ISLAMABAD - Inflation will be the highest and the economic growth will be the lowest in Pakistan among all South Asian countries because of increasing insecurity at Western borders, says Asian Development Bank Outlook 2009, which forecasts missing of all economic indicators. The ADB, a Manila based Development Bank, in its Outlook 2009 has said Pakistan's economy will grow at the rate of "only 4.5 per cent" during the ongoing financial year. The Gilani-led government has targeted 5.5 per cent economic growth. "With continued high oil prices, an ongoing power deficit, and tightened demand management polices to correct macroeconomic imbalances, economic growth in FY 2009 is put at only 4.5 per cent." Contrary to the government estimate of 11 per cent average price hike at the end of the year, the ADB has predicted 20 per cent inflation, which is the highest among eight South Asian countries. "With the government setting out to progressively rationalise the oil subsidy by passing on higher prices to consumers and by reducing the subsidy between the full-cost producer price and tariffs charged for electricity, average inflation is projected to reach 20 per cent." The ADB projects political tensions will lessen leading to a more stable political environment, though uncertainty and security concerns will continue to affect economic decision making and investors' confidence. "Potential risks (to economy) include further increase in political uncertainty and a deterioration in the security situation on the country's western borders." Terming financing of the large fiscal and the current account deficits "major challenges for Pakistan" the ADB says the current account deficit will remain at 8 per cent of GDP, which is marginally less than the last year's 8.4 per cent. The budget deficit will likely exceed the government target of 4.7 per cent of the total size of economy. Chief Economist Planning Commission Dr Rashid Amjad commented on the ADB report, "We are in the first quarter of financial year and global situation is unfolding." He said Pakistan's economic growth would depend on how agriculture and manufacturing sectors perform. The annual average inflation may exceed the government target but would likely ease in the second half of the year, which would keep it below the ADB projection, he added. The Outlook 2009 says State Bank of Pakistan's policy to increase interest rates to control inflation is not working effectively. "To the extent that inflation in Pakistan is driven by high commodity prices, monetary tightening will have a limited impact on inflation and will most likely aggravate the economy's other structural problems." The report also forecasts a large trade deficit even if the government achieves 10 per cent exports growth and earns US $ 22.1 billion with slower growth in industry and weak global demand conditions. In agriculture sector, cotton production is likely to fall short of target due to a reduction in the sown area and to a meal-bug virus attack. On demand side, private consumption in fiscal year 2009 will be hit by higher prices as food, oil and power subsidies are rationalised. Painting a gloomy picture for Pakistan economy, the ADB says the government expenditure will be suppressed by measured announced in the budget to contain current spending and uncertainty, low capital inflows, and power shortage will restrain investment levels.