Pakistan economy can still hit targets: FinMin

Pakistan's economy, which has been motoring along with growth of around 7 percent since 2002, ran into political crisis last year, culminating in last month's assassination of opposition leader Benazir Bhutto and raising doubts over continued growth.

On Saturday, the central bank cut its economic growth forecast for 2007/08 (July-June) to 6.6-7.0 percent, below the government's 7.2 percent target, citing weakness in the farm sector, a strong contributor to growth in previous years.

But Finance Minister Salman Shah, speaking to Dawn TV, said the economy remained resilient, noting that foreign reserves and the stock market had continued to hold up throughout the turmoil.

"There is a basic buoyancy in the economy...," Shah said.

"I think that we should be able to meet most of our targets, even though the inflation target would be very difficult to meet because of food and energy prices. On the growth side, we should come very close," he said.

However, foreign investment has already begun to slow and economists have raised doubts about the willingness of overseas investors to continue to support Pakistan.

Bhutto's killing, blamed by the government on al Qaeda, robbed the country of its most popular opposition politician and put in jeopardy Pakistan's planned transition to civilian-led democracy at general elections now scheduled for Feb. 18.

But the Karachi stock market took only a few trading sessions to bounce back from Bhutto's killing, which had triggered violent unrest and paralysed the economy for three days. By last Friday's close, it had already recovered around two-thirds of its losses.

On Saturday, the central bank reinjected a note of pessimism, warning about inflation, virtually ruling out an interest-rate cut and also highlighting the country's twin current-account and fiscal deficits.

"All key fiscal performance indicators have deteriorated significantly," the State Bank of Pakistan said in its quarterly report for the three months ended Sept. 30.

The bank said annual inflation was likely to average 6.5-7.5 percent in 2007/08, compared with its target of 6.5 percent, and that prices were not only under pressure from rising crude oil and food costs but also from an expansion in money supply.

To help fund its fiscal deficit, the government has been borrowing money from the central bank.

Finance Minister Shah said the government planned to curb its borrowings from the central bank after the Feb. 18 election.

"After the elections, we are going to be doing certain capital-market transactions which should bring borrowing from the central bank to a more projected level...," he said.