THE caretaker government will revise oil prices upward but it is unlikely to take any major economic decision during its tenure of office. Officials in the economic ministries do concede privately that most of the policies will remain “unchanged” despite some growing problems like pressure on the rupee, increased government’s bank borrowings, rising fiscal deficit and stubborn inflation.

They said that their main effort was to avoid any major setback to the economy till the new elected government takes over. But they admitted that the economy was facing some serious issues.

“I do agree with you that the vulnerability of the Pakistani currency is an important issue but equally other important issues are the fiscal deficit and government’s bank borrowing and they both have to be restricted,” said an official requesting anonymity.

However, caretaker finance minister Dr Salman Shah told Dawn that he did not see any major problem to the economy in the short-term but added: “God forbid, if the political uncertainty increases, things might create problems”.

Responding to a question he observed: when foreign exchange reserves are all-time high, foreign flow of funds are on track and the rupee is stable, there is nothing to be worried about. The supply-demand situation some time escalates and some time comes down but that does not mean that there is any serious threat to the currency. The central bank is playing its role to ensure stability of the rupee. There is no chance of the major weakening of the rupee when the medium-term market trends are positive and hopefully the rupee will maintain its stability. The market is once again poised for a further rise as there is no major withdrawal of funds.

The finance minister did not see any flight of capital since there was no policy change or policy shift. Things should continue to improve. The target for foreign exchange reserves was set at $14.5 billion but these have increased to an all time high at over $16.5 billion. Fundamentals of the economy are strong and there is an intense activity in the stock markets.

“But political developments do worry me”, Dr Shah said, hoping that the general elections will move the country towards economic stability. The most important thing was the growth of the economy did not face any major problem. The overall production has not been affected which will help achieve the seven per cent plus GDP target set for the current financial year.

The minister also did not see any problem in achieving the four per cent fiscal deficit target set for 2007-08. Considerable revenues were being generated by the Central Board of Revenue (CBR). But he agreed that tax-to-GDP ratio needed to be increased. The overall tax-to-GDP ratio has come down from 10 plus to about 9.5 per cent.

On oil prices, Dr Shah said that increasing oil prices in the international market was a matter of concern for the government and that the issue will be tackled by revising these prices upward.

We will have gradual increase in oil prices so that there is no serious inflationary impact on prices. This will be done to avoid burdening the common man. It was becoming difficult for the government to continue giving subsidy worth Rs13-14 billion every month to oil marketing companies on account of ever-increasing international oil prices.

Despite facing difficulties, he said oil prices remained unchanged for so long just to save people from having additional burden. “But perhaps now is the time to rationalise oil prices otherwise we will be facing problems”. He also did not rule out the possibiliy of enhancing gas and electricity prices for meeting various budgetary targets.

Although foreigners have not decided to withdraw their investment, they are carefully watching the political situation. “So far investors are feeling comfortable with our policies”. We are making right choices and quite optimistic about our economy”, the minister said.

Since subsidies have increased, the government’s bank borrowing are also increasing. “But this borrowing has to be reduced”, Dr Shah agreed.

Dr Zafar Moeen Nasir of PIDE who is serving in the policy planning cell of the ministry of labour, manpower and overseas Pakistanis when approached said he feared increase in the inflationary pressures due to expected oil price hike. This will increase commodity price inflation and then the core inflation and the government needed to look into the issue thoroughly.

He said the government required to bring down its expenditure so that 3.5 per cent fiscal deficit could be ensured.