ISLAMABAD, April 6: Anticipating worsening of poverty indicators in 2011, the Asian Development Bank on Wednesday forecast major slippages on 5.5 per cent fiscal deficit estimated for the current year despite recent taxation and expenditure control measures introduced by the government.

Persistent energy shortages and security issues are expected to hold growth to 3.7 per cent for next year, providing scant improvement on recent trends, he said.

Asked about the reasons on which the ADB anticipated slippages, he said revenue generation was weak and its collection was short of target, security expenditure was going up, more and more state-owned entities were seeking money injection to remain afloat and subsidies were much higher than targets.

He, however, declined to give a higher deficit number saying it would be a mere speculation.

Mr Stroem said a lot of young people moving into the working age and at least 3 per cent economic growth was necessary to be able to break even their requirements.

He declined to commit if the ADB would be providing funds for Pakistan's budgetary support saying “we are looking for an agreement between the IMF and Pakistan government on macroeconomic indicator.

Mr Stroem expressed concern over continuous bleeding of the public sector entities, saying this bleeding must stop to create fiscal space for development and growth.

Talking about key challenges the Pakistan economy faced, he said security concerns and infrastructure shortfall were hindering service delivery and economic growth.

He pointed out that electricity shortfall alone was pulling down growth by 2 per cent. Had there been continuous electricity supply, the economic growth rate should have been 2 per cent higher, he said.

He said commissioning of independent power producers which are currently in implementation stage would add 3,500 trucks per year to the road network to meet fuel supply requirements, which should have been catered for by the railway network.

“Maintaining that much of road network is nothing less than frightening and the entire donor community was concerned about this.

He said there had been sustained decline in public and private investment in key infrastructure sectors and large scale manufacturing because of government's heavy reliance on private sector credit to finance its deficit.

The ADB is also very concerned over rising debt stock that crossed Rs9 trillion at the end of December and its repayment costs. It would become more serious next year when Pakistan has to make bulky repayments including to IMF.

The ADB criticised the government for increasing wages by 50 per cent for the government servants in the last budget that was also exacerbated by the government failure to budget adequately for subsidies needed to cover the gap between notified and cost-recovery electricity tariffs, which rose from budgeted Rs30 billion to Rs200 billion.

He said the government increased electricity tariff by 37 per cent in fiscal year 2010 but its decision not to push through with incremental 2 per cent monthly step ups represented a reversal of efforts to reach cost recovery.