As the Pakistan government is struggling to fix the country's crumbling economy, a drop in it's demand for exports and uncertainty about remittances pose a risk to its external outlook, the IMF said.
"While the external current account deficit has started to narrow and inflation has declined, the drop in the demand for exports and uncertainty regarding the prospects for workers' remittances pose risks to the external outlook," the IMF said in a statement.
IMF has welcomed the recently held international donor's conference in Tokyo to raise funds for Pakistan and said that this would provide scope for counter-cyclical policy.
Mobilisation of this support is crucial to support growth and higher social, development, and security expenditure, it said.
"The authorities and the IMF team agreed that the Tokyo package should be regarded as a bridge toward the stronger medium-term revenue effort," it said.
An IMF team led by Adnan Mazarei met in Dubai [ Images ] recently to initiate discussions on the second review for Pakistan's $7.6 billion stand-by arrangement approved by the executive board of the IMF in November last year.
The IMF said that slowing economy, additional donor support, and the need to protect priority expenditures calls for a relaxation of the fiscal deficit target for 2009-10.
This relaxation would provide fiscal space to absorb additional donor support, boost growth, and increase social, development, and security spending, including for internally displaced persons, it said.