Pakistan's economy continues to be affected by structural problems, including a domestic energy crisis, a precipitous decline in investment, persistently high inflation, and security issues, an Asian Development Bank (ADB) report said.

"Budget deficits remain high, driven by substantial subsidies and losses at state-owned enterprises, and tax revenue below target," said the report.

Unless progress can be made in resolving these fundamental problems, the growth outlook will stay modest, the report added.

The bank has termed the energy crisis as the main hurdle in achieving the growth targets. Power is the main constraint for economic growth, as loadshedding intensifies and becomes less predictable, it said.

While commenting on economic prospects the report said: "The economy is expected to grow modestly without a more predictable energy supply and improved investment flows".

The ADB said public sector entities are a burden and should be restructured.

"State-owned enterprises represent a heavy drain on fiscal resources. Pakistan Railways, Pakistan International Airlines, and Pakistan Steel Mills have incurred steep losses for the past several years. The challenge of improving efficiency and putting these enterprises on a viable commercial footing is formidable. Reforms are needed, including a separation of these enterprises from operational interference by government ministries."

The report further added that with low investment and economic growth below the pace needed to accommodate the predominately young population, the rich-poor income gap is set to widen further.