IMF board approves $6.7 billion loan for Pakistan
05 September, 2013
ISLAMABAD: The International Monetary Fund (IMF) has approved a $6.68 billion three-year fresh loan for Pakistan under the Extended Fund Facility (EFF).
The Executive Board of the IMF approved the loan, which is 425 percent of Pakistan's quota, during its meeting in Washington. It aims to support the country's economic reform programme to promote inclusive growth. According to IMF official statement, the Executive Board's approval enables an initial disbursement by the IMF of about $540 million, and the remaining amount will be evenly disbursed over the duration of the programme, subject to the completion of quarterly reviews.
IMF Executive Board observed during its meeting that despite the challenges it faces, Pakistan is a country with abundant potential, given its geographical location and its rich human and natural resources. The programme is expected to help the economy rebound, forestall a balance of payments crisis and rebuild reserves, reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth. Adherence to the programme is also expected to catalyse the mobilisation of resources from other donors, it concluded.
The newly elected government had approached the IMF for fresh loan programme for easing out its alarming balance of payment situation and had sought $7.3 billion or up to 500% of its official quota as loan facility. However, IMF Executive Board has approved $6.7 billion EFF loan facility for Pakistan for a three-year period. Pakistan will get $540 million immediately, and the rest will be disbursed after regular reviews of the programme, the Fund said.
The IMF aid is an Extended Fund Facility, a type of assistance aimed at helping a country that faces serious balance-of-payments problems because of structural weakness that require time to address. The repayment period for an EFF loan is between 4.5 and 10 years. The EFF is aimed at reducing Pakistan's fiscal deficit – which neared nine percent of gross domestic product last year – to a more sustainable level and reform the energy sector to help resolve severe power cuts that have sapped growth potential.
The country's daunting array of problems range from an energy sector crippled by $5 billion of debt to dwindling foreign exchange reserves and a sinking currency, all the while facing down a Taliban insurgency. In July, Pakistan asked the IMF for at least $5.3 billion in funds as foreign reserves sank to a dangerously low level.