Pakistan Gets $7.6 Billion Loan from IMF

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The IMF's Executive Board has approved a $7.6 billion loan for Pakistan to support its program to stabilize and rebuild the economy while expanding its social safety net to protect the poor.

The 23-month Stand-By Arrangement will enable the government to implement a stabilization program that envisages a significant tightening of fiscal and monetary policies to bring down inflation and reduce the external current account deficit to more sustainable levels. The program seeks to address current macroeconomic imbalances while protecting the poor and preserving social stability in the South Asian country of 170 million people.

"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 Deputy Managing Director Takatoshi Kato.

Pakistan's economic program

"The government's program has two objectives: first, to restore overall economic stability and confidence through a tightening of macroeconomic policies, and second, to do so in a manner that ensures social stability and adequate support for the poor during the adjustment process," said Juan Carlos Di Tata, the IMF mission chief to Pakistan.

The Pakistan authorities have already taken steps to achieve these objectives: energy subsidies have been cut and the interest rate has been increased to tighten monetary policy. The authorities' program for the coming 24 months envisages a number of additional steps:

The fiscal deficit, excluding grants, will be brought down from 7.4 percent of GDP in 2007/08 (starting July 1) to a more manageable 4.2 percent in 2008/09 and 3.3 percent in 2009/10-in line with what it was three years ago. This fiscal adjustment will be primarily achieved by phasing out energy subsidies and strengthening revenue mobilization through tax policy and administration measures.

The reduction in expenditures will create room to increase spending on the social safety net.

The State Bank of Pakistan (SBP) will act on monetary policy to build its international reserves, bring down inflation to 6 percent in 2010, and eliminate central bank financing of the government.

The program includes measures to improve monetary management and enhance the SBP's bank resolution capacity, and avoid the use of public resources to support the stock market.

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