Washington: The International Monetary Fund on Friday said it had approved an additional $3.2 billion loan to Pakistan after the country asked for more help to weather the global economic crisis.
The IMF said the extra funds for the loan program to Pakistan would “help the country address increased balance of payment needs” and increase the total loan to $11.3 billion.
The IMF executive board also approved an extension of the loan to the end of 2010, an additional three months, and the payment of a third installment of the loan of $1.2 billion, the multilateral institution said in a statement.
Four billion dollars had already been disbursed from the $7.6 billion Stand-By Arrangement agreed in November to bolster the South Asian nation amid the worst global contraction since the Great Depression.
Pakistan approached the IMF last year for a rescue package as it grappled with a 30-year high inflation rate and fast-depleting reserves that were barely enough to cover nine weeks of import bills.
The board decisions were made after IMF completed its second review of the country’s progress in addressing its heightened balance of payments needs.
“The macroeconomic outlook for 2009-10 remains difficult, and the external position is subject to considerable downside risks,” said Murilo Portugal, IMF deputy managing director.
The extra IMF aid “will help mitigate these risks and enable the implementation of the government’s fiscal program; however, this financing is temporary and should be used as a bridge until the revenue reforms bear fruit.”
The board also agreed that part of the additional funding “could be used to finance priority spending until the disbursements of donor support pledged for 2009-10 are received.”
IMF mission chief to Pakistan, Adnan Mazarei, told reporters in a conference call that the funds would help the government build the social safety net and provide assistance to internally displaced persons in the violence-riddled country.
Mazarei said the funds were intended as “bridge financing” until the Friends of Pakistan donors honor their pledges from a Tokyo meeting in April, which he said was roughly $5.7 billion over two to three years.
“Here I must stress that because IMF financing for the budget is temporary, it is very critical that donors deliver their pledged support without any delay,” he added.
The IMF said the board had approved Pakistan’s request for waivers for failing to meet certain criteria, including a budget deficit that is 0.9% of economic output and continued weakness in banking supervision and tax policy.
“Pakistan’s economy has continued to stabilize,” Portugal said.
He welcomed Pakistan’s progress in reforms in the financial sector and the foreign exchange market and in strengthening the social safety net.
“These achievements are appreciable, considering the security developments that resulted among others in the large number of internally displaced persons, the global economic recession, and the difficult domestic political environment,” Portugal said.