ISLAMABAD, Aug 24: High oil prices are building pressure on Pakistani economy that warrants urgent "corrective measures", says a senior ADB chief. "The foremost important thing for the government is to keep a close watch on food supply situation and maintain a vigorous check on wheat prices across Pakistan," he warned.

Talking to Dawn here on Tuesday, the senior Resident Representative of the Asian Development Bank (ADB), Mr Marshuk Ali Shah feared that the rising oil prices in the world might force the government to revise upward its economic projections relating to imports, fiscal deficit and inflation.

He was of the view that the government should swiftly move to take corrective measures in order to stop downward risks to economic projections in the wake of international oil prices that continue to remain at current record levels.

Mr Shah said without carefully taking into account supply and demand situation, it would be difficult to meet the challenge of rising oil prices, which had touched an unprecedented $50 a barrel.

In this behalf, he referred to latest ADB Economic Update (July 2003-June 2004) and future outlook for 2004-05, which said that high oil prices could also dampen the global economic recovery which in turn could lower Pakistan's export growth. "On the domestic front, anticipated shortage of water in the two main reservoirs poses a major risk for winter crops," the update warned.

Mr. Shah said that the government must utlilize its additional resources now available for poverty reduction by enlarging the Public Sector Development Programme (PSDP). This job, he said, could be achieved by encouraging growth of agriculture and small and medium enterprises with a view to offering more jobs to the people.

The ADB estimates that with high economic growth continuing, imports are expected to grow by about 15 per cent during the current financial year. The phase-out of textile and clothing quotas in January 2005 should help exports, and they are expected to grow by 12 per cent.

With imports increasing faster than exports, trade deficit will increase further. This, along with the discontinuation of the Saudi oil facility and anticipated lower receipts from the United States for logistic support for war in Afghanistan, will push the current account of balance of payments into a deficit during 2004-05.

"This is likely to put pressure on exchange rate". The Bank believes that with GDP growth expected to remain well over 6 per cent and imports maintaining a double-digit growth, tax revenue should grow strongly.

As public debt indicators are expected to improve further, debt servicing should remain under control. Similarly, defence expenditure should also remain on the target, given a significant improvement in relations with India. Hence the fiscal deficit target of 3.5 per cent of GDP for 2004-05 is likely to be achieved.

With pro-growth budget and trade policy and private investment picking up, economic growth is expected to accelerate during the current financial year to achieve 6.5 per cent projected GDP growth rate.

However, due to built-up of pressure on prices emanating from large liquidity overhang, surge in global prices, and most domestic industries approaching full capacity, inflation is expected to exceed the target of 5 per cent. The balance of payments is likely to come under pressure, as imports grow faster than exports and official transfers decline.