Recent demand pressures stemming from a combination of factors (i) the hike in international oil prices, (ii) unanticipated costs of reconstruction of earthquake hit region, (iii) real increase in development spending of physical and social infrastructure that has been for years neglected and (iv) import requirements of fast expanding industry.
These factors together strained the external and fiscal deficit that rose to 3.9% and 4% of GDP, respectively in FY06. While these deficits have been financed properly as Government’s realization of tax collection and external debt flows were supplemented by significant growth in non debt foreign inflows following the sale of state assets and  BIS Review 3/2007  1  FDI.