WASHINGTON, Sept 4: The executive board of the International Monetary Fund approved on Wednesday a three-year, $6.68 billion arrangement under the Extended Fund Facility for Pakistan.

The IMF announced in Washington that the amount was equivalent to 435 per cent of Pakistan’s quota and aimed at supporting the country’s economic reform programme to promote inclusive growth.

The loan approval enables an initial disbursement by the IMF of about $540 million while the remaining amount will be evenly disbursed over the duration of the programme.

The disbursements will, however, be subject to the completion of quarterly reviews by IMF experts.

The IMF also points out that alongside the financial support, there is an urgent need to mobilise additional donor support to strengthen Pakistan’s resilience to potential shocks, help finance the expanded social safety net, and allow for higher spending on development programmes. “The Fund stands ready to participate in any donor meeting to provide the economic and financial analysis that could underpin expanded support,” the announcement said.

“Despite the challenges it faces, Pakistan is a country with abundant potential, given its geographical location and its rich human and natural resources,” the IMF observed.

The government’s economic reform programme “is expected to help the economy rebound, forestall a balance of payments crisis and rebuild reserves”, it added.

The fund also noted that the programme would help “reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth”.

The IMF hoped that the government would adhere to its reform programme as the “adherence … is also expected to catalyse the mobilisation of resources from other donors”.

It said the 23-month standby loan would enable the government to implement a stabilisation programme envisaging a significant tightening of fiscal and monetary policies to bring down inflation and reduce the external current account deficit to more sustainable levels.

It noted that the government’s programme sought to address current macroeconomic imbalances while protecting the poor and preserving social stability in the country.

“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.

“The government’s programme 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 fund noted that Pakistani authorities had already taken some difficult steps to achieve these objectives: energy subsidies had been cut and the interest rate had been increased to tighten monetary policy.

Under a subtitle, “Implementation key to success,” the IMF warned that success of the programme could be affected by a number of risks. They arise from security and implementation uncertainties, a more severe-than-anticipated slowdown in economic activity in trading partners, and lower-than-expected private capital inflows.