The International Monetary Fund is satisfied with the strong fiscal performance of Pakistan during the financial year ended on 31 March and its improving economic indicators.
After the December review, an additional IMF aid worth $1.1bn will be made available to the country.
"The IMF mission held productive discussions with government and central bank officials on Pakistan's economic performance under the EFF programme and is encouraged by the overall progress in strengthening macroeconomic stability and output growth," an IMF statement said.
The IMF has reached staff-level understandings with the authorities on a Memorandum of Economic and Financial Policies which, upon management's approval, will be considered by the IMF Executive Board in December to conclude the fourth and fifth reviews.
"Upon Board approval, SDR 720 million (about US$1.1 billion) will be made available to Pakistan," the IMF said.
The Fund said economic indicators are improving in Pakistan. It projects a GDP growth of 4.3% for the current fiscal year, sees inflation on a downward trajectory, and expects credit to the private sector expanding at a robust pace.
"The external current account deficit was somewhat higher than expected over the past two quarters, with lower goods exports and higher imports partially compensated by strong remittances performance."
The IMF said the rapid build-up of gross reserves which rose from $5.4bn at the end of March to $9.1bn by the end of June 2014 stalled thereafter due to delays in divestment and sukuk transactions and the effects of political uncertainty on capital flows.
"However, going forward, reserves are expected to surpass three months of imports by the end of FY 2014/2015."
According to the IMF, Pakistan's reform programme remains broadly on track.
The IMF said it was pleased that the government met the indicative targets on social transfers to the poor under the Benazir Income Support Programme (BISP).
The government's efforts to expand support to the poor through BISP to 4.8 million eligible families by the end of this year, is a welcome step, it said.
The IMF was encouraged by the strong fiscal performance achieved during the 2013/2014 fiscal year, and by the authorities' determination to further lower the deficit to 4.8% of GDP in the current fiscal year.
"Progress is being made in broadening the tax base by eliminating tax concessions and exemptions granted through Statutory Regulatory Orders (SROs), strengthening anti-money laundering legislation, and implementing tax administration reforms to enhance compliance and enforcement."
However, continued efforts are needed to improve the tax-to-GDP ratio and create resources to finance spending on investment and social development, while making the taxation system more efficient.
Central Banking, Competitiveness
The IMF said the State Bank of Pakistan (SBP), the central bank, remains committed to a prudent monetary policy stance to assure attainment of its inflation and reserves accumulation objectives.
"While legislation to enhance the SBP autonomy is still in parliament, internal reforms are under way to enhance the central bank's effectiveness. Banking sector performance remains strong due to improved earnings and solvency."
The IMF said it has urged Pakistan's authorities to deepen their structural reform agenda in order to improve the country's competitiveness in global markets.
"In the energy sector, declining world oil prices and the expected start of imports of liquefied natural gas provide an opportunity to improve energy supply and continue tariff reforms while containing price increases to consumers."
"High priority needs to be placed on enhancing governance and efficiency of energy firms, and in strengthening the capacity of regulatory bodies."