The IMF executive board authorized a three-year loan, making an initial disbursement of $540 million available to the Pakistani authorities.
The remaining amount will be evenly paid out over the duration of the program, subject to the completion of quarterly reviews, the Washington-based global lender said.
Adherence to the program would likely encourage financial support from other donors, it added.
“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 said.
“The authorities’ program is expected to help the economy rebound, forestall a balance of payments crisis and rebuild reserves, reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth.”
The IMF aid is an Extended Fund Facility, a type of assistance aimed at helping a country that faces serious balance-of-payments problems because of structural weakness that require time to address.
The repayment period for an EFF loan is between 4.5 and 10 years.
The EFF is aimed at reducing Pakistan’s fiscal deficit — which neared nine percent of gross domestic product last year — to a more sustainable level and reform the energy sector to help resolve severe power cuts that have sapped growth potential.
The country’s daunting array of problems range from an energy sector crippled by $5 billion of debt to dwindling foreign exchange reserves and a sinking currency, all the while facing down a Taliban insurgency.
In July, Pakistan asked the IMF for at least $5.3 billion in funds as foreign reserves sank to a dangerously low level.
The request came just weeks after the new government of Prime Minister Nawaz Sharif’s Pakistan Muslim League-N party was sworn into office after May elections that marked the country’s first democratic transition of power.
The nuclear-armed state abandoned a $11.3 billion IMF loan program in 2011 after refusing to carry out strict financial reforms three years into the program.
The country is paying off the loan but still owes the IMF around $4 billion.
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