World Bank, Pakistan in talks on funding package

The World Bank is in talks with Pakistan on a broad economic package that could include government-agreed reforms and financing by the bank to stabilize the economy, a bank official said on Wednesday.

Rob Floyd, the World Bank's program manager for Pakistan, denied media reports that the development lender had approved a $500 million emergency loan for Pakistan, which like other developing countries faces budget constraints due to soaring fuel and food prices.

"The World Bank has been in discussions with Pakistan on a stabilization package that may include reforms from their side and financing from ours, but we have not come to closure on that," Floyd told Reuters.

He said discussions had been under way for several months.

Media reports said the $500 million was agreed in talks between the World Bank and Pakistan's Finance Minister Naveed Qamar in Islamabad on July 14, and would be considered by the bank's board in August. The loan would help restore confidence in Pakistan following months of political turmoil.

New civilian government of Pakistan is under pressure to deal with slowing economic growth, inflation that is running at over 20 percent, exchange rate instability, and dwindling currency reserves.

Faced with a dire situation, the new government is banking on budget support from foreign and multilateral lenders to help it cope.

Decision-making in Pakistan was paralyzed during the last months of Musharraf's government, and during a caretaker administration that held the reins until the new civilian government was formed after an election in February.

Prime Minister of Pakistan Yousuf Raza Gilani said on July 1 the government wouldn't flinch from unpopular measures to put the economy on sounder footing, including raising gas prices and phasing out subsidies entirely.