September 15, 2006	Friday	Sha'aban 21, 1427

SINGAPORE, Sept 14: Pakistan's central bank governor said on Thursday the economy would expand by close to seven per cent this fiscal year and that tight monetary policy was helping control demand without stifling growth.

Shamshad Akhtar, Governor of the State Bank of Pakistan, told Reuters in an interview that a buoyant service sector, a robust retail sector and strong investment would drive growth this year.

“We are definitely upbeat on Pakistan's economic prospects,” Ms Akhtar said. “We are likely to achieve close to seven per cent growth in 2007,” she added, giving a figure broadly in line with a previous central bank forecast.

Pakistan's economy grew by 6.6 per cent in the fiscal year that ended in June. Ms Akhtar said the financial services sector was exceptionally strong, expanding by more than 20 per cent in the same period.

She said the main risk to growth was the high price of oil, so she was happy with the recent drop in crude prices.

Pakistan assumed a crude oil price of $68 a barrel in its most recent budget. US crude traded around $64.50 on Thursday.

On a possible slowdown in the US economy crimping demand for Pakistan's exports, Ms Akhtar said she was confident cooler growth in the world's biggest economy would have only a limited impact on Pakistan.

Pakistan's key textile exports such as cotton clothing and bedlinen had a large, stable market, she said, although it could see more aggressive competition from countries such as China, India and Bangladesh in textile exports.

“Pakistan is trying to diversify its export products, as well as markets,” she said. In the previous fiscal year, the US was Pakistan's biggest export destination, taking 24 per cent of total exports.

Ms Akhtar said the central bank's tight monetary policy was working to slow private credit growth and that the inflation target of 6.5 per cent this fiscal year was attainable.

Pakistan's most recent inflation data for August showed the consumer price index rising 8.93 per cent from a year before.

Ms Akhtar said higher food prices and major flooding in the south of the country had hampered the movement of goods, adding: “I'm quite optimistic that in the next 12 months we can scale down inflation by one-and-a-half per cent.” Core inflation was also on a downward trend, she said, adding she hoped to see a further decline to match the “significant” tightening of monetary policy implemented since January.

“The signal we are giving to the market is very clear, that we remain in a monetary tightening phase, and we continue to watch the data and the trends and the inflation rate,” she said. “Clearly, if there is a downward trend in prices to the desired levels, we will not require more aggressive tightening. But if the inflation rate is not nipped in the bud, then we would have to continue thinking about tightening.” Imports remained fairly strong, she said, despite the tightening.

“I do think that we have managed the demand pressures quite effectively. We have not stifled economic growth,” she said.

Speaking ahead of next week's IMF-World Bank annual meetings, Ms Akhtar said she was broadly supportive of proposed reforms at the International Monetary Fund but she was a little concerned that some developing countries could see their voting powers reduced.—Reuters