Pakistan's new agreement with the International Monetary Fund over a $7.6 billion loan may lead to more help from other donors

NEW DELHI -- Pakistan's new agreement with the International Monetary Fund over a $7.6 billion loan may lead to more help from other donors and is expected, at least for now, to stave off economic collapse in the South Asian nation.

Pakistani President Asif Ali Zardari, right, meets with Saudi Arabia's King Abdullah Bin Abdelaziz at the United Nations in New York last week.
But the IMF's package falls well short of the $10 billion to $15 billion that Pakistani officials have said they need over the next two years to fix the economy. Some of that shortfall will be made up by loans from the World Bank and the Asian Development Bank. Islamabad hopes the rest will come from the so-called Friends of Democratic Pakistan, a group of allies such as the U.S., China, European powers and Saudi Arabia that is holding a meeting Monday.

Pakistani and IMF officials said Saturday that the international lending agency had reached a deal for a financial stabilization package and that Islamabad would make a formal request this week.

The IMF will deliver $4 billion -- the amount Pakistan has said it needs immediately to avoid defaulting -- this year, with the rest to be disbursed in 2009, Shaukat Tarin, an economic adviser to Pakistan's prime minister, told reporters in Karachi. The annual interest rate on the IMF program will run between 3.51% and 4.51%, and Pakistan will start repaying the money in 2011, Mr. Tarin said.


"The outlook for next six months will get better from the present crisis-like situation," said Samiullah Tariq, head of research at Investcapital, a brokerage based in Karachi, Pakistan's financial center.

The IMF loan is likely to boost confidence among donors and investors, but it is nonetheless a major reversal for the new government of President Asif Ali Zardari. Officials had repeatedly insisted the IMF was a last resort and were banking on allies in the West and Asia for a rescue, figuring no one wanted to see an all-out economic collapse in a country at the front line of the war against the Taliban and al Qaeda, said a finance ministry official.

In recent days, however, it became "clear that without the IMF, no one was going to give us the sums we need," the official said. Most of Pakistan's allies had either publicly or privately pressed Pakistan to seek IMF assistance, and only China had offered any money prior to Saturday's announcement. Pakistani officials have said that Beijing agreed to give a $500 million loan.

The Friends of Democratic Pakistan are holding a meeting of midlevel technical officials in Abu Dhabi on Monday, and "maybe after the meeting there should be some news," said Ashfaque Hassan Khan, a finance ministry official, in a telephone interview from Islamabad.

Following Saturday's announcement, the IMF urged major donors to offer Pakistan additional financing, and a Western diplomat in Islamabad on Sunday praised Pakistan's turn to the IMF, saying: "It should lead to more help." But the diplomat wouldn't say if any firm commitments had been made.

Even if Pakistan gets all the money it needs, it faces a tough economic road. Inflation is running at around 25%, its stock market is down about 35% since the start of the year, the rupee has plunged against the dollar and Pakistan currently has only enough hard cash on hand to cover about two months of imports.