Pakistan's economy showed faster growth in 2001-02 than in the previous financial year despite setbacks relating to persistent drought and the 11 September attacks, government officials have said.

Real gross domestic product (GDP) rose 3.6% in the year, up from 2.5% in 2000-01, Finance Minister Shaukat Aziz said.

The cost of trading increased substantially because of the rise in freight and insurance charges

Government's economic report

Mr Aziz said Pakistan's economic performance in the year had been "reasonably good" despite the damaging effects of turmoil in Afghanistan and tensions with India.

The government's annual report on the economy came two days ahead of the scheduled unveiling of the state budget for the 2002-03 financial year.

It was one day before a suspected suicide bomb attack in Karachi, the country's business capital, killed at least eight people.

Unhelpful

Speaking on Thursday, Mr Aziz admitted that tensions with India had discouraged foreign investment.

US action in Afghanistan against al-Qaeda has also destabilised Pakistan, analysts say, with many militants loyal to Osama bin Laden moving to the country.

Pakistani police say they suspect al-Qaeda is responsible for a bomb attack in Karachi last month, which left 14 dead.

Despite the unhelpful political environment, Pakistan recorded a substantial increase in foreign investment in 2001-02.

The country attracted $306m (�207m) in foreigners' money in the year, Mr Aziz said.

Although a relatively modest amount, the figure was well up from $129m in 2000-01.

Cancelled

Foreign debt was cut $2bn to $36bn, largely because of foreign assistance after Pakistan pledged support for the US in its "war on terror".

But major exports dropped 27% to $7.3bn.

"Export orders were cancelled, clearance of export consignments at various ports were delayed, obtaining new orders became even more difficult, shipment of exports postponed and the cost of trading increased substantially because of the rise in freight and insurance charges," the government's economic report said.

Mr Aziz declined to say how much tensions with India were costing Pakistan in terms of increased military spending.