenditure by some Rs300 billion ($4.5 billion) ‘across the board’ in its first three months in office.

Mr Dar said Pakistan’s current account deficit had ballooned to about $11.5 billion against a target of $7.9 billion after a $3.5 billion rise in the cost of oil imports.

He said that foreign exchange reserves stood at $10.5 billion, but “we have got a roadmap to have an extra $3 billion inflows. They are in the pipeline, but not yet coming through”. The new money included $500m in budget support promised by China.

Mr Dar said he had also held talks on further loans in Washington at the annual meetings of the World Bank and the International Monetary Fund, and at this week’s meeting of the Asian Development Bank. The target was to boost foreign reserves to $13.5 billion or some four-and-a-half months’ import cover.

The increased cost of food imports was also a factor in the balance of payments squeeze, although “not as massive as some have experienced,” he said.

But food price inflation in the country was now running at 16 per cent, and the government was drawing up a programme of “targeted subsidies” to alleviate the effect on the poorest consumers.

He said his government had ruled out imposing curbs on food exports, although it had set a floor price for sales. In the medium-term, it was intent on redirecting investment to agriculture to boost domestic food production and curb net imports.

The budget cuts had been ordered from the government’s first day in office last month, he said, and included military spending, development expenditure and non-development spending.

“We are tightening our belt. Everybody is sharing happily the burden. It is the only way to survive,” Mr Dar said.—APP