Pakistan, IMF agree on $5.3 billion bailout deal

ISLAMABAD - The Associated Press

Pakistan has taken a major step toward averting an economic crisis, reaching an initial deal with the International Monetary Fund on a bailout of at least $5.3 billion to help shore up the country’s rapidly diminishing foreign reserves.

The announcement on July 4 should help calm fears of financial instability in Pakistan, a nuclear-armed nation of 180 million people that is also grappling with rampant violence by Islamic militants. But the deal mandates economic reforms that may be unpopular with Pakistanis.

Pakistan is a vital ally of the United States, the most powerful member of the IMF, which relies on Islamabad’s help to fight Taliban and al-Qaida militants and negotiate peace in neighboring Afghanistan. Analysts predicted U.S. pressure would be key to sealing a deal.

New deal after 6 years

The agreement comes less than six years after Pakistan’s last IMF bailout, and the driving need for the money this time was to repay the institution nearly $5 billion that Islamabad still owes.

Pakistan’s previous government failed to implement many of the requirements of the last loan, including reducing the deficit and improving tax collection, and ended the program early. That left the new government, which took over at the beginning of June, with the difficult task of convincing the IMF that this time would be different.

The IMF mission director in Pakistan, Jeffrey Franks, acknowledged Islamabad’s checkered history, but said the institution would not punish the country for the failure of its predecessors. The $5.3 billion loan will be disbursed over a three-year period and will have an interest rate of roughly three percent, said Franks. It will be repaid over 10 years after an initial grace period of four years, he said.