ISLAMABAD, Feb 26: The ministry of finance has prepared a brief for the coming government suggesting increase in oil prices and electricity tariff in order to retain the broad budgetary projections for 2007-8 which faces a Rs197 billion gap.

Sources told Dawn on Tuesday that the previous government had avoided taking the tough steps which it thought would enrage the electorate.

The steps were also suggested to the caretaker government which also was reluctant to raise the prices, they said.

The Pakistan People’s Party and the Pakistan Muslim League (Nawaz) are reported to have begun considering measures needed to cope with the financial crunch on the energy side.

Both the parties are said to have requested the Saudi and the UAE governments to supply oil on deferred payment as they had done for the PPP and PML-N governments in the past.

The parties are said to be of the opinion it will be difficult for their government to survive if it increases oil and electricity prices during the remaining four months of 2007-8.

However, Finance Ministry’s Special Secretary Dr Ashfaque Hasan Khan told Dawn from Dubai that he was not aware of any request made to Saudi Arabia and UAE to come to the aid of the new government.

Responding to a question, he regretted that the former PML-Q government and the caretaker government did not pay heed to the advice of economic managers to increase oil and electricity prices. “You need to have a total of Rs197 billion -- Rs130-140 billion from oil price increase and Rs57 billion from hike in power tariff,” Dr Khan said.

In reply to a question, he said it was the job of the leadership to take into account the requirement of the situation and find a solution to the increasing financial difficulties.

But he made it clear that the accumulated Rs197 billion budget requirements would have to be secured by the new government to avoid more financial problems in 2008-9.

The finance ministry sources expressed the fear that the fiscal deficit could jump to 5.9 per cent against the target of four per cent if the prices were not raised. They said the government might be forced to raise taxes in that case.

But officials of the Federal Bureau of Revenue (FBR) oppose the levy of additional taxes to help meet the fiscal deficit target.

“We are already struggling to meet our Rs1.025 trillion revenue target for the current financial year against Rs846 billion of last year,” an official said. He said the FBR was trying hard to achieve 21 per cent growth in revenue during the year.

The sources said that trade imbalance was increasing because of reduction in exports and the deficit could also cause problems.

The government should promote exports and manage increased remittances to finance its current account deficit, they said.

A source in the local World Bank office said its officials were worried about continuity of economic policies. He said increasing fiscal deficit was a matter of concern and foreign investment was also vulnerable keeping in view the fast changing political situation in the country.

In the eyes of international donors, the source said, the fiscal side needed to be urgently improved by passing on to the people the impact of high international oil prices. He was of the view that asking the Habib Bank and other banks to pay differential to the oil marketing companies was not a good economic practice.