IMF sanctions $7.6 billion loan for Pakistan

Islamabad: Pakistan won final approval for a $7.6 billion loan from the International Monetary Fund to help save the country's ailing economy from a meltdown.

The IMF said a first installment of $3.1 billion will be transferred immediately to the nuclear-armed country, which is battling surging violence by Taliban and Al Qaida-linked militants.

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, the IMF said.

"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," said IMF acting Chairman Takatoshi Kato in a statement released after the decision on Monday in Washington, where the fund is based.

The State Bank of Pakistan, which this month raised its benchmark interest rate to 15 per cent from 13 per cent, has committed as part of the aid to “further tighten monetary policy as needed,'' the statement said.

In return for the money Pakistan has agreed to phase out energy subsidies, boost taxes and implement other money saving reforms.

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.

The loan will immediately boost Pakistan's foreign currency reserves, which have seen a rapid decline that has seen the value of the rupee fall some 20 percent since March, and enable it to pay off foreign-denominated debt due to mature soon.

President Asif Ali Zardari, facing pressure from the U.S. to step up the fight against Taliban and al-Qaeda insurgents along the border with Afghanistan, needs IMF financing to prop up Pakistan's ailing economy.

The nation's foreign-exchange reserves have shrunk 75 per cent in 12 months to $3.45 billion and economic growth is forecast to slump to a seven-year low.

Pakistan's rupee gained 0.44 per cent against the dollar to a seven-week high of 78.70, as of 11:15am in Karachi. The currency has declined as much as 26 per cent this year.