ISLAMABAD, May 10: The national economy, projected to grow by four per cent this year, is facing several difficulties, particularly due to security concerns, rising oil prices, severe shortage of gas and power and effects of unprecedented floods, says a survey published by the United Nations on Thursday.

The ‘Economic and social survey of Asia and the Pacific, 2012’ released by UN Economic and Social Commission for Asia and the Pacific says that the government is facing difficulties in containing the budget deficit which is estimated at 6.6 per cent of the GDP in 2011 as compared to 6.3 per cent in the previous year.

The high fiscal deficit can be partly attributed to increased security expenditures, the adverse impact of the floods and higher subsidies, it says.

The survey puts inflation at 12 per cent in 2012, saying Pakistan has been facing double-digit inflation for some years. Inflation in 2011 was 13.9 per cent, compared to 11.7 per cent in 2010, driven mainly by high food and energy prices.

The severe energy shortages put a damper on production of goods and services and contributed to the high inflation and weak economic growth.

Food prices rose sharply on the back of major supply disruptions, owing to the floods as well as a spike in prices of imported food. The survey notes that the industrial sector witnessed a minor contraction in 2011 after growing more than eight per cent in 2010. This was due to supply-side constraints, mainly energy shortages.

The agriculture sector improved slightly due to a post-flood recovery in wheat, sugarcane and minor crops. However, major crops, particularly rice and cotton, suffered huge losses due to floods.

At the same time, growth of the services sector improved, partly on the back of a hike in the salaries of government employees and expansion of social services in the wake of the flooding, which helped prevent the overall growth of the economy from falling further.

On the demand side, both savings and investment as a ratio to GDP fell in 2011. The investment ratio stood at 13.4 per cent, the lowest since 1974.

The survey notes that the external sector registered a surplus on the current account, making it a bright spot of the economy in 2011.

Exports increased by 29.3 per cent and workers’ remittances exceeded $11.2 billion.

Rising prices of value-added textiles have helped propel the rapid growth of exports, enabling the country to record a marginal current account surplus (0.1 per cent of GDP) in 2011 after many years of deficits.

Foreign exchange reserves increased. However, a large current account deficit is expected in 2012 and financing it could be problematic due to the suspension of the IMF standby arrangement.

The commission proposes creation of a forum to put forward a uniform stance of countries in South Asia to oversee migration and enhance its positive aspects. Governments should consider special and innovative institutional arrangements to protect migrants and provide social protection coverage.

The survey says that Nepal and Bangladesh are also facing severe electricity shortages.

However, in Pakistan, natural gas shortages have become very acute and adversely affected industrial production, particularly of textiles and fertilisers.

To overcome the shortages of energy, the survey suggests that the government should set up viable new power projects, minimise transmission and distribution losses, including theft of electricity, increase exploration of gas, crude oil and coal, tap regional markets, set up infrastructure for energy imports and offer incentives for the development of renewable energy resources.