I.M.F. and Pakistan Agree to $5.3 Billion Bailout

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LONDON -- The International Monetary Fund and Pakistan reached a provisional agreement on Thursday on a $5.3 billion bailout package that aims to bolster Pakistan's flagging economy and its perilously low foreign exchange reserves.

The rescue package is expected to soothe Western fears about the state of Pakistan's economy, which has slumped in recent years amid unrelenting Taliban violence and deeply rooted corruption that have shaken investor confidence. The I.M.F. package also would provide a tangible lift for the newly elected prime minister, Nawaz Sharif, who has already become bogged down by a seemingly intractable energy crisis.

The I.M.F. has an unhappy history with Pakistanis, some of whom are likely to see the package negatively. The last government failed to meet the terms of the last I.M.F. package six years ago, and the country is still struggling to repay billions of dollars of that debt.

Moreover, Mr. Sharif's government is ideologically hostile toward international financial assistance, and campaigned before the election on a platform of economic autonomy. But, analysts say, his administration had little choice but to accept Thursday's deal.

The $5.3 billion package will be used in part to service the existing I.M.F. debt, but also to create confidence in the economy and alleviate the severe energy crisis, which has seen crippling electricity cuts across the country, even in the capital, Islamabad, in recent months.

"It was a necessary thing," said Sakib Sherani, an economist who advised the last government. "Everyone's been on tenterhooks about the balance of payments crisis, and a possible run on the rupee. At least this will provide some stability so the new government can work on implementing its own agenda."

At a news conference on Thursday evening, Jeffrey Franks, head of the visiting I.M.F. mission to Pakistan, said the package included provisions for a reduction in Pakistan's budget deficit -- which almost hit 9 percent of gross domestic product last year -- and comprehensive energy sector reform.

Power shortages have been sapping Pakistan's economic growth potential, Mr. Franks said, and the bailout aims to put the energy sector on more stable footing.

The $5.3 billion loan is subject to approval by the I.M.F. executive board, which is scheduled to meet in early September. If the loan proceeds, it will carry an interest rate of about 3 percent and be disbursed over three years, Mr. Franks said.

Ishaq Dar, the Pakistani finance minister, denied that his government had reneged on its election pledges of economic independence.

"We are entering into a new program for the good of the country," he said. "A better tomorrow dawns only when requisite pains are borne today."

The I.M.F. loan is unlikely to be used to directly finance the oil imports needed to get Pakistan's power stations working at normal capacity, said Mr. Sherani, the economist. But it may provide a confidence boost among other international institutions that, in turn, would help finance oil imports.

Mr. Franks, the I.M.F. official, acknowledged Pakistan's failure to repay previous loans from his institution. But Mr. Sharif's government will not be pushed for the sins of its predecessors, he added.

"We're not going to turn a country down because previous governments did not do what they had promised to do," he said.

Declan Walsh reported from London, and Salman Masood from Islamabad, Pakistan.

world

This article originally appeared in The New York Times.


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