World Bank fears Pakistan crisis

Pakistan must take immediate action to prevent its economy from collapse, the World Bank has warned.

It said that "painful adjustments" would be needed to prevent a crisis sparked by high oil and food prices.

Under President Pervez Musharraf, the country's economy flourished. The United Nations predicts 2008 growth at 6.5% despite its political troubles.

But there are fears that growth, which has been led by consumer spending, could be hit by imported inflation.

"This is not yet a crisis, but the economic picture for Pakistan is not good," said World Bank vice president Praful Patel.

The World Bank warned that the rising budget deficit, higher inflation, a growing current account deficit and sinking foreign exchange reserves could all threaten Pakistan's economy unless the new government took urgent action.

'Painful adjustments'

"Growth can only continue if Pakistan adjusts to the new global reality, which includes high prices for oil, commodities and foodstuffs such as wheat," Mr Patel said.

The comments came after Bank officials met with representatives of new Prime Minister Yusuf Gilani, who is the leader of the coalition government opposed to President Musharraf, in a three-day visit.

The Bank noted that there were some positive areas in the economy, as foreign investment remained strong and the stock market had posted gains.

The Karachi Stock Exchange's benchmark index closed at a record high at 15,198.86 on Wednesday.

The World Bank said its team discussed changes in oil imports, taxation and prioritising government spending in order to lower the budget deficit while protecting the poor.

Subsidy programmes could include cash transfers, which were given to families affected by the devastating 2005 earthquake, to offer "an appropriate safety net for the poor".