The International Monetary Fund (IMF) said its executive board approved a nine-month extension of Pakistan's loan to give authorities time to finish the reforms.

The loan program was scheduled to end this year, but will now run through September 30, 2011, the IMF said.

"The extension will provide time to the Pakistani authorities to complete the reform of the general sales tax, implement measures to correct the course of fiscal policy and amend the legislative framework for the financial sector," the fund said in a statement.

The RGST, which is supposed to replace the current general sales tax, was originally scheduled for implementation in July, but has been delayed several times since. Even its latest implementation date, January 1, now seems unlikely.

The delays will squeeze revenue while Pakistan's spending surges in the aftermath of floods that have caused almost USD 10 billion worth in damage.

The floods, which began in late July, rolled from north to south in an unprecedented tide of destruction, destroying or damaging more than 1.7 million homes, official figures show.

The revenue shortfall could push the budget deficit above 7% of gross domestic product (GDP), analysts estimate, compared with the 4.7% target agreed with the IMF for fiscal year 2010-11.

"The rising fiscal deficit is squarely against one of the main covenants of the agreement with the IMF, which is likely to delay future tranches," said Asad Iqbal, chief investment officer at Faysal Asset Management.

"If the IMF loses confidence in the government's ability to manage this deficit, funding from other foreign institutions is also likely to dry up, resulting in severe consequences for the country."