OFFICIAL planners have proposed four options to the caretaker government to avoid the risk of an additional 1.9 per cent fiscal deficit over the current fiscal year because of the official decision to delay the increase in oil and electricity prices.

President Pervez Musharraf was informed on Decemeber 4 that if the government continued to postpone upward revision in oil and electricity prices on political considerations, the fiscal deficit would continue to worsen.

To remedy the situation, four options were out on the table. One, the government should immediately pass on the increase in international oil prices to the consumers gradually, if not in one go. Two, the government should ask the Central Board of Revenue (CBR) to impose additional taxes worth Rs191 billion. Three, the government should cut the size of the Public Sector Development Programme (PSDP).

Four, leave the issue of revising prices of various utilities upward to the next elected government. “But the last option is really a frightening one and could bring the country to the 1999 position when the fiscal deficit had become a matter of great concern”, said an official.

When contacted, Special Secretary Ministry of Finance Dr Ashfaque Hasan Khan confirmed that different proposals have been worked out and presented to the higher authorities for timely decision.

He cautioned that if fiscal discipline was not adhered to, the entire “positive work” done over the last nine years would go down the drain. He said the four per cent annual fiscal deficit target may be missed.

Since January 2007, oil prices were not adjusted against the international prices with the result the differential given to oil marketing companies was piling up enormously. “And this is not good for the economy and I have informed the president about it”.

The government, he pointed out, had kept Rs15 billion as subsidy keeping in view the international crude oil prices on December 2, 2006. From July to November, the losses have accumulated to Rs28 billion and if not passed on to the consumers would reach to Rs101 billion by the end of the current financial year. Eventually, there would be Rs136 billion hit on the budget - 1.4 per cent of GDP which would then reach 5.4 per cent at the end of the current financial year, he added.

Likewise, Mr Khan said, increase in electricity tariff had been withheld and was also causing problem.

The special secretary recalled that the National Electric Power Regulatory Authority (Nepra) had determined 23 per cent rise in electricity prices but former Prime Minister Shaukat Aziz had allowed only 10 per cent increase. The rest of 13 per cent was still to be enforced.

The problem had compounded because of almost free use of electricity in the Federally Administered Tribal Areas (Fata). The outstanding against Fata was Rs60 billion.

He said tariff deferential of Rs25 billion had been kept by Wapda as subsidy which would reach to Rs75-80 billion. If both oil and power prices were not revised upward, the total fiscal loss would reach to Rs191 billion or 1.9 per cent of the GDP.

Dr Khan said the government was giving Rs14.5 billion oil subsidy every month which was no more sustainable.

He regretted that due to political considerations, the PML government avoided to pass on the burden of increased international oil prices to the consumers.

“Under these circumstances if every thing remains unchanged, you would need Rs191 billion and they should come either by taking additional tax measures or by drastic reduction in the PSDP by the government,” he said. The country was heading towards six per cent fiscal deficit and its implications were just horrifying and, “I am afraid we may face a situation which was experienced in the decade of 90s”, he added.

The government, he said, would get Rs136 billion if it decided to enhance oil, kerosene and light diesel oil by Rs19, Rs18 and Rs16 per litre respectively.

“But this will be perhaps not possible for the government and this has to be done slowly and gradually on fortnightly basis”.

He hoped that the president and the caretaker prime minister would decide the issue of increase in oil and electricity prices soon.

He regretted that the former prime minister did not take into account the advice of the Oil and Gas Regulatory Authority (Ogra) and the Nepra for revising oil and power tariffs upward. “Either you do politics or take the economic issues seriously”, he said.