ISLAMABAD - PAKISTAN has agreed to borrow US$7.6 billion (S$11.5 billion) from the International Monetary Fund in an effort to stabilise the economy of this strategically important US ally on the front lines of the battle against Al-Qaeda and the Taleban.

The government had been reluctant to go to the IMF but had little choice once even close allies - the United States, China and Saudi Arabia - snubbed its pleas for significant bilateral aid.

Pakistan's finance chief said Saturday that the IMF agreed to the bailout after endorsing plans to tackle the country's huge budget and trade deficits.

Opposition lawmakers fear the IMF will impose austerity measures that will hurt ordinary Pakistanis, two-thirds of whom live on US$2 dollar a day or less. But the IMF said the package included steps to protect the poor from cutbacks.

The loan will boost Pakistan's foreign currency reserves, which have seen a rapid decline that raised the prospect of a run on the local currency and a default on the country's foreign debt.

'We have fulfilled our commitment that Pakistan will never default' on its debt, Shaukat Tareen, finance adviser to Pakistan's prime minister, said at a news conference.

Pakistan is one of a number of countries including Hungary and Ukraine seeking IMF assistance in the wake of the global credit crunch.

However, nuclear-armed Pakistan's strategic importance on the front lines of the US-led war against terrorism makes its financial and political stability particularly critical for the international community.

Security concerns are currently focused on Peshawar, a strategically vital city on the edge of the wild tribal belt where militants stage attacks on US and Nato troops across the border in Afghanistan and increasingly are threatening the city itself.

In the past three days, unidentified gunmen have killed an American aid worker, abducted an Iranian diplomat and shot and wounded two foreign reporters in the city.

Pakistani leaders consider the anti-foreigner attacks retaliation for Pakistani military operations in the tribal areas, including one in the Bajur region said to have killed more than 1,600 people since August.

On Saturday, officials said militants fired a mortar shell into the village of Michni, just north of Peshawar, killing one soldier and wounding another, while police killed a suspected suicide bomber by firing a rocket at his explosives-filled car in the nearby Shabqadar area.

Pakistan's economy, which enjoyed years of fast-paced growth under former President Pervez Musharraf, is threatened by gross imbalances caused by the soaring costs of imported oil and food.

Tareen said Pakistan would apply formally for the emergency loan this coming week and an IMF statement said its board would consider the matter shortly.

With Pakistan's currency having fallen some 20 per cent since March, Tareen said Pakistan was hoping to receive a substantial first tranche from the fund before the end of the month.

He said the loan carries an interest rate of between 3.5 per cent and 4.5 per cent and that Pakistan would have five years to pay it back, starting in 2011 or 2012.

Pakistan is also hoping for direct economic assistance from a group of nations called the 'Friends of Democratic Pakistan.'

Senior officials from the group meet in Abu Dhabi on Tuesday. Pakistan is hoping oil-rich Saudi Arabia will supply it with fuel on deferred payment, while countries including Germany have said they are willing to boost development aid.

The IMF said other multinational donors were expected to extend further support. -- AP