Pakistan : Terrorist Wahabi Islamic Rep Pakistan 6

[Naresh]

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[url="http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=2900&Cat=13"]PM shown bleak picture of economy[/url]



ISLAMABAD : The economic team led by Finance Minister Dr Abdul Hafeez Sheikh presented a horrifying picture of the country’s economy to Prime Minister Yousuf Raza Gilani in a closed door meeting on Thursday, saying the fiscal deficit could shoot up to Rs1,284 billion or 7.5 per cent of the GDP by June 30, 2011 against the envisaged target of 4.7 per cent if prompt remedial measures were not taken.



“As a last ditch effort, the meeting decided on renewed efforts to evolve a consensus on the Reformed General Sales Tax (RGST),” a senior bureaucrat, who attended the meeting, told The News here on Friday evening.



The PM was informed that the IMF would grant extension in the ongoing Standby Arrangement (SBA) programme but the pending fifth review for the release of $1.7 billion tranche would not be complete till the imposition of the RGST, implementation of power sector reforms and getting approval of the SBP Act by parliament.



“Pulling out of the IMF programme is not an option,” said a senior official and added that if the government failed to address the emerging challenges, then the entire economic team would prefer to quit rather than be held responsible for failure on the economic front.



Pakistan’s problems lie on the fiscal side and without mobilising revenues and cutting down expenditures, the economy could not move forward. In case fiscal deficit hits Rs1,284 billion, inflation would go beyond 20-25 per cent and interest rate would be on a much higher side, leaving absolutely no scope for economic growth.



The meeting also decided to abolish the Trading Corporation of Pakistan and a summary in this regard would be sent to the federal cabinet for approval. The meeting was informed that monetary policy alone couldn’t control inflation until and unless there was a meaningful coordination between monetary and fiscal policies.



Saudi Arabia, the main supplier of the diesel to the world, is switching its power generation to diesel in January and would thus become major user of diesel itself. The price of the commodity would thus shoot up, directly impacting Pakistan.



The IMF agreement, the sources said, is an international obligation and its conditions have to be met. The problem is that the government does not have a Plan-B in case it fails to evolve a consensus on the RGST.



Borrowing from the SBP by the federal and provincial governments is one of the causes of inflation. Under the IMF programme, the government was required to bring its SBP borrowing to zero by June 30, 2010. Instead, the government has borrowed from the SBP over Rs327 billion during the ongoing fiscal year 2010-11.



Of total Rs4.3 trillion bank deposits, public sector entities are holding Rs865 billion in the banks on just 4% to 12% interest. After excluding foreign currency deposits of private sector, banking sector deposits amount to Rs3,100 billion [color="#FF0000"]while the government and its institutions have borrowed to-date over Rs2 trillion from the banking sector.[/color]



The overall borrowing of the government from the SBP has reached Rs1.5 trillion; federal and provincial governments and institutions have borrowed Rs382 billion for commodity operations and Public Sector Enterprises have already borrowed Rs400 billion from the banking system. Keeping in view this huge borrowing from the banking system, there is nothing available for the private sector to borrow from this system.



Availability of Rs1,600 billion of excess currency is identified as the main cause of hoarding, as people have cash in hand, not borrowed from anywhere, and are using it for hoarding of commodities of daily use.



Cheers