Washington: The International Monetary Fund urged Pakistan to take further steps to curb inflation and buffer the economic shocks of higher oil prices.

After a mission to Pakistan that ended yesterday the IMF reported "constructive" talks with government and central bank officials on measures to restore economic stability and structural reforms to bolster public finances and the financial sector.

"Significant fiscal consolidation will be needed in (fiscal) 2011-2012 in order to reduce inflation and ensure debt sustainability. The lower budget deficit would also help manage the impact of higher oil prices on the economy," Adnan Mazarei, head of the mission, said in a statement.

Pakistan's fiscal year begins on July 1.

The IMF in November 2008 approved a rescue package for Pakistan as the country struggled to cope with bloody attacks by Islamic radicals, 30-year-high inflation and fast-depleting reserves.

The original 23-month loan of about USD 7.61 billion was extended to December 30, 2010 and its value increased.

In December the IMF executive board approved a nine-month extension of Pakistan's loan package through September 30, 2011.

Mazarei said that Pakistan's budget deficit and "quasi-fiscal operations" had fuelled looser monetary conditions, adding to inflationary pressures.

To help to counter those pressures, the IMF official said that the government should further reduce borrowing from the central bank.