IMF staff and the government agreed on the reform package on Nov 15, passing it to the executive board for approval. -- PHOTO: REUTERS
WASHINGTON - PAKISTAN won final approval for an emergency US$7.6 billion (S$11.5 billion) International Monetary Fund loan on Monday to steady the finances of this strategically vital country amid a global credit crunch.
'The Pakistani economy was buffeted by large shocks ... including adverse security developments, higher oil and food import prices, and the global financial turmoil,' IMF Deputy Managing Director Takatoshi Kato said in a statement.
Pakistan will immediately access US$3.1 billion under the 23-month facility, with the rest phased in subject to quarterly review, the fund said.
The international community fear an economic meltdown in nuclear-armed Pakistan could fan popular support for Al-Qaeda and other militant Islamist groups. US officials says Al-Qaeda and Taliban fighters have attacked Afghanistan from bases along Pakistan's remote western borderlands.
The board's approval sanctions a decision earlier this month by the IMF to help Pakistan stave off a balance of payments crisis and work toward a broader economic revival.
IMF staff and the government agreed on the reform package on Nov 15, passing it to the executive board for approval.
The programme has twin goals: to steady the economy and restore confidence by tightening macroeconomic policy, and to ensure social stability and support for the poor and vulnerable in Pakistan, the fund said.
The fund said that Pakistan would aggressively trim its fiscal deficit, halt central bank finance of government spending and curb the country's current account deficit.
Specifically, the fiscal deficit will be trimmed to 4.2 per cent of GDP in 2008/2009 and 3.3 per cent in 2009/2010, compared with 7.4 per cent in the fiscal year to June 2008.
Pakistan and the World Bank will create 'a comprehensive and effectively targeted social safety net' with existing social programmes boosted in the meantime, the IMF said.
'To this end, spending on the social safety net will be increased by 0.6 percentage point of GDP, to 0.9 per cent of GDP in 2008/2009,' the Fund said.
In addition, the IMF plan envisages tighter monetary policy to control inflation. The State Bank of Pakistan recently raised interest rates 200 basis points to 15 per cent and 'stands ready to further tighten monetary conditions as needed', the fund said.
'The authorities' programme requires forceful and sustained implementation to succeed. By providing large financial support to Pakistan, the IMF is sending a strong signal to the donor community about the country's improved macroeconomic prospects,' Mr Kato said. -- REUTERS
