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UPUDATE 1-ADB says approves $500 mln loan to Pakistan

Reuters - Wednesday, October 1

ISLAMABAD, Sept 30 - The Asian Development Bank approved a $500 million loan on Tuesday to help Pakistan address the impact of high fuel and food prices on its people and the economy, the bank said.

"Addressing the impact of fuel and food price increases unleashes immediate benefits to Pakistan's people and to markets," Juan Miranda, director general of the ADB's Central and West Asia Department, said in a statement.

High food and fuel prices have pushed Pakistan's inflation up to more than 25 percent, as the country struggles with a widening current account and fiscal deficits and falling foreign exchange reserves.

A government adviser said on Monday Pakistan faced a total financing gap of $7 billion to cover a projected current account deficit of $14 billion in the 2008/09 financial year, and urgently needed $3 billion-$4 billion to stablise the economy and boost reserves.

Pakistan has prepared a plan to stablise its economy and Miranda said the bank's financing was within the context of that stabilisation programme.

"We are one of several parties contributing to the financing of this plan; others will follow with their own financing and programmes," he said.

Analysts say Pakistan hopes to bridge the gap with a Saudi oil facility, about $2.5 billion from multilateral lenders and $1.5 billion in U.S. aid.

Fresh inflows will help bolster Pakistan's dwindling foreign exchange reserves, which the central bank said had fallen to $8.82 billion in the week that ended on Sept. 20 from a record high of $16.5 billion in October last year.

The current account deficit widened to $2.572 billion in July and August, which is equivalent to about 1.6 percent of gross domestic product, and compares with a full-year target of 6.0 percent of GDP.

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