By Sahar Ahmed and Robert Birsel
KARACHI, Dec 3 (Reuters) - Pakistan sees little if any fallout from Dubai's debt crisis and expects remittances from its workers overseas to grow despite problems in the Gulf, the country's central bank governor said on Thursday.
Pakistan's risk premium is improving and it could see inflows if investors decide to leave Dubai, said State Bank of Pakistan governor Salim Raza.
"Pakistan is by and large little exposed to Dubai investment and Dubai institutions therefore the downside is limited but if people really take assets out of Dubai we could see some small upside," Raza told Reuters in an interview.
Dubai shook the financial world last week when it said it would ask creditors of Dubai World, the conglomerate behind the emirate's rapid expansion, to delay payment of billions of dollars in debt.
The Dubai crisis comes as Pakistan's risk profile has been improving.
Pakistan's five-year credit default swaps
"With the consistent improvement in Pakistan's risk profile, people may look at Pakistan if they are looking at getting out of Dubai," Raza said.
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The Dubai crisis was also not expected to hurt remittances from overseas workers, he said.
Up to a million Pakistani workers are in Dubai, while the number of workers in the UAE all together is about 2.5 million.
Raza said Pakistanis who lost jobs in Dubai might find work elsewhere and overall, the numbers of Pakistanis working overseas would not fall.
"Net, I think we would be flat or positive ... the number isn't going to decrease," he said.
Pakistan gets $8.5 billion a year from its overseas workers, equivalent to up to 5 percent of gross domestic product.
"It is important. That is the size of our current account gap," he said.
According to the latest official data, remittances from Pakistanis working overseas rose 32 percent to $3.1 billion in the first four months of the 2009/10 (July-June) fiscal year.
The UAE contributed $679.23 million, out of which $298.82 million came from Pakistanis working in Dubai.
High interest rates were also helping draw money back to Pakistan, despite a weakening rupee, and more of the flows were coming through official channels, he said.
"Interest rates have helped retain money and transfer money, plus we've encroached a little into the grey market," Raza said.
"I'm confident we're certainly not going to see a reversal (of the flow of remittances). The question is how fast we can improve on it," he said.
Pakistan's policy rate has been coming down this year as inflation has eased.
The central bank last week cut the policy rate by 50 basis points to 12.5 percent for December and January to spur economic growth, but it remained cautious because of the country's security situation.
Inflation eased to a 22-month low of 8.9 percent year-on-year in October and both current account and fiscal deficits have been improving.
Economic growth fell to 2 percent in 2008/09, its slowest in eight years, but the central bank expects it to firm to 2.5-3.5 percent this year. (Additional reporting by Faisal Aziz; Editing by Victoria Main) ((robert.birsel@thomsonreuters.com; +92 51 281 0017; Reuters Messaging: robert.birsel.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))