RAWALPINDI, May 31: Discussing the interrelationship between political stability and economic growth of a country, a United Nations report said escalation in political tensions in Pakistan could present a drag on economic growth.

The report, a joint product of the United Nations Department of Economic and Social Affairs (DESA), UN Conference on Trade and Development (UNCTAD) and five UN regional commissions, cited the political tensions in Pakistan and Bangladesh as a case during the election year.

The report calculates real GDP growth in 2007 at 6.2 per cent against 6.5 per cent in 2006 and 7.2 per cent in 2005.

Consumer price inflation seems to have peaked in 2006. In addition, food prices also contributed to inflationary pressures in several countries, such as Pakistan.

The consumer price inflation averaged 6.5 per cent on the basis of 1997-2007 period against 8.5 per cent in 2006 and 9.1 per cent in 2005, says the report.

The report says Pakistan’s budget deficit has increased to 4.3 per cent of GDP in fiscal year 2005-06, partly owing to rising expenditures in the wake of the October 2005 earthquake.

As in the past, South Asian countries are prone to natural disasters, and poor weather conditions can adversely affect the agricultural sector.

Growth in 2006 has been broad-based across economic sectors.

Benign monsoon rains contributed to strong agricultural growth in most South Asian countries, with the notable exception of Pakistan where crop output actually fell, points out the report.

The international oil prices are a major source of uncertainty for the South Asian region, potentially affecting current accounts, fiscal positions and inflation.

In 2007, crude oil prices are expected to stabilise, and food-price inflation will be moderate, owing mainly to improved agricultural production.

Developing countries now own well over 3 trillion dollars in foreign exchange reserves, with China alone holding more than 1 trillion dollars.

The strengthened reserve positions have provided greater protection in dealing with external shocks emanating from volatility in world markets.

The mirror image of the accumulation of reserves in developing countries is the widening external deficit of the world’s major reserve currency country, the United States.

Official Development Assis-tance (ODA) from the Organisation for Economic Cooperation and Development countries to developing countries rose to a record high of 106 billion dollars in 2005.

This total represents 0.33 per cent of the Development Assistance Committee (DAC) countries’ combined gross national income (GNI), up from 0.26 per cent in 2004.

The current projections are that total ODA by the DAC member states is expected to reach the target of 130 billion dollars (0.36 per cent of the combined GNI of the DAC countries) set forth for 2010, though a steep climb in the flows is still required as the deadline approaches.

The strong performance of the world economy in 2006 was remarkably broad-based.

During 2006, 92 out of a total of 159 countries for which recent data are available succeeded in increasing per capita output by three per cent or more.

This group of strong performers includes 60 developing countries, and the trend could signal further progress in poverty reduction.

At the same time, the number of countries that registered a decline in gross domestic product (GDP) per capita fell to only seven, less than in previous years, the report says.