“Pakistan’s efforts need a much greater financial support from the international community,” Adnan Mazarei, the Fund’s Mission Chief to Pakistan, said.

He spoke to reporters following IMF’s approval last week’of a $1.2 billion tranche of $ 11.3 billion stand-by arrangement for Pakistan. The approval came as the Fund completed a review of the economic performance of Pakistan, marked by encouraging macro economic stabilization signs and structural tax reforms.

But IMF official claimed that Pakistan needs to cut some development and non-development spending and boost revenue collection. Mazarei said that uncertainties about the government’s financing needs are limiting the central bank’s ability to lower interest rates.

Pakistan, the second biggest South Asian economy, made some difficult decisions on tax reforms and considerably reduced inflation this year, while also continuing a high-stakes fight against Taliban and al Qaeda militants along the 1600-mile long porous Afghan border.

According to Finance Minister Shaukat Tarin, Pakistan’s ongoing fight against militancy is costing the country around $ 8.5 billion a year.

In the conference call, Mazarei particularly reminded the major economic powers of the need to step up realization of more than $ 5 billion pledges they made at Tokyo conference earlier this year.

“International donors need to disburse pledges they made to Pakistan in the April Tokyo Conference. They need to do so promptly because these disbursements are meant to finance much-needed investments in infrastructure, health, education (fields),” he stated.

Mazarei, who is Assistant Director in the Middle East and Central Asia Department at the Fund, noted while Pakistan still faces significant economic challenges, it has done pretty well by keeping things on track in various sectors of the economy – bolstering foreign exchange reserves and curbing inflation down to 10 percent from a high of 25 percent.

Mazarei said  “as inflation continues to decline, monetary policy could become more flexible and allow interest rates to come down further.”

IMF loan requires Pakistan to lower its budget deficit for the fiscal year ending June 2010 to 4.9% of GDP.

The government has to cut spending on some development projects that were meant to be financed by donor assistance, Mazarei said.