ISLAMABAD, March 12: Pakistan's current account and trade deficits are "unsustainable" in the long run and will require adjustments in monetary or exchange rate policies, says a latest Pakistan-USAID joint report.

The report “State of Pakistan's Competitiveness-2007”, prepared by the Competitive Support Fund (CSF), launched here on Monday by Prime Minister Shaukat Aziz at the PM Secretariat, warned that continued vigilance, discipline and careful management were required to lower the twin deficits.

The CSF report, a joint venture of the ministry of finance and the United States Agency for International Development (USAID) said, "High growth of domestic demand has led to a significant increase in the current account and trade deficits.

“Currently the deficits are being financed through one-off investment flows- this is unsustainable in the long run".

It also said that despite recent improvements in the poverty picture, nearly one-quarter of Pakistan's population continued to live below the poverty line, and reducing this figure constitutes the foremost challenge for the authorities.

It further said that the weak points in the private sector are related to corporate governance and modern management and motivation of the workforce.

"It appears that the private sector also needs some reforms, especially in the area of corporate governance and modern approaches to the workforce".

The report believed that macroeconomic and governance issues were affecting all the provinces to more or less the same degree.

However, each province was also affected by factors that were specific to it, such as location, in relation to the main markets, distance from the sea, the area of the province, the size of its population, the status of its human development indicators and access to natural resources.

It said that GDP growth must be higher in order to cut the backlog of unemployment.

"At some risk of oversimplification, therefore, one could say that the overall challenge for the provinces is to increase their GDPs to around 6.5 per cent annually."

Pakistan's energy supplies were highly dependent on oil imports, the cost of which accounted for a large share of the country's total import bill. In addition, national power demand is outstripping supply. This is a trend likely for some time, given that Pakistan's productivity capacity needs are projected to reach a level of 162,590 megawatts by 2030, from a level of 15,500 MW in 2005.

Only 55 per cent of Pakistan's population has access to electricity from the national grid.

"In fact, Pakistan has one of the lowest per capita consumption of energy in the world", the report added.

The prime minister in his speech noted that the first State of Pakistan's Competitiveness Report was an important step to focus the energies of the nation around the common goal of making the country a stronger economy.

He also said that CSF would work in partnership with the World Economic Forum (WEF) and the US Competition Council and the Lisbon Agenda of the European Union (EU).

Prof. Michael Porter, Harvard's expert on competitiveness and engineer of one of the business competitiveness index said Pakistan showed impressive movement in some of the most dynamic indicators which boded well for future economic growth.

Prime Minister's Advisor on Finance Dr Salman Shah said on that CSF sought to finance practical initiatives to reposition Pakistan's economy regionally and globally and set it on more competitive footing.

"The results will be higher productivity, increased innovation and an economy that is integrated into global value chains and can compete internationally", he said.

Mr Arthur Bayhan, CEO of the CSF in his presentation briefed the audience about the WEF's global competitiveness report and other countries.

In particular, he highlighted the importance of the provincial and local leaders to be part of the competitive dialogue.

The CSF, he said, was working directly with each region in addressing the key competitiveness issues at the regional level.

"The challenge of building competitiveness went beyond what could be accomplished by the government's economic team alone and required the active support and participation of regional and local leaders, academia and the private sector", noted Bayhan.Pakistan, he said, was consistently improving in terms of competitiveness and dynamism.

However, he said that the private sector of Pakistan needed to work more on developing the medium and long term strategies as one of the many steps to improve its competitiveness.

He also urged the government agencies and NGOs to update the data and submit it to international source.