World | Pakistan
PM defends decision to pare down oil and gas subsidies
Justifying hefty increases in oil and gas prices to cut subsidies, Prime Minister Yousuf Raza Gilani said yesterday his government wouldn't flinch from taking unpopular decisions to stabilise the economy.
- Reuters
- Published: 00:08 July 2, 2008
Karachi: Justifying hefty increases in oil and gas prices to cut subsidies, Prime Minister Yousuf Raza Gilani 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 identified four main economic challenges faced by the country: slowing growth, rising inflation, exchange rate instability and widening current account and fiscal deficits.
"These challenges are daunting, but our resolve is stronger," he said. "Our government is committed to restoring macro-economic stability in a reasonable time-frame."
Key reform principles
On Monday, the government announced an increase of up to 31 per cent in gas prices, having increased petrol and diesel prices by 10 per cent a day earlier.
The budget passed in June had set sights on cutting the fiscal deficit to 4.7 per cent of gross domestic product for the fiscal year that started yesterday, from a projected 7 per cent in the year that ended on Monday.
Gilani said the deficit would be brought down further to 3.0 to 3.5 per cent of GDP. The government had targeted GDP growth of 6 to 7 per cent annually for the next five years, he said.
Growth slipped to 5.8 per cent in 2007/2008 from 7 per cent 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 new coalition government inherited huge fiscal and current account deficits and inflationary pressures that had risen to their highest since the mid-1970s.
Analysts said fuel and food prices had been deliberately held down before the election, despite rising world prices, in order to avoid antagonising voters ahead of the February 18 general election. Consequently, a budget allocation of 15 billion rupees for subsidies in 2007/08 proved completely inadequate to balance the impact of high world oil prices.
In order to contain the deficit, a senior official had hinted last month, the government would pass on any increase in world oil prices to domestic consumers and phase out subsidies entirely by the end of 2008.
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.
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