The IMF said recent reforms, including cutting costly subsidies, privatising some loss-making state companies and building up foreign reserves, had strengthened Pakistan's economy and set it on a path to higher growth.

Pakistan's economic position has improved sharply since it came close to default in 2013, but the IMF warned "a number of challenges in the fiscal, external, and energy sectors could affect hard-won stability gains in the period ahead".

Boosted by a $6.7 billion bailout package, it has completed an IMF reform programme and set in motion $57 billion worth of infrastructure projects connected to the Beijing-funded China-Pakistan Economic Corridor (CPEC) project.

But the IMF said in a statement after a meeting with Pakistan government officials in Dubai, that "slower-than-expected growth of large-scale manufacturing and stagnant exports are weighing on growth prospects".

Despite some recent improvements, chronic power shortages, still leave major Pakistani cities without electricity for hours every day.

The country has also struggled to cut its yawning trade deficit.

The IMF is currently forecasting 5 percent economic growth for the year to June 2017 but says this could improve to 6 percent in the medium term with CPEC-related investments, improved energy supplies and continued reforms.

The IMF said the government would have to take steps to make up for lower-than-expected revenues in the first half of the year and cut the budget deficit further next year.

Pakistan, the IMF noted, would also need to achieve greater exchange rate flexibility and improve the business climate.

It would also have to boost productivity in the export sector to fill a widening trade deficit and absorb capital outflows.