WASHINGTON, Oct 16: The international community has agreed to provide $4 billion that Pakistan needs to avoid bankruptcy, but in return Islamabad will have to undertake a series of painful economic reforms. US and diplomatic sources in Washington told Dawn that Pakistan had started negotiating various arrangements with international financial institutions and friendly nations soon after it realised that it might have to default on its payments if not helped.

The United States played a key supporting role in these negotiations, remaining engaged with the Pakistani Embassy in Washington.

“There was a real panic in the Pakistani camp,” said a US official familiar with the talks. “Last month, Pakistani diplomats made 10 visits to the (US) Treasury.”

The negotiations were finalised during Financial Adviser Shaukat Tareen’s visit to Washington to attend annual meetings of the World Bank Group.

During these talks, the World Bank, Asian Development Bank, Islamic Development Bank and other IFIs discussed various plans for providing short-to medium-term support to Pakistan.

During the current financial year, the World Bank will provide $1.4 billion. If Pakistan’s programmes are approved, its IDA share will also be front-loaded. This includes a total $3 billion of international development assistance over three years, from 2008-2011.

The Asian Development Bank is negotiating assistance of another billion dollars. The Islamic Development Bank is negotiating a proposal to raise its trade facility from $500 million to one billion.

This brings the total pledges to about four billion dollars.

Pakistan is also negotiating further assistance with the Friends of Pakistan group, formed in New York last year to help rescue Pakistan from the current financial crisis. The group meets in Abu Dhabi next month.

“All we can get,” said a Pakistani diplomat familiar with the negotiations when asked what Pakistan expected to get from the group.

“We are certain that the financing gap of four to $4.5 billion will be bridged,” he said. “It will ease pressure on foreign exchange reserves and foreign exchange rate.”

Besides the four billion dollars already pledged, a separate amount of $900 million of US assistance is in the pipeline during the current US financial year, which starts on Oct 1.

However, to qualify for this generous international assistance, Pakistan has pledged to undertake a series of painful but necessary economic reforms.

During its negotiations with the World Bank and other IFIs, Pakistan pledged to reduce its fiscal deficit from 7.7 per cent of the GDP last year to 4.3 per cent of the GDP this year.

Pakistan agreed to reform its tax policy and tax administration with the aim to mobilize additional revenue. The tax to GDP ratio is to be reduced to 15 percent of the GDP over the next five to seven years. Pakistan promised to tighten monetary policy as and when needed.

Pakistan also pledged to reduce State Bank borrowing.