Pakistan PM aims to restore economic stability
Justifying hefty increases in oil and gas prices to cut subsidies, Pakistani Prime Minister Yousaf Raza Gilani said on Tuesday his government wouldn't flinch from taking unpopular decisions to stabilise the economy.
"High growth in macroeconomic imbalances testifies that the country was living beyond its financial affordability," Gilani said in a speech at the State Bank of Pakistan to mark the central bank's sixtieth anniversary.
He said Pakistan faces four economic challenges; slowing growth, rising inflation, exchange rate instability and widening current account and fiscal deficits.
"These challenges are daunting, but our resolve is equally stronger," said Gilani. "Our government is committed to restoring macro-economic stability in a reasonable time-frame."
On Monday, his government announced an increase of up to 31 percent in gas prices, having increased petrol and diesel prices by 10 percent a day earlier.
A budget, passed in June, aimed to reduce the fiscal deficit to 4.7 percent of gross domestic product for the fiscal year that start in July, from a projected 7 percent in the year that ended on June 30.
Gilani said the deficit would be brought down further to 3.0 to 3.5 percent of GDP. The government has targeted GDP growth of 6 to 7 percent annually for the next five years, he said.
Growth slipped to a projected 5.8 percent in 2007/2008 from 7 percent in the previous year.
"Economic liberalisation, deregulation and privatisation in a transparent manner will be the core principles of our economic reform agenda," said Gilani.
The coalition government formed in March from parties opposed to President Pervez Musharraf inherited widening fiscal and current account deficits and inflation at its highest since the mid-1970s.
Analysts said fuel and food prices had been held down before the election, despite rising world prices, in order to avoid antagonising voters ahead of a Feb. 18 general election.
Consequently, a budget allocation of 15 billion rupees for subsidies in 2007/08 was overshot by a whopping 160 billion rupees, because world oil prices doubled.
In order to contain the deficit, a senior official told Reuters last month that the government would automatically pass on any increase in world oil prices to domestic consumers and phase out subsidies entirely by the end of 2008. [ID:nSIN179382]
Gilani said his government would also focus on the energy crisis, created by shortfalls in power generating capacity and increasing dependence on imported fuel, and overhaul tax policy and administration.