Pakistan has won final approval for a US$7.6 billion loan from the IMF to help the frontline state in the campaign against Islamist terrorism stave off possible economic meltdown.
The IMF said a first installment of US$3.1 billion will be transferred immediately to the nuclear-armed country, which is battling surging violence by Taliban and al-Qaeda-linked militants and is increasingly seen in the West as key to stabilizing neighboring Afghanistan.
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,” IMF acting chairman Takatoshi Kato said in a statement released after the decision Monday 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 US, China and Saudi Arabia — turned down pleas for significant bilateral aid.
In the middle of this month, the IMF announced it had reached a preliminary agreement on the deal.
Opposition and nationalist lawmakers have criticized 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 US$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.
In an interview earlier this month, Pakistani President Asif Ali Zardari said the loan was “a difficult pill, but one has to take medicine to get better.”
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 percent since March, and enable it to pay of 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.
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