Pakistan's economic reform programme will stay on track, the new civilian government has promised the International Monetary Fund (IMF).

We have begun to think of Pakistan as a country of promise and a country of potentially high rate of growth George Abed, IMF

"We believe in continuity of reforms, because if we stay on course we will get higher growth," said a close adviser to Prime Minister Mir Zarafullah Kan Jamali.

In return, Pakistan could soon receive $115m (�71.4m) - part of a $1.31bn IMF loan to reduce poverty. The money began to flow two years ago.

Abed says Pakistan is on the right track

George Abed, the IMF's new Middle East director and in charge of its Pakistani operations, said he was "very pleased with the record of Pakistan in the past three years of continued macroeconomic and financial stabilisation".

He added: "We have begun to think of Pakistan as a country of promise and a country of potentially high rate of growth."

Taking stock

Mr Abed's visit to Pakistan is the first by the IMF since the military handed power back to a civilian government two months ago.

Listing Pakistan's achievements over the past three years, Mr Abed said inflation had been brought under control and interest rates had been cut, while a falling budget deficit and rising foreign exchange reserves were now at a "comfortable level".

Economic stability has boosted the Karachi Stock Exchange

Inflation is currently running at 3.6% a month, lending rates stand at 11%, and central bank reserves have jumped from $600m in 1999 to $9.4bn this month.

The government has also said that it will meet this year's target for a 4.6% budget deficit.

Not everyone agrees, though. Last Friday the Asian Development Bank warned that while tax revenues were on track, government spending was rising too fast.

This could make it "difficult to achieve the fiscal deficit target".

Question mark over meddling

The IMF had supported the military government of General Musharraf with a massive loan programme, but had tied further payments to the direction the economic policy of the new civilian government would take.

In February the IMF will decide whether to keep the money flowing, and the recommendations in Mr Abed's report will be the key factor in making the decision.

However, Mr Abed expressed concern about a recent intervention by the Prime Minister who, in December, cut electricity prices without first consulting the country's energy regulator.

Mr Abed said he was sure the role of the regulators would be strengthened.

Middle East worries

Pakistan's economic recovery, however, could be hit by a war against Iraq, Mr Abed warned.

Military action in the Gulf would trigger inflation, push up the price of oil and hit tourism in the region, said Mr Abed.

"War is not good, and we hope it can be avoided."

The Pakistani government, for its part ,says it has drawn up economic contingency plans to cope with a crisis.

The measures include maintaining an emergency oil reserve.