Structural reforms are either slowing or stagnant

Asian Development Bank

The ADB said the Pakistani economy should grow by 3% and India by 6% in 2002 - modest improvements on their performances in recent years.

In both cases, a surprisingly robust recovery in the United States and Europe - key consumers of the region's exports - have underpinned economic growth.

But the ADB warned that regional security issues, high oil prices and the generally slow pace of crucial economic reform could derail its optimistic forecasts.

Making friends

Pakistan has suffered as a result of the war in Afghanistan, the ADB said.

But it has also gained geopolitical influence that could pay economic dividends.

Pakistan has cleaned up its image in recent months

Aside from the unguessable security implications of Afghanistan, too little has been done to render them efficient and resilient, the ADB warned.

"Structural reforms are either slowing or stagnant," the ADB said.

"In India, a combination of factors, including a relative lack of interest on the part of potential foreign buyers, complicates the related issue of privatisation.

"Pakistan is having similar trouble finding buyers for some of its [state-owned companies], given the current economic climate."

The relatively harsh foreign investment climate offered by both India and Pakistan has been a crucial cause for complaint by international lenders, but has done little to constraint economic growth in the past.