KARACHI - The International Monetary Fund said Friday that Pakistan's key economic indicators were showing modest improvement but warned militancy and crime could threaten growth and investment.
The IMF warning came in its country report reviewing Pakistan's performance under a US$6.7 billion (S$8.44 billion) bailout loan package.
The Pakistani government is in talks with the country's Taliban faction to try to end the militants' bloody seven-year insurgency, which has claimed thousands of lives.
"For the fiscal year 2014-15, growth is forecast to accelerate to about 3.7 per cent, and will continue to accelerate in the medium term," the report said.
"Security conditions in Pakistan remain difficult with significant terrorist activity, as well as sectarian violence and urban criminal activity, which could depress investment and growth."
The peace talks were a key campaign pledge for Prime Minister Nawaz Sharif before he was elected to office for a third time last year, but have so far made little progress.
As well as the Taliban threat, Pakistan is also facing a rising tide of sectarian bloodshed mainly targeting minority Shiite Muslims, and rampant criminal violence in the economic capital Karachi.
The report was prepared after the IMF team met the Pakistani finance minister and other officials in Dubai last month to discuss the economic performance, approval and release of the $550 million third instalment of the loan.
The meeting was held outside Pakistan because of security worries, the fund said.
The central State Bank of Pakistan spokesman Friday confirmed that $550 million had been transferred from the IMF to bring foreign exchange reserves $9.1 billion.
The Washington-based lender also pointed to rising inflation in the current fiscal year.
"Inflation is projected to hover around 10 per cent in the remainder of this fiscal year before easing to around 5-7 per cent in future years," it said.
Delays in implementing key reforms to address energy challenges, improve the business climate, broaden the tax base and improve tax administration, could also damage economic prospects, the report said.