A recent report by Citigroup suggests Pakistan as the International Monetary Fund's (IMF) next big customer, according to a Newsweek report. At the same time, a senior IMF official asserted that the troubled South-Asian nation needed "substantial external financing" to stabilise its economy and rebuild fast-shrinking foreign currency reserves.

According to the magazine, the IMF had seemed on track to permanent downsizing earlier this year, because emerging-market growth had left it without a client base of economically poor nations. However, that might soon change.

The magazine quoted a recent report by Citigroup saying Pakistan could be the IMF's next big customer. According to the magazine, ''the bank sees a big risk of sovereign-debt default next year thanks to a weak rupee (a legacy of flawed economic policies) and higher energy prices''.

''The balance-of-payment situation in energy-dependent countries like Pakistan has deteriorated,'' Newsweek quoted Citi economist Mushtaq Khan as saying. ''Oil has softened, but even if prices stay where they are, Pakistan will run a large deficit,'' Khan said.

Pakistan's economy has been hard hit by soaring world prices for oil and food, which have cut the reserves to a six-year low and pushed the rupee down a fifth against the dollar this year alone.

According to the magazine, Khan noted that Pakistan needed IMF advice more than money. It said proposed loans from Saudi Arabia could stabilise the currency, but other investors ''would not bite until they see a plan for structural reform''.

Earlier, an IMF staff assessment of Pakistan's macroeconomic situation had called it fragile and vulnerable to a crisis.

According to the IMF experts responsible for the assessment, the external current account deficit for 2008-09 will be $14 billion or 7.7 per cent of the gross domestic product (GDP). With capital inflows of about $7 billion, the IMF estimated the external financing gap to be around $7 billion.

Real GDP growth is expected to slow further to about 4.5 to 5 percent in 2008-09, while average inflation is projected to increase to 16-17 percent owing in part to the expected pass-through of higher international food and energy prices.

However, IMF Director of the Middle East and Central Asia Department Mohsin Khan said Pakistan's five-month-old government was preparing its own strategy to steer the economy away from the rocks and had not requested a fund programme.

The IMF also recommended that a stronger effort is necessary to broaden the tax base by eliminating some tax exemptions. Interest rates should be allowed to rise as needed in order to lower inflation and ensure that the domestic financing of the deficit is covered entirely by commercial banks and non-bank sources.

The IMF noted that Pakistan has requested an oil facility from Saudi Arabia to defer the payment of oil imports of 110,000 barrels per day, which at current oil prices would amount to $5.9 billion annually. The terms and conditions of the deferment were on hold till the presidential election. A Finance Ministry official has said the Asian Development Bank (ADB) is also expected to $500 million from a $1.3 billion loan programme.

Pakistan was being bailed out by the IMF when Musharraf took over in a coup in 1999, and over the last six years it underwent a remarkable turnaround to become one of the world's fastest growing economies, albeit off a low base.

Between 1999 and early this year, the Karachi stock market's main index rose close to 1,000 per cent. But in 2007, as Musharraf's grip on power began to slip, the fiscal and balance of payments deficits deteriorated largely as a result of policy paralysis in the face of soaring world prices for oil and food.