WASHINGTON, Sept 25: The economies of India and Pakistan should expand solidly this year and next but India needs urgent fiscal reform and should relax its archaic trade rules, the International Monetary Fund said on Wednesday.

In its twice yearly World Economic Outlook, which takes the pulse of economies around the world, the IMF downgraded global economic prospects and painted a generally bleak picture. But both India and Pakistan were among the few bright spots which won forecasts for solid economic expansion.

The report forecast India’s economy would grow by 5 per cent this year and 5.7 per cent in 2003 after a 4.1 per cent expansion in 2001. For Pakistan, the lender predicted a 2002 expansion of 4.6 per cent followed by a more robust 5 per cent in 2003 after 2001’s 3.6 per cent growth.

The lender praised reforms made by Pakistan’s government but said military tensions in the region had clouded the outlook and that political resolve will be needed to enforce higher tax collection.

While on the face of it, India’s forecast seemed quite good, the IMF report was tough on the massive nation for not rising to the challenges facing it.

“Trend growth has declined since the mid-1990s as the benefits of earlier structural reform have faded,” the report said, noting that the nation’s fiscal deficit is among the highest in the world.

That requires “urgent” action, the report said, adding that the 2002/03 budget sought only modest reductions in the deficit and was based on optimistic revenue projections.—Reuters