The International Monetary Fund has praised Pakistan for stabilising its economy, despite being badly affected by the global slowdown following the September 11 attacks.

An IMF report said growth in Pakistan reached 3.6% in the 12 months to June this year, while inflation remains subdued.

But the report added that this rate of economic expansion was still too low to allow Pakistan to reduce poverty rapidly, and higher spending on education and health was needed.

The high level of public debt was also criticised and underlined as a key barrier to increased investment.

Long term fears

The IMF said that Pakistan needed to improve its tax collection, and achieve a better financial performance from public enterprises in order to bring the debt down.

"Directors viewed Pakistan's near-term economic outlook as broadly encouraging," the report concluded.

But the praise was followed by a warning that downside risks remain if the reform efforts are not sustained over a sufficiently long period of time.

Pakistan's economic growth has been hindered by high oil prices, protracted drought, trade disruption in the aftermath of 11 September and regional security problems.