ISLAMABAD, Aug 2: The International Monetary Fund has acknowledged that inflation in Pakistan has begun to decline but feels that the process needs to be accelerated.

"Hopefully tightening of the monetary policy by the central bank will help further reduce the inflationary pressures in the country," IMF senior resident representative in Pakistan Henri R. Lorie told Dawn on Wednesday.

He disclosed that a senior-level IMF mission would arrive in Pakistan in the third week of August to discuss inflation and other issues, including trade and fiscal deficits, revenue collection, privatisation, investment and exports, under article IV of the institution's annual consultation programme.

He said Fund officials were encouraged by the new monetary policy stance issued by the State Bank which would help the government achieve its 6.5 per cent inflation target set for the current financial year.

The IMF local chief said the monetary policy statement issued by the central bank was a timely action in order to restrict undue monetary expansion. "The rise in the discount rate will contain credit growth and will result in higher market interest rates," he added.

Mr Lorie also said the State Bank's new policy statement would also contribute in limiting trade deficit and at the same time it would reduce liquidity available in the banking system. "And ultimately it is bound to reduce inflationary pressures."

He did not see any significant adverse impact on growth or reforms being implemented by the government. Investment, he pointed out, was picking up and the outlook for future growth was positive.

Responding to a question, he said investment would take place, irrespective of higher interest rates and some containment of domestic credit demand. The external balance, which was compounded by higher oil prices, was expected to be adjusted, he believed.

Mr Lorie said further that growth momentum was still there and the seven per cent GDP growth target set for 2006-07 was achievable. However, he said it was important to keep fiscal deficit under control and that the government needed to mobilize more revenues by further tightening tax administration.

"Ongoing reforms have started bearing fruits," he said, adding that tax-to-GDP ratio, nevertheless, needed to be improved as it will help finance development expenditure and improve critical sectors like education and infrastructure development.

In reply to another question, Mr Lorie said the annulment of Pakistan Steel deal would not make much difference for promoting investment. "We think the privatisation programme will continue to further improve investment climate and there will be further picking up of foreign direct investment", he added. “The steel mill issue is not going to fundamentally affect the privatisation policy which is to further disinvest state-owned enterprises.”

Mr Lorie said much had been done by the government to improve the investment climate, especially by taking a lot of liberalisation measures. But he said there was a need to get rid of red tap and provide easy licensing to facilitate the investors.

When asked about the government's claim of 10 percentage point reduction in poverty, Mr Lorie said: “There is no doubt that the poverty has declined during the past two-three years." The impact of higher growth rate, he said, had helped alleviate poverty in Pakistan.However, he said there were challenges like widening trade deficit and therefore the current account deficit. He was of the view that consumption growth was a significant factor that contributed to widening of trade deficit which required to be brought down.