Jan. 20 (Bloomberg) -- Pakistan plans to raise a record $10 billion in overseas investment this year as companies from the Middle East build power plants and pour money into fuel exploration, helping revive an economy hurt by poor security.

“It’s calculated, it’s not an ambitious target” to achieve till December, Investment Minister Waqar Ahmed Khan said in an interview in Islamabad late yesterday. “Cash-rich” Arab Gulf states are looking to invest where they’ll get the highest returns, he said.

Khan, a 45-year-old Senator who took charge of the ministry in November, is tasked with boosting investment in South Asia’s second-biggest economy, which is forecast to grow at the slowest pace in seven years. Growth and investment have slumped as Pakistan contends with Taliban militants on its western border and strained relations with India in the east.

“Getting half this target is more realistic,” said Muzzammil Aslam, an economist at KASB Securities Ltd. in Karachi. “There is definitely overseas interest in the energy sector but the government will have to improve security.”

Gulf states, which have boomed on the back of record oil prices, are now struggling after prices tumbled. Still, the oil-rich countries will cope better than many large economies because of their public and private wealth, Gulf Finance House said in a report yesterday.

Pakistan’s economy, which expanded by an average annual pace of 6.8 percent in the past five years, is predicted to grow 3.5 percent in the year ending June 30, according to the government. Total foreign investment fell to $5.19 billion in the year ended June 30, from a record $8.43 billion in the previous 12 months, missing the government’s target of $6.5 billion.

New Law

The investment ministry is drafting a law to give legislative cover to all future investments and ensure the continuity of policies, Khan said. The law will be presented to the cabinet and the parliament for approval soon, he said.

The government plans to attract investment in thermal, coal-run and wind-power generation to meet the electricity shortfall by the end of the year, Khan said. Pakistan faces an electricity shortfall of an average 3,500 megawatts a day, which has led to riots in several cities.

Pakistan has signed agreements for producing 2,500 megawatts of electricity, or one-fifth of the total capacity, and plans to add another 15,000 megawatts by 2020, Khan said.

The nation needs to boost fuel exploration to reduce its oil import bill, which accounts for a fifth of total shipments from overseas. Natural gas production of 4 billion cubic feet a day won’t meet demand next year.

Textile makers, which account for two-thirds of exports, are threatening to shut down because of gas and electricity shortages this month.

Special Force

Khan said he is part of talks within the government to raise a special police force of 400,000 personnel to improve security in the country and provide protection to investors.

Pakistan is facing a stand-off with India since the Nov. 26-29 terrorist attacks in Mumbai that New Delhi blamed on Pakistan-based militant groups. Pakistan’s government has denied its agencies backed the militants and says it is investigating the involvement of “non-state actors.”

Terrorist attacks that the government blames on Taliban militants based in the tribal areas along the Afghanistan border have killed thousands of people in Pakistan in the past two years.

Since taking charge in March, the government led by the Pakistan Peoples Party of assassinated leader Benazir Bhutto, is tackling rising inflation and a record current account deficit. Foreign-exchange reserves held by the central bank fell 75 percent to $3.5 billion in October, raising concerns the country may default on its debt.

Reserves have surged to $6.65 billion this month after the country received $3.1 billion as the first installment of a $7.6 billion bailout loan by the International Monetary Fund.

To contact the reporters on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net. Khaleeq Ahmed in Islamabad at paknews@bloomberg.net.

Last Updated: January 20, 2009 03:21 EST