Pakistan's 200607 inflation is expected to be between 6.7 percent and 7.5 percent, missing a target of 6.5 percent because of strong aggregate demand and high food prices, the central bank said on Friday.
"Average inflation for the FY07 is forecast to remain in the 6.7-7.5 percent range, well above the annual target, although still substantially lower relative to the preceding year," the State Bank of Pakistan (SBP) said in a quarterly report.
Inflation, as measured by the consumer price index, averaged 8.04 percent during July-February from the same period a year earlier. This compared with 8.42 percent in the year-ago period.
On Tuesday, the SBP chief said Pakistan needed to continue exercising monetary tightening until it saw a more marked decline in inflation.
"We have had monetary tightening for a while -- I think 18 months or so -- and we will remain in that phase until we feel comfortable that there's been a more forceful decline in the inflation rate," State Bank of Pakistan Governor Shamshad Akhtar told reporters in Kuala Lumpur, the Malaysian capital.
The bank, however, said GDP growth would be close to the target set for the fiscal year ending on June 30.
"SBP projections indicate that FY07 real GDP growth is likely to grow in the range of 6.6-7.2 percent, close to the annual target of 7.0 percent and above the desired 6.0 percent long-term growth for the economy," it added.
But the central bank said that achieving the upper end of the growth forecast would be "critically dependent" on a strong performance by large-scale manufacturing and livestock sectors.
WIDENING DEFICIT
The central bank also forecast a current account deficit of 4.5 percent of GDP for the fiscal year, which translates into more than $6.5 billion.
The deficit for the July-January period was $4.81 billion.
"The current account deficit is projected to widen during FY07 as, despite a sharp fall, growth in imports remains higher than that of exports," the central bank said.
"However, as the economy continues to expand strongly, this does not pose a significant macroeconomic risk in the short term, particularly due to availability of debt on favourable terms and strong investment flows."
The bank did, however, stress the need to focus more strongly on strategies to promote exports.
POLICY FRAMEWORK
Foreign direct investment has risen more than 95 percent to $2.97 billion in the first eight months of 200607, led by inflows into the financial, communications and energy sectors, official figures show.
The central bank stressed the need for a focused policy to take advantage of growing investment flows to stimulate industrial growth and diversification, as well as to help remove infrastructure gaps and bottlenecks.
"In particular, agriculture policy will need to focus on encouraging investment for the implementation of large water resource projects ... as well as improvements in transportation and storage infrastructure," it said.
"Similarly, investment in industry has to be encouraged to support value-addition in textiles, increase agri-product processing and allow the country to diversify production into the medium- and high-end technology products."