2.5 inches ?? I'd say thats a bit big for a 1.6 litre. 2inch would have been a better idea. No, its not to do with back pressure.
Basically if you want more power you have to make the motor breath better
like what everybody else has said - intake, cams, exhaust.
If your willing to crack the motor apart, bore it out to about 1.7 litre
And i'd go the same route as the witzl - do the suspension. 0deg front toe, about 1deg toe out on the rear etc etc