IMF issues stern financial warning to Pakistan 

WASHINGTON: The International Monetary Fund (IMF) issued a stern warning to Pakistan to take steps to cut its spiraling budget deficit, a top US financial daily reported.

In an official letter to the Government of Pakistan, the IMF warned that the state of the nation's economy is far worse than previously realized and urged immediate fiscal belt-tightening measures, according to newspaper.

The IMF withheld $3.5 billion in 2010 from its total $11.3 billion loan package for Pakistan in a bid to pressure the country to take action.

Pakistan's budget deficit is already 6%, above a 4% target, due to failure to bring in a general sales tax and curb expenditures, which are promises made by Pakistan to the IMF in return for lending.

Pakistan also needs to do more to strengthen the independence of its central bank, the IMF says.

Analysts said further delay in the implementation on tax reform could lead to an even larger deficit.