WASHINGTON, July 22: The International Monetary Fund observed on Thursday that Pakistan's targeted growth rates for 2004-05 were "ambitious but achievable".

In the eighth review of the country's economic performance since December 2001, the IMF praised its economic recovery but said it was still not clear if the progress had also led to a reduction in poverty.

The IMF publishes the reviews under a three-year arrangement that allows Pakistan to receive $1.3 billion from the fund's poverty reduction and growth facility. Pakistan has received eight of the 12 instalments of over $100 million each, payable every three months.

The review released on Thursday would qualify Pakistan to receive the ninth instalment.

The targeted growth rate in Pakistan, the IMF noted, could "help lift a significant share of the population out of poverty" but would require a substantial increase in private and public investment. "This, in turn, will depend on the continuation of sound macroeconomic policies and broad-based structural reforms," it said.

Since December 2001, "Pakistan's economic growth has rebounded, inflation has remained low, debt indicators have improved considerably and foreign exchange reserves have increased sharply," the IMF observed. But the agency acknowledged that it was not clear if the progress had helped the poor. "It is difficult to say if there has been a reduction in poverty during the programme period," the report says.

A household survey conducted in 2000-01 by the government says that just under one-third of the population lived in poverty. But the IMF report speculated that the situation might have improved now as the figures did not take into account the strong economic growth of the last two years and particularly the recovery of agriculture from drought.

The IMF noticed an improvement in the political situation but warned that "the perception of fragile security conditions" continued to affect investment.

The report mentioned recent improvements in Pakistan's relations with India and the implementation of the South Asian Free Trade Agreement and expressed the hope that such developments would bolster regional stability and trade.

"On the other hand, tensions remain high in a few areas along the Afghan border and terrorist acts occur occasionally. External vulnerabilities have been reduced further. Exports continued to grow strongly in 2003-04, while private transfers, although declining, remained sizable," the report said.

According to the IMF, imports grew more rapidly, with a shift toward raw materials and machinery. As a result, the current account surplus, excluding official transfers, was estimated at about two per cent of the Gross Domestic Product in 2003-04, compared with four per cent in 2002-03, it said.

The State Bank absorbed part of the foreign exchange inflows and its gross official reserves increased to $11 billion by end-April, equivalent to over seven months of imports, it said.

Reflecting early repayments of $1.1 billion in relatively expensive Asian Development Bank loans and lower than expected programme and project financing, the external public and publicly guaranteed debt was estimated to fall by four percentage points to 43 per cent of the GDP this year, it said.

The IMF noted that Pakistan had successfully re-entered the international capital markets. The country issued a $500 million five-year Eurobond with a 6 per cent coupon in February. "Because of the improved fundamentals and a scarcity of Pakistani paper in the market, the issue was greatly oversubscribed," the report said.

"Budget execution is comfortably on track. The overall deficit (excluding grants) for the consolidated government was lower than programmed in the first nine months of 2003-04. Higher-than-targeted revenues reflected strong economic activity, front-loaded defence receipts (from the coalition against terrorism) and some timing factors," it said.