August 23, 2002	Friday	Jamadi-us-Saani 13,1423

KARACHI, Aug 22: The State Bank of Pakistan governor said on Thursday the country’s economy was showing signs of improvement but the shaky investment climate still poses a challenge to economic prospects.

Dr. Ishrat Husain, Governor, SBP, told Reuters in an interview that real economic indicators had shown some improvement, but there were no signs of improvement in the investment climate.

“The investment climate has not improved yet...because of that we have not got much employment generated in the economy,” Dr. Ishrat said.

“Fresh investment and employment generation are the two difficult aspects of our economy.”

A rise in militancy, including successive attacks on foreign targets following the launch of the US-led war in Afghanistan, and a tense standoff with India has had a negative impact on investor confidence in Pakistan in the past year.

The country recorded a foreign direct investment of $484.7 million in the fiscal 2001-02, but the new investors have been hesitant about committing money given the precarious security environment.

“Our internal and external security situation should also improve...unless that happens investors will not be forthcoming,” Dr. Ishrat said.

The central bank governor said a consistent economic policy, after October 10 parliamentary elections would help boost foreign direct investment.

“Investors are waiting for the new government to take over,” he said, adding they would carefully watch the policies of the new government. “If those policies are credible then people would invest,” he said.

REFORM PROCESS: The SBP chief brushed aside fears that the new government would reverse the reform agenda being pursued by the military ruler General Pervez Musharraf.

“I am quite optimistic the reform process will continue because all the major political parties have the same economic agenda as the present government,” he said.

“For the last three to four months the economic indicators are beginning to look much better,” he said, adding that improvement in irrigation water availability and growth in large scale manufacturing augured well for the economy.

“There is an improvement in water availability as far as irrigation in concerned and that implies our agriculture crops will have much better prospects as compared to last year.”

Pakistan, mainly an agro-based economy, has suffered severe drought in the last three years that caused negative growth of 2.5 per cent in the agriculture sector in the fiscal 2000-01.

Dr. Ishrat said exports were also picking up, especially in the European markets after Islamabad won greater market access from the European Union last year.

“If this trend continues, then it is quite possible we will be able to achieve our growth target of 4.5 per cent this year,” he said.

Pakistan has targeted this level of growth for fiscal 2002-03 compared with 3.6 per cent growth recorded in the last fiscal year to June 30.

“The global economy is in recession and despite that we are trying to get a decent growth rate,” Husain said. “If the global economy improves than our prospects will further improve.”—Reuters