Fiscal challenges, world price hike to fuel inflation: economic managers tell Prime Minister

The country''s economic team has expressed fear that challenges on fiscal side as well as increase in the prices of commodities in the international market, especially fuel, would further feed inflation in coming weeks, it is learnt. This was reportedly expressed by the economic team during a briefing to the Prime Minister on the first seven months of the current fiscal year as well as the future outlook of economic indicators.
Analysts say that the government projection of 12 per cent inflation target for the current fiscal year seems unrealistic given the challenges on the fiscal side and borrowing by the government to bridge the deficit. The top officials of the finance minister reportedly told the Prime Minister that there are many factors contributing to rise in prices.
Gilani was informed that there was very little investment by the private sector and when the State Bank of Pakistan (SBP) began to print rupees to cater to the borrowing requirements of both the government and the private sector money supply in the economy increased which resulted in inflation.
Another contributory factor to inflation, according to the economic team is international prices of commodities, such as cotton petroleum, palm oil etc. Increase in international price of several commodities increases the import bill by making imports expensive and escalates domestic prices with serious spillover impact on various sectors of the economy.
The economic team also argued that the government decision to increase wheat procurement support prices from Rs 950 to Rs 1050 per 40kg, as well as petroleum prices with a rise in government borrowing would fuel inflation in coming weeks and months.
The finance ministry official said that petroleum price has been increased due to rise in international market; additionally the economic team is viewing receipts budgeted for the current fiscal year as non tax revenue and external resources for deficit financing are unlikely to be realised. Thus releases under the coalition support fund, sale of 3-G licenses and release of pending privatisation proceeds from Etisalat for Pakistan Telecommunication Company Limited (PTCL) are all regarded as risk areas.
The finance ministry official said increase in electricity and petroleum prices will push up the input cost of manufacturing sector and consequently domestic prices may well rise in excess of 12 percent. He said CPI figure as well as data received and discussed during the recent price meeting of price monitoring committee presided over by the finance secretary observed a significant increase in the price of essential commodities in the wake of increase in prices of petroleum products. He concluded that 12 percent inflation target for 2011-12 may therefore be difficult to achieve.