IMF approves Pakistan loan package

Final approval for a $7.6bn loan is given with the first installment of $3.1bn transferred immediately.

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ISLAMABAD // Pakistan has won final approval for a US$7.6 billion (Dh27.9bn) loan from the International Monetary Fund (IMF) to help stave off possible economic meltdown. The IMF said a first installment of $3.1bn will be transferred immediately.

The IMF said the Pakistani economy had been badly hit by the worsening security situation, higher oil and food import prices and the global financial and credit crisis. "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," the IMF acting chairman Takatoshi Kato said in a statement released after the decision yesterday in Washington, where the fund is based.

Pakistan's young government had been reluctant to go to the IMF but had little choice after close allies - the United States, China and Saudi Arabia - turned down pleas for significant bilateral aid. In mid-November, the IMF announced it had reached a preliminary agreement on the deal. Opposition and nationalist lawmakers have criticised the government for turning to the fund, saying the IMF will impose austerity measures that will hurt ordinary Pakistanis, two-thirds of whom live on $2 a day or less.

"This IMF loan the government is getting is in fact poison, and the nation has been forced to drink it," Javed Hashmi, a senior figure in the main opposition party, told reporters. But many Pakistani economists and commentators argue that the country had no choice but to turn to the IMF. They say it is now critical that the money is well spent - always a worry in corruption-prone and chaotic Pakistan.

The IMF said in return for the money, Pakistan had agreed to phase out energy subsidies, boost taxes and implement other money saving reforms. It said the World Bank would put in place a "comprehensive" social security net to shield the poor from any cuts. The loan will immediately boost Pakistan's foreign currency reserves, which have seen a rapid decline that has led to the value of the rupee falling some 20 per cent since March, and enable it to pay off foreign-denominated debt due to mature soon.

The country is also wracked by power cuts, while the costs of essential goods are soaring and the stock market has plummeted amid waving investor confidence. Pakistan is one of a number of countries including Hungary and Ukraine seeking IMF assistance in the wake of the global credit crunch. *AP