ISLAMABAD, Dec 8: The World Bank on Friday asked Pakistan to allow currency depreciation through a flexible exchange rate that would support deteriorating exports facing tough competition from neighbours.

Speaking at a press conference, the World Bank Country Director John Wall said Pakistan's textile exports, including cotton yarn, fabrics, made ups and others were facing tough competition from India and China as the two neighbours kept their currencies under-valued while Pakistan allowed rupee to be over-valued. "Pakistan has to follow flexible exchange rate to keep the economy growing. If it does not depreciate currency will lose competitiveness".

Responding to a question on reports that textile exporters were being suspected of manoeuvring export fall by diverting earnings to remittances, Mr Wall said it was always possible but a deeper examination would be required to reach a conclusion.

He confirmed that the World Bank had received Islamabad's complaint that India was over-subsidising its textile exports to the disadvantage of Pakistani exports and said, "We are collecting relevant information.”

Mr John further advised the government to balance monetary, fiscal and trade policies without hurting the macroeconomic indicators, adding that this year the Pakistan economy would grow above six per cent and inflation would come down but, the trade deficit would grow and ultimately the current account deficit.

According to WB forecast, Pakistan's economy was expected to be at 6.5 per cent, inflation to range 7.5 per cent and fiscal deficit to remain more or less four per cent of the GDP during the current fiscal year. He said Pakistan's savings and investment ratios were lower than China and India.

Managing this faster growth has given Pakistan very different and much better quality problems than at the beginning of this decade, he added.

A few years ago, he said, the problems were of low growth, high poverty, high debt and stagnant foreign trade. Now the problems are those of keeping the monetary, fiscal and foreign payment accounts in balance while all the former problems are rapidly improving, he said

He said the foreign reserves have not fallen and in fact have even increased slightly, although not as fast as imports. Most recently foreign trade has cooled off, with sharp reduction in the growth of both imports and exports.

He said Pakistan's economy has built up a strong momentum of growth and will add another year of over six per cent growth for the fourth year in a row, which was a remarkable performance.

John Wall said there was no doubt that incomes of the people have improved over the last few years and poverty dropped in the range of 5 to 10 per cent in accordance with latest PSLM survey and both these figures were valid. He said the government was quoting higher side of declining trend for gauging poverty estimates and views 10 per cent reduction in poverty headcount.

The government had estimated poverty headcount at 23.9 per cent in 2004-05 against 34.4 per cent in 2000-01 on the basis of CPI coverage. However, the World Bank used survey based price index and estimated poverty headcount at 29.2 per cent in 2004-05. So the official poverty headcount estimates 10 per cent reduction and the World Bank’s methodology accounts five per cent decline in poverty.

"Both these methodologies are valid and I would say that the poverty headcount standing declined in the range of 5 to 10 per cent in 2004-05", he explained.

He said the government used CPI for gauging poverty headcount and CPI based inflation did not have coverage of rural parts of the country. The bank, he said, validated 10 per cent decline as estimated by the government as the government was committed to remain consistent with previous methodology.