KARACHI - As economy has started rebounding, the countrys GDP growth is anticipated to increase to 4 per cent in FY11 as compared to 2.5 per cent in FY10, says Standard Charted report. The Standard Charted Bank in its research report entitled The Road to a Sustainable Recovery: A Global Focus said Countrys economy is heading towards recovery, however, it faces strong headwinds from the uncertain political and security environment. Inflationary pressures have also resurfaced and will force the central bank to maintain a tight monetary stance, keeping the recovery weak in the near term. it may be mentioned that the SBP in its fourth monetary policy statement announced last week kept policy rate unchanged at 12.5 per cent, which was quiet against capital market expectations. The report under the chapter Pakistan: Recovery Built on Strong Fundamentals further revealed that although, IMF has endorsed progress on key reforms and released USD 1.2bn, while the World Bank has pledged USD 6.5bn over the next four years but difficult and unpopular reforms have further aggravated Pakistans already-tense political environment. According to report, the successful implementation of governments reforms has helped to tackle inflation, build up the FX reserves and restore investor confidence. The reforms aim to address the most severe constraints on economic growth, including a debilitating power crisis and limited government resources due to low tax collection. The focus is on creating fiscal room for the government to increase investment spending to support growth. The measures are also expected to limit the accumulation of public debt, which rose to nearly USD 100bn (56.8pc of GDP) at end-FY09 (ended 30 June 2009) from USD 78bn (54.1pc of GDP) in FY07. Encouraged by the reforms, the World Bank has also pledged USD 6.5bn in soft loans to Pakistan over the 2010-13 period. Report mentioned that fiscal reforms, including the removal of power subsidies and the introduction of VAT, are expected to increase the governments fiscal room by nearly 3 per cent of GDP (USD 5.3bn) in the FY11 budget. This will not only limit the build-up of public debt, but will also provide the government with valuable resources to increase investment spending. Power-sector reforms will bring 2,200MW of additional power online in 2010, ending the debilitating power crisis that has hit manufacturing output and paralysed economic activity. Meanwhile, SCR overview on global economic and financial markets said while the banking debate between the pragmatists and the populists may have stolen most of the headlines, issues like avoiding regulatory overkill and premature tightening also figured prominently at Davos - and rightly so. The fundamentals point to a multi-speed recovery, led by emerging economies. In contrast, it will be a long, hard slog for most advanced economies. Even as power shifts from the West to the East, one should still expect volatility along Asias upward recovery path. Asset price inflation and external liquidity will be a challenge for Asia, although substantial output gaps should dampen consumer price inflation. Even China is not obviously overheating - hence, the authorities are policing the credit quota but avoiding outright monetary tightening. A rebounding USD, our core FX theme for Q1, should open up a window of opportunity for strategic positions in emerging-market currencies that we still believe will outperform in 2010. The recent correction in commodity prices should also be short-lived, as underlying Chinese demand remains firm, report said and added that with credit likely to remain tight in the Middle East, oil prices and fiscal spending will be key to the regions growth this year. For frontier Africa, the focus is on assessing the political risks in Nigeria and Kenya. Referring about Asia, report said across the region, the economic recovery is gaining momentum but remains highly uneven. In a few economies, like China and Vietnam, output has returned to well above pre-crisis levels, but most economies are still running significant output gaps. While exports have returned to positive year-on-year growth in recent months, this is largely due to the low base effect. In USD terms, Asian exports are still 10-30 per cent below their recent peaks. Even though liquidity is abundant and banks are flooded with deposits, credit remains hard to come by for many borrowers, especially those seen as weak or vulnerable, like the regions many exporters and SMEs. Unemployment rates have mostly peaked but are still significantly higher than normal. While confidence has returned, as reflected by most sentiment indicators, private investment is still concentrated in short-term or highly liquid markets like stocks and property. Long-term investment remains largely confined to public-sector entities. At best, Asias recovery is only in its early stages. Despite the return to positive output growth in q/q or y/y terms (or both), only five of the 11 developing Asian economies we cover have seen absolute output levels recover to their pre-crisis peaks. And relative to their potential output levels, most of these economies - except Indonesia-are still lagging, with negative output gaps ranging from 0.1- 10.2 per cent . This is in line with the labour-market situation around the region. In most economies, unemployment rates have more or less peaked but have yet to fall back to pre-crisis or to more normal levels. For example, Hong Kongs unemployment rate has receded from a cyclical peak of 5.4 per cent in August 2009 to 4.9 per cent - still higher than the 3.3 per cent pre-crisis level. In Korea, where the labour market was relatively stable during the crisis, the unemployment rate fell from a peak of 4.0 per cent in June 2009 to 3.5 per cent in December; this is still only halfway back to its pre-crisis level. In China, despite reports that labour shortages are re-emerging in some regions and industries, an estimated 4mn migrant workers - more than the total workforce of Hong Kong - have yet to find new jobs. The statistical distortion created by the base effect. The collapse in global demand and commodity prices in the aftermath of the Lehman Brothers bankruptcy sent consumer prices into a tailspin in early 2009.