Flood: IMF announces $450M loan for Pakistan

ISLAMABAD, (Financial Updates): The International Monetary Fund (IMF), on Thursday, announced for providing $450 million new emergency to Pakistan to help the country cope with the economic impact of massive floods, said in a statement pasted on the Fund.

“This natural disaster will have an important effect on the country’s economy. It has caused serious damage to the country’s infrastructure, severely impacted its economic outlook, and resulted in a worsening of the fiscal situation,” said IMF Managing Director Dominique Strauss-Kahn. “In response to this, I will ask the IMF Board to approve $450 million in emergency assistance to be made available this month.”

The emergency financing, which is subject to approval by the IMF’s Executive Board, would be provided under the IMF’s policy for Emergency Natural Disaster Assistance. The funds are expected to be disbursed later this month.

A Pakistani delegation, led by Finance Minister Abdul Hafeez Shaikh, met with IMF staff and management in Washington during the past week to discuss the disaster’s implications for the country’s budget and longer-term growth targets. The IMF says it will continue to support Pakistan’s economy under the $11 billion loan program that was initially agreed in November 2008.

“Our dialogue with Pakistan on the current Stand-By Arrangement is progressing and the authorities have expressed their intention to implement measures for the completion of the fifth review of the program later this year. We will stay in close contact as these efforts proceed. Completion of the fifth review will allow the Fund to disburse an additional $1.7 billion, bringing total IMF disbursements (including emergency assistance) to $2.2 billion in the second half of 2010,” Strauss-Kahn said.

Given the disaster’s impact, however, some of the parameters of the existing program may need to be changed, according to Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department.

“The economic impact is going to be very significant,” Ahmed said, noting in particular the floods’ devastating effect on agriculture. “The floods will lower growth and will affect the government’s budget because they will have to spend more and they’ll be able to raise less revenue. And Pakistan will have massive reconstruction costs down the road running into the billions of dollars.”