(Repeats to additional subscribers)

By Paul Eckert, Asia Correspondent

WASHINGTON, Oct 13 (Reuters) - Pakistan's foreign reserve situation is "in distress", but it can still meet upcoming debt obligations of up to $3 billion, the country's top economic official said on Monday.

"Our reserve situation is in distress," said Shaukat Tarin, the newly appointed finance adviser to the prime minister. But he added: "I have no question in my mind that we'll be able to fulfill those obligations."

Pakistan, a key U.S. ally in fighting Islamic extremism, was grappling with a widening trade deficit and steep inflation even before the global financial crisis spread from the United States to hit rich and poor countries alike.

Pakistan needs up to $3 billion of foreign capital inflows to arrive quickly if it is to meet upcoming debt obligations.

Tarin said he came away from meetings of the International Monetary Fund and World Bank and bilateral talks over the past weekend confident his country would get help meeting its shortfalls.

"I have been obviously assured by the IFIs (international financial institutions) that they will stand by us," he told Reuters in an interview.

Tarin likewise said he was told "considerable help will be forthcoming" from a newly launched "Friends of Pakistan" grouping of the United States, Japan, the European Union and key Gulf states that will meet in Abu Dhabi in November.

He declined to give figures for pledged or expected support, but said the November meeting would probably also help Pakistan with oil, following Pakistani requests for oil on a deferred payment basis from Saudi Arabia and from Iran.

Surging oil prices were a primary factor in heating up Pakistan's inflation to 25 percent, and the fuel bill helped get the country into balance of payments trouble.

Tarin said softening oil prices would help bring down inflation but this would take time and Pakistan was unlikely to hit its fiscal 2008-9 targets from growth and inflation.

"I believe that our target of 12-13 percent inflation is not going to hold," he said. "So we'll probably come in much higher than that and around 18-20 percents is what I think we should expect."

Efforts to cut consumption and other government belt-tightening measures to fight inflation would also weigh on growth, said Tarin, a veteran banking executive drafted to advise Pakistan's new democratically elected government.

"Clearly we are not going to meet growth rates of five percent we projected, because we are taking out demand from the economy," he said. "For us, the number one enemy is inflation and if we can slow down the growth to maybe three or three and half percent that's acceptable."

Tarin had said last week he expected Pakistan's rupee to stabilize in a few weeks. The currency has lost 22.1 percent this year and hit a record low of 80.30 to the dollar on Oct 8.

"My own sense is that the rupee has come on track to find its own value," he said on Monday.

"The devaluation of the rupee, whereas it looks like a kind of weakness in the economy, my own sense is it is necessary to create an equilibrium between what we can afford and what we need," said Tarin.

"As we bring in some of these resources from overseas, it will stabilize the rupee," he added.

AlertNet news is provided by