ISLAMABAD, Sept 1: The continued increase in international oil prices might force the government to revise upward inflation target, set for 2005-06.

Informed sources told Dawn on Thursday that the government was trying to control money supply situation by allowing the central bank to increase interest rates as and when required. But the oil price increases in the international market, they believed, could cause problems in containing inflation target at eight per cent.

“If the oil prices continue to increase, the government might enhance inflation target from eight per cent to nine per cent during 2005-06,” a source said. He said if the government succeeded in controlling money supply situation, it could perhaps avoid increase in the inflation rate.

However, Economic Advisor to the Ministry of Finance Dr. Ashfaque Hasan Khan when contacted said that since price stability was being ensured in food items, the government was expected to achieve 8 per cent inflation target during the current financial year.

International oil price, he said, was a matter of grave concern but then the government could not allow inflation to go beyond 8 per cent as it would affect the prices of every thing.

However, Dr. Khan said that the government might face difficulties in containing eight per cent inflation in case there was any new support price announced on account of wheat or cotton.

He was of the view that overall inflation had already started coming down, which was 11.1 per cent in May, 8.7 per cent in June and 9 per cent in July and was expected to be less in August.

Replying to a question, he said in July registered nine per cent inflation due to supply disruption caused by floods.

He said that he expected that the government would resist the demand for any increase in support price for cotton and wheat to avoid increase in inflation.

Responding to a question, Dr. Khan, who is also director general Debt Coordination Office, said Prime Minister Shaukat Aziz had given one year report of his government to President Gen. Pervez Musharraf, highlighting the strengthening the economy almost in all the sectors.

But he said the report considered inflation a challenge which would have to be brought down especially in the next financial year.

The economic advisor said that now when the debt burden had been reduced, increased GDP growth rate achieved (8 per cent plus), investors confidence restored to some major extent, sustaining growth momentum was also a major challenge contained in the one year performance report of the government.

The report, he said, pointed out that despite depressed external environment, the fundamentals of the Pakistan’s economy remained strong. “Despite Rs60 billion revenue loss on account of international oil prices, budget deficit has reduced and this is no small an achievement,” Dr Khan said.

He said the president was informed through the report that there was resilience in the country’s economy which was improving by observing many shocks.

The adoption of Fiscal Responsibility and Debt Limitation Law by the parliament, he said, was another achievement of the government that was highlighted in the report, which also talked about the performance of other sectors including ministries and departments.

Financial discipline, the economic advisor said, had been established and the country got rid of the IMF loaning programme.

The one year report, he said, also talked about the privatization of Pakistan Telecommunication Communication Limited (PTCL), which was the biggest ever transaction. “Then we entered into the international bond market which showed that the foreign investors as well as international financial institutions were praising our economy,” he quoted the report presented to the president on Wednesday.