KARACHI: Pakistan has reached an agreement with the International Monetary Fund for a $7.6 billion bailout package, the prime minister’s adviser on finance announced on Saturday.

The IMF programme will be for 23 months, or seven quarters.

Shaukat Tarin, holding a joint press conference with State Bank Governor Dr Shamshad Akhtar, said: “The minimum amount is five times our quota, which comes to $7.6 billion, and the interest rate will vary from 3.51 per cent to 4.51 per cent.”

The government will send a letter of intent to the IMF next week and the first tranche is expected to be released in one month.

“The IMF has changed its attitude and has accepted our proposals without much change. This is the first time that the Fund has adopted our (Pakistan’s) own programme,” Mr Tarin said.

Mr Tarin said Pakistan might not cut its development expenditure because it had enough liquidity — Rs700-Rs800 billion. The amount included Rs 300 billion to Rs 400 billion carried over from the preceding fiscal.

Mr Tarin told the news conference that Pakistan would receive four billion dollars this year as part of the 23-month deal.

“The interest rate on the IMF programme will be 3.51 to 4.51 per cent,” he said, adding Pakistan would repay the loan over five years starting from 2011.

“The impact of the financial crisis in the world and the difficulties we faced at home impacted gravely, particularly to our foreign exchange reserves which were 16.4 billion dollars in Oct 2007 and now are less than seven billion dollars,” Mr Tarin said.

In reply to a question, he said that a further increase in interest rate depended on core inflation. “If core inflation keeps going up, an increase can be expected next year.”

The adviser said the State Bank had increased the policy discount rate by 550 basis points over the past few months.

“Inflation is the biggest problem. It may push us into hyper inflation that devastated countries like Brazil and Argentina,” he said, adding that tightening of the monetary policy was a must to control inflation.

At present the CPI inflation is 25 per cent and the core inflation 18.3 per cent.

Mr Tarin said the government was committed to zero borrowing so as to keep fiscal deficit at 4.3 per cent of GDP, compared to 7.4 per cent last year.

He said the IMF would not object to government borrowing from the central bank during July-September, but the borrowing since October should be zero.

Tightening of the monetary policy means lower supply of credit to the market, which will ultimately slow down the economic growth.

“The measures we have taken will hurt the economy, but to what extent will be clear after the second quarter’s report,” the adviser added.

The SBP governor said the first quarter (July-Sept) report reflected the impact of monetary steps and the production data showed some shortfall.

Dr Akhtar said the global economic slowdown would also affect Pakistan, adding that the IMF had projected a slowdown ranging between 200 and 300 per cent.

In reply to a question, Mr Tarin said: “Friends of Pakistan are willing to give us a helping hand, but they want us to get our programme endorsed by the IMF.”

About the Saudi oil facility, he said he would hold a meeting next month with Saudi officials to assess the situation.

Mr Tarin said that the rupee was artificially kept strong from 2004 to 2007 and oil payment bills had been completely shifted to the State Bank.

He said profit rates on national saving schemes would be revised.

About US aid, he said: “We need access to US and EU markets. We need monetary help but the market access is much more important.”

He said Pakistan had the lowest tax-to-GDP ratio in the region. “We have planned to raise the ratio from the current 9.6 per cent to 15 per cent of GDP over five to seven years.”

About the Rs35-billion Benazir Income Support Programme, Mr Tarin said the government would double the amount to strengthen the social safety net.