Pakistan won final approval Tuesday for a $7.6 billion loan from the International Monetary Fund to help the front-line state in the campaign against Islamist terrorism stave off possible economic meltdown.
The IMF said a first installment of $3.1 billion will be transferred immediately to the nuclear-armed country, which is battling surging violence by Taliban and al-Qaida-linked militants and is increasingly seen in the West as key to stabilizing neighboring Afghanistan.
The IMF said the Pakistani economy had been badly hit by the worsening security situation, higher oil and food import prices and the global financial and credit crisis.
"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 acting Chairman Takatoshi Kato in a statement released after the decision Monday in Washington, where the fund is based.
Pakistan's young government had been reluctant to go to the IMF but had little choice after close allies — the United States, China and Saudi Arabia — turned down pleas for significant bilateral aid.
Pakistan confirmed the IMF had agreed to the loan two weeks ago.
Opposition lawmakers have criticized the government for turning to the fund, saying the IMF will impose austerity measures that will hurt ordinary Pakistanis, two-thirds of whom live on $2 dollar a day or less.
The IMF said in return for the money Pakistan had agreed to phase out energy subsidies, boost taxes and implement other money saving reforms. It said the World Bank would put in place a "comprehensive" social security net to shield the poor from any cuts.
The loan will immediately boost Pakistan's foreign currency reserves, which have seen a rapid decline that has seen the value of the rupee fall some 20 percent since March, and enable it to pay off foreign-denominated debt due to mature soon.
The country is also wracked by power cuts, the costs of essential goods are soaring and the stock market has plummeted amid wavering investor confidence.
Pakistan is one of a number of countries including Hungary and Ukraine that has sought IMF assistance in the wake of the global credit crunch. However, its strategic importance in the U.S.-led war against terrorism makes its financial and political stability particularly critical for the international community.
U.S. officials say that militants sheltering in its lawless northwest are behind much of the violence in Afghanistan, where a resurgent Taliban threaten the success of the U.S.-led mission there seven years after the invasion.
They also say that al-Qaida's leadership — including Osama bin Laden — has managed to regroup in the region, and is possibly plotting attacks on the West.
Pakistan's army is batting militants in several parts of the northwest, but some Western analysts and officials suspect elements within the security forces of sympathizing with the extremists.
Government forces killed at least 15 militants in fighting Monday in the Swat valley, which was a popular tourist destination before militant violence spread there last year, the army said.
In a separate operation, a military official said troops had made progress in securing Peshawar just outside the tribal belt, a strategic city where there has been a spate of attacks on foreigners recently. About 25 suspected militants were killed over two weeks around Peshawar, which sits on a key supply route for Western troops in Afghanistan, he said.