ISLAMABAD, Dec 14: Sharp demand for importing machinery, equipment and capital goods continues to increase that has caused $2.5 billion gap in imports and exports, said a senior official of the ministry of finance.

He told Dawn here on Tuesday that it was difficult at the stage to immediately bridge the gap between imports and exports as there was an enormous demand for importing machinery, raw material, equipment and capital goods by the business community.

"There is a great economic activity being witnessed today due to positive imports, therefore, the government does not want to use any artificial method to bridge this gap ", he added.

However, he admitted that this gap was increasing. "But do you want us to discourage the investment coming in the wake of more imports for establishing new industries in the country", he asked.

The official pointed out that the State Bank was keeping an eye over the issue of widened gap between imports and exports. "We should not be worried about it as the import of machinery etc., was very good for the economy", he asserted.

Asked about recent decline in foreign exchange reserves, he said it was primarily due to additional payments made for the import of oil during the last few months.

Responding to a question, the senior official said that the central bank was getting a "good return" by investing its reserves in some reputed seven bigger international foreign banks.

He said that the State Bank has invested $2.5 billion to $3 billion in foreign banks with a view to diversify its reserves and get a good return. The central bank, the official said, was better managing foreign exchange reserves because of being the custodian of the government treasury.

In reply to another question, he said that road-shows for the launching of Sukuk Islamic bonds were being planned in January 2005 in Asia, Middle East and Europe. "But so far there is no decision about the size of the bond", he clarified.

However, he said that the government expected to launch $300 to $500 million Islamic bonds as and when its Lead Managers - Citibank and Hong Kong Shanghai Banking Corporation, (HSBC) - advised the government. These bonds, he said, will be floated in early next year but no date has so far been fixed in this behalf.

In the emerging markets, the official said, there was a lot of liquidity available and the response of the investment banks, fund mangers, pensioners fund and hedge mangers was very good towards Pakistan's decision to launch Islamic bonds.

The senior official did not see much interest being taken by the overseas Pakistanis in the flotation of Sukuk bonds. "In fact I do not see their (overseas Pakistanis) role in this bond venture as it is the job of the bigger investment banks and fund managers", he added.