26/09/2011 (The News International) - Within seven days of finance minister Dr Hafeez A Sheikh’s announcement that Pakistan has decided to abandon the IMF’s current $11.3 billion programme with effect from September 30, the country’s public debt has increased by Rs60 billion due to increased dollarisation amid fears of rise in inflation in the days to come.

According to top official sources at the Ministry of Finance, the statement has triggered a wave of uncertainty resulting in depreciation of rupee.

In June, the exchange rate was Rs86 to one US dollar, which now stands at Rs89 thus increasing the public debt by Rs180 billion. It had earlier increased by Rs120 billion when the rupee depreciated by Rs2.02 against the dollar from June 2011 onward till the announcement was made.

The officials said the foreign currency managers in commercial banks are minting money through their agents in the open market, as uncertainty has fuelled demand for dollars. Abandoning the IMF programme means less foreign inflows and the government will have to print more currency notes to bridge the budget deficit.

The entire economic team of the government - finance minister, finance secretary, and governor State bank of Pakistan - is currently in Washington leaving the economy in the hands of unscrupulous players in the banking sector.

On account of appreciation of dollar, the officials said, the cost of all imported stuff such as petroleum products, furnace oil and food items particularly palm oil will go further up.

The circular debt in the energy sector will also increase in the wake of increase in the price of imported furnace oil used for thermal power generation. This will push the cost of electricity further up and if the government does not increase the power tariff for political reasons, then it will be left with not option but to further increase the subsidy in the power sector. Over 70 percent electricity is generated by furnace oil-based power plants. Similarly, the cost of imported palm oil will also increase.

Pakistan this year will have to import vegetables from India because of the damage caused to vegetables in Sindh by the recent floods. The imported vegetables will also cost more, as will be the raw material, which is imported for the export-oriented industry. As a result Pakistani products will become costlier and less competitive in international markets. This will reduce the volume of exports in 2011-12, which will weaken the balance of payment position.