Pakistan and the International Monetary Fund have agreed to continue talks on a deal, delaying the disbursement of US$1.1 billion in funding critical to keeping the South Asian economy afloat.

Finance ministry officials and the IMF both said the talks, which began late last week and were due to end on Thursday, did not result in a "board discussion", a meeting that would lead to the release of the funds which are part of a US$6.5 billion bailout that Pakistan signed in 2019.

The tranche was initially expected to be paid out last December.

"Virtual discussions will continue in the coming days," IMF Pakistan Mission Chief Nathan Porter said in a statement, adding that considerable progress had been made.

Pakistan's Secretary of Finance Hamed Sheikh had told Reuters late on Thursday that the IMF had asked for more time "for staff-level negotiations". To release the funds, the IMF needs to reach a staff-level agreement with Pakistan, which then needs to be approved by the IMF's head office in Washington.

The money is necessary to prevent Pakistan from defaulting on external payment obligations, and an IMF deal paves the way for other organisations and governments to provide funds, analysts say.

The fiscal adjustments demanded by any deal, however, are likely to fuel record high inflation, which hit 27.5 percent year-on-year in January.

Finance Minister Ishaq Dar is due to speak to the media later on Friday. In addition to the stalled tranche, US$1.4 billion remain of the US$6.5 billion bailout programme, which is due to end in June.

The IMF funding is crucial for the country's US$350 billion economy, which is facing a balance-of-payments crisis with foreign exchange reserves dipping to less than three weeks of import cover. Last week, Prime Minister Shahbaz Sharif called Pakistan's economic situation "unimaginable." (Reuters)