The World Bank has expressed fears of imminent collapse of Pakistan's economy in spite of the impressive domestic growth in the country.

Notwithstanding internal political turmoil and sectarian strife, Pakistan's economy has grown at an impressive rate, and World Bank officials expect this growth to continue at 6.5 per cent this year. However, they say that the country must take immediate action to prevent an economic collapse, in the face of sustained global economic pressures. They said that "painful adjustments" would be needed to prevent a crisis sparked by high oil and food prices.

Pakistan's growth in recent times has been largely fuelled by domestic demand, and this consumer spending is under threat from imported inflation, the World Bank opines. The bank's vice president Praful Patel said, "This is not yet a crisis, but the economic picture for Pakistan is not good". "Growth can only continue if Pakistan adjusts to the new global reality, which includes high prices for oil, commodities and foodstuffs such as wheat," he added.

Another factor, which has led to this impressive growth, feel economists, is the huge amount of remittances from Pakistanis living abroad. They feel the country does not have enough high-value exports to sustain this growth rate for long.

The World Bank warned that the rising budget deficit, higher inflation, a growing current account deficit and declining foreign exchange reserves could all threaten Pakistan's economy unless the new government took urgent action. These comments after the World Bank officials held high-level talks with officials of Pakistan's new elected government headed by recently appointed prime minister Yusuf Gilani.

At the same time, they did mention certain redeeming features such as healthy foreign investment and a robust stock market. The Karachi Stock Exchange benchmark index closed at a record high at 15,198.86 on Wednesday.

The World Bank said its team says it discussed changes in oil imports, taxation and prioritising government spending in order to lower the budget deficit while protecting the poor. "Any adjustment will be painful, but there must be an appropriate safety net for the poor," said Patel. He said that could include direct cash transfers, a mechanism used to relieve people hit by Pakistan's massive 2005 earthquake.

Earlier in February the World Bank had released a report suggesting that Pakistan needed to strengthen its capacity to undertake major infrastructure projects needed to boost economic growth and wipe out poverty. According to the study, Pakistan Infrastructure Implementation Capacity (PIICA), the country suffers from a dearth of infrastructure in the water, irrigation, power, and transport sectors.