THE current fiscal crisis continues to mount since February 2007 because of rising oil subsidy and government’s refusal to accept Nepra’s proposed tariff hike.

As a result, the economic managers are urging the president and the caretaker prime minister to “intervene immediately” and allow them to take, what they termed, “corrective measures” to avoid unmanageable distortions in the financial system.

The two leaders have been informed that the accumulating financial liabilities is sapping the capacity to improve things and is bound to impact on the next year’s budget and the performance of the newly elected government.

So far, four high-level meetings have been held in recent weeks in which the President and caretaker Prime Minister were asked to take urgent measures. Already, the crisis has started impacting the economy.

In a meeting held on January 30, the caretaker prime minister is believed to have agreed to some of the proposals to tide over a difficult financial situation, but declined to give any specific time to go for petroleum and electricity prices. Mr Soomro told the economic managers he would seek the permission of the president to take any decision in this regard.

The higher authorities are said to favour PML (Q) to help it win the elections by maintaining the ‘status quo’ and avoiding unpopular decisions at the cost of the national exchequer.

“But we have asked the higher authorities in all these meetings to urgently revise petroleum and electricity prices upward irrespective of the fact which political party comes into power”, an important official of the finance ministry told Dawn.

For the last 13 months, he said, petroleum prices remained unchanged and during this period food, inflation had also increased considerably. Food prices in the international market had risen by over 70 per cent. “And if we do not pass on the burden of the increased international oil prices to the consumers, I am afraid, things would worsen further and this will not be good for the economy”, he warned. The real problem was with diesel whose annual consumption had increased to 8.2 billion liters.

“This is where we are giving Rs17 per liters subsidy and the current budget cannot sustain it”. The government, he said, had spent billions on oil import subsidy in the first six months of 2007-08.

Likewise, the official says, Wapda was allowed 10 per cent increase in power tariff only against 33 per cent proposed by the National Electric Power Regulatory Authority (Nepra). “Now Wapda is urgently demanding additional Rs50 billion to cope with its financial problems”, he said.

The government was also offering Rs40 billion subsidy on wheat besides paying higher amount on the import of the commodity. “We are paying $700 million on the import of 3,25,000 tons of wheat and I do admit this is not a good economy”, he said adding that the government was paying additional Rs200 billion on account of increased oil, power and wheat prices.

However, the official insisted that still the economy had the potential to cope with various problems. But he said that the politics of violence and instability was multiplying economic problems.

“We have told the president and the prime minister that the decision to continue delaying the increase in petroleum and electricity prices is haemorrhaging the economy and this is like pursing a bad economy”, the official said.

“This is an aberration taking place which needs to be set right. In fact there is a whole menu that needs to be taken care of and this is not a rocket science that we cannot understand” , the official said.

He, however, said additional taxes were not on the cards during the current financial year. He also did not believe that the government should use foreign exchange reserves to meet its funding requirements, as using reserves would create problems in ensuring exchange rate stability. He agreed that $6.1 billion current account deficit was alarming. “We will be paying additional $3 billion on oil import expected to increase from $7 billion to $10 billion”.

He hoped that higher authorities would take timely action to avoid deepening the financial crisis without affecting the fundamentals of the economy and the growth path that “we followed during the last 4-5 years”.

Caretaker Finance Minister Dr Salman Shah, when approached, said that despite problems, “everything was under control” and that there was nothing much to worry about.

“We are planning to take new measures to correct the situation by shortly revising upward oil prices. However, he declined to give time framework. He did not agree that caretakers were deliberately avoiding taking bold and unpopular decisions.

Secretary General Revenue Division and Chairman of the Federal Bureau of Revenue Abdullah Yousuf said that there was Rs35 billion revenue target shortfall in the first six months of the current financial year and that the situation was certainly a matter of concern.

“We are assessing the situation and have informed the higher authorities about it”, he said adding that the FBR would try its best in the remaining five months to collect sizable taxes. “But you must not forget that there is an overall economic problem and the revenues are part of that problem”, Mr Yousuf said.

Former president of the Islamabad Chamber of Commerce and Industry Khalid Mohsin says the government needs to find out solution to the increasing economic crisis. “But the question is whether the present dispensation can take vital decisions”, he asked adding that uncertainty did not look well for the future elected government.

“That is a recipe for disaster”, he said adding that uncertainty and bad law and order situation was not good for the business and businessmen. Somebody, he believed, should have taken the responsibility for the present economic mess that today “we all are facing”.

Mr Mohsin regretted that monetary policy was delayed for two days because the central governor had gone to Davos with the president. “She had no business to go there”, he said. He observed that inflation had not been curtailed despite the tightening of the monetary policy. Unprecedented credit facility was being offered to the textile sector but nobody was availing that facility. “Investors are losing their confidence in the system and this is not good for the country”.

He regretted that the investors’ and consumers’ confidence was at its historic low and the government needed to urgently improve the law and order situation. “Perhaps investors could wait for another few months then they might think to do business elsewhere”, he warned.

Former director of the Pakistan Institute of Development Economics (PIDE) Dr A.R. Kamal, when contacted, said that government’s balance of payments positions was precarious. There had been 31 per cent reduction in net foreign investment (FDI) during the first six months of the current financial year compared to 2006-07. The imports were increasing, exports decreasing and fiscal deficit rising. The fiscal deficit, he said, had witnessed 1.6 per cent increase in the first six months of 2007-08 and there was a shortfall of Rs35 billion in the FBR revenue target. He was of the view that the FBR would have to face Rs70-75 billion revenue shortfall while the fiscal deficit would be between five and six per cent of the GDP against the target of four per cent. Dr Kamal said that inflation was a big problem which needed to be tackled. More problems were being experienced in real sectors especially agriculture and manufacturing, he added.

“I am afraid that Musharraf will leave the economy in a very difficult situation as was done by the late Zia-ul-Haq”, Dr Kamal said adding that the crisis was greatly impacting the economy.