KARACHI, July 6: Food import bill this year is likely to be close to $1.5 billion mainly because of the import programme of one million tons of wheat, increase in tea shipment, spices, dry fruits and many other edible items through formal import channels and the fear of rise in international prices of palm oil and pulses.

Pakistan ended the outgoing fiscal year with a total food import close to $900 million and an expected increase of $600 million in the current fiscal year is bound to put current account balance under severe strain.

A significant increase in food bill with a fear of rise in crude oil bill, shipment freight cost and other factors may stretch Pakistan's import bill during next fiscal year to $16.5 to 17 billion. The planners fear the current account surplus may be converted into negative balance during the current fiscal year.

A million tons of wheat import is likely to cost anywhere from $425 million to $450 million. Market analysts fear that one million tons of imported wheat will be insufficient and there may be a wheat crisis during pre-harvest period which is December 2004 and April 2005. Import of half a million tons more wheat may compel government to set aside $220 million.

Levy of 15 per cent sales tax on cotton seed oil in the current budget has hit hard the local oil extractors. There is a fear that cooking oil industry may rely more on palm oil. The palm oil import bill during 03-04 stood at more than $560 million and this may go beyond $600 million in the current fiscal.

The budget has offered relief for formalising the import of a big variety of spices, dry fruits and tea. The formal import of these items will put a strain on the current account balance.

Overall, the total import bill during 03-04 was over $15 billion. The machinery import has increased by more than 33 per cent during the last fiscal year. A close look at the import structure of machinery shows that bulk of the rise has come from public sector import of railway equipment, road vehicles and aircraft.

Rise in import of textile machinery and construction machinery has been very insignificant. With fear of increase in crude oil prices has come with the termination of Saudi oil facility.

"The termination of this facility will have an adverse impact on both, the country's external account as well as the government's financing needs," observes State Bank in its report of third quarter of the year 2003-04.

According to the report the adverse impact of termination of Saudi oil facility may not be felt much on external balance because of current account surplus. But it will have adverse impact on financing and would significantly increase government's budgetary borrowing.

The Saudi government offered oil facility to Pakistan for five years from 1999 after nuclear explosion till last fiscal year. Overall, the Saudis provided more than 22 per cent of Pakistan's total oil import bill.

Fearing a severe strain on Pakistan's external balance there are possibilities of putting some curbs on foreign exchange companies. The licensed foreign exchange companies may be forced to retain a substantial part of their foreign exchange in the country and there may be restrictions on outward flow.