ISLAMABAD, Sept 8: Iran has been allowed to set up a branch of its largest commercial bank in Pakistan despite UN restrictions on the Iranian banking sector.

“Pakistan agreed to allow the Iranian government to open a bank in Pakistan to facilitate the business community to play their role in the development of their economies,” the prime minister's office announced on Thursday after a two-day meeting of the Joint Economic Commission.

Iran had sought permission for opening a branch of the Bank Melli in Pakistan. The bank has been on the United Nations watch list since 2008 for its alleged involvement with the Iranian nuclear and missile programme.

The latest round of sanctions imposed last year prohibits states from allow-ing branches of Iranian banks.

The government's move may ruffle feathers in the US and EU, which have a separate set of sanctions on the Iranian financial sector.

The government appears cognisant of the backlash it could face and a reference to a similar agreement between Iran and Turkey was incorporated into the announcement to justify the decision.

“Turkey and Iran have also concluded similar arrangements to jumpstart economic cooperation,” the statement said.

Pakistan and Iran also decided to create an investment fund “to encourage the private sector in particular to undertake investment in the two countries”.

“Time has come that Iran and Pakistan should make themselves immune from the possible negative effects of international events, and that is possible through cooperation in all fields,” Iranian Foreign Minister Dr Ali Akbar Salehi said at the concluding session of the JEC.

The two countries signed memorandums of understanding (MoUs) to enhance economic and technical cooperation, set up a joint investment company and cooperate in the electronic media.

Both sides agreed to minimise tariff and non-tariff barriers.

The commission was informed that trade between the two countries could be raised to over $5 billion from the present $1.5 billion.

Finance Minister Hafeez Shaikh said the time had come to further integrate the economies of the two countries as it was also the desire of their people. He said Pakistan was also upgrading the power transmission infrastructure in Balochistan to import electricity from Iran. GILANI:

Dr Salehi called on Prime Minister Syed Yousuf Raza Gilani and exchanged views on trade, energy, communications, rationalisation of the tariff and combating terrorism.

APP adds: The prime minister emphasised the importance of expediting the projects of gas pipeline and the import of 1,000MW of electricity from Iran.

The visiting minister said the Iranian part of the pipeline would be completed by the middle of next year. He said Iran could export the electricity immediately if it could be connected with Pakistan's national grid.

Mr Gilani said Pakistan had embarked upon improving its relations with its neighbours.

He said the interior ministries of the two countries should meet to evolve a comprehensive strategy to fight terrorism.

The Iranian foreign minister said his country would consider the proposal of opening a Pakistani consulate in Bandar Abbas.

He proposed that Pakistan should connect with a rail link now being built to link Iran, Oman, Turkmenistan, Kazakhstan and China.

The prime minister said he was looking forward to his coming visit to Iran.