ISLAMABAD, June 2: Flagging the twin deficits — budget deficit at 7.4 per cent and current account deficit at 1.7 per cent of GDP this year – as top challenges, Finance Minister Abdul Hafeez Shaikh did not rule out on Saturday the possibility of seeking a fresh bailout package from the International Monetary Fund in six months.

Addressing a post-budget briefing, he said “we are constantly in touch with the IMF”, adding the purpose of creating the IMF was to help its member countries in difficult balance-of-payments position so that they could stand on their own feet.

Asked if Pakistan was going to seek a fresh IMF programme in six months, Mr Shaikh said his official position required him to speak carefully because his words could be interpreted by different people in different manners.

In his written statement, the minister said that ‘containing current account and budget deficits’ was on top of the five challenges which in his view confronted Pakistan at present. Others included acceleration of growth and creation of jobs, overcoming energy shortages, increasing investments and reducing public debt.

The statement put the current account deficit for the outgoing fiscal year at $4 billion or 1.7 per cent of GDP and overall fiscal deficit for the current year at about Rs1.5 trillion or 7.4 per cent of GDP, including Rs391 billion for power sector subsidies and debt consolidation and current account deficit.

The current account deficit for the next year has been projected at $4.8 billion or 1.9 per cent of GDP and budget deficit at Rs1.105 trillion or 4.8 per cent of GDP.

Mr Shaikh explained that when the previous IMF programme was acquired in 2008 to support the balance of payments, Pakistan was in the crisis situation, facing current account and fiscal deficits and high international oil prices. The exchange rate had increased from Rs60 to Rs80 and inflation was high. Pakistan, he said, had repaid $1.2 billion to the IMF this year under an agreed schedule.

The twin deficits have again moved into a crucial phase and the local currency is under pressure.

“Balance of payments will remain under pressure due to external debt repayments to the IMF, declining trend of export quantum, rising international oil prices and weak financial inflows. Allowing for other capital inflows the overall balance of payments is likely to be in deficit by $1.7 billion in 2012-13,” according the budget document.

The finance minister declined to comment on the expected inflows from the United States under the Kerry-Lugar arrangement and Coalition Support Fund (CSF). “There are many dimensions of the ongoing negotiations and the stage at which the relationship (Pakistan-US) currently stands, I would not like to comment on,” he said, adding that the overall economic conditions were difficult but manageable.

Asked to justify the Rs120 billion receipt through gas development surcharge on fertiliser, industry, power and CNG, Mr Shaikh said the price of imported natural gas from Iran and Turkmenistan would be even more than double the domestic price that would be problematic for the country. Hence the government would also have to finance these pipelines and other energy projects and create a balance between available resources and requirements by rationalising energy prices.

He said lot of things were required to be done to overcome the energy crisis, including improvement in governance, avoiding wastages, conservation and so on. He promised that more funds would be provided to the power sector if needed and finances could be made available even by cutting down other expenses.

An interesting situation emerged when Information Minister Qamar Zaman Kaira said the energy crisis was the result of no policy action over the past 10 years – between 1999 and 2007 – and criticised the media for not putting such questions to previous rulers, as media persons replied that all those were now sitting in the present government.

Asked why the government was not informing the taxpayers about the true picture of defence expenses by putting together different heads, the finance minister said the representatives of taxpayers had formulated the budget and passed it and the taxpayers should not be worried about defence allocation.

Mr Shaikh said the government had provided protection to the poor and vulnerable people while showing a restraint on expenditures despite political compulsions and maintained a tight fiscal position. By doing this, he said, an attempt had been made to prove to the world that “we presented a responsible budget despite coming elections to restore their confidence in Pakistan”.

He said the government had adopted a policy of austerity that would continue and under the same policy Prime Minister Yousuf Raza Gilani had decided to move into a smaller residence and convert the Prime Minister’s House into an institute of learning.