The Washington-headquartered International Monetary Fund (IMF) has approved a $368m loan to Yemen, one of the Arab world’s poorest states.

The fund approved the three-year loan on 2 August, it said in a statement released on the same day. It is worth 243.5 million special drawing rights (SDR), a monetary unit based on a basket of four currencies: the dollar, euro, pound and yen, currently equivalent to $368m.

Under the terms of the loan, the IMF has made SDR34.79m, or $52.8m, available for Sanaa to use immediately. Other payments will be made after review of the country’s financial situation, to be held every six months.

The loan will be based on the IMF’s extended credit facility model, which carries a zero per cent interest rate and allows the government five and a half years before it needs to start making repayments. It will mature after ten years.

The IMF approved the loan to support Sanaa’s current three year economic development programme, which is focused on diversifying Yemen’s economy, restructuring government finances and the country’s tax system and attracting international investors.

The fund is also advising Yemen on the issue of a YR50-60bn sukuk, or Islamic bond.

The Finance Ministry had planned to issue the Islamic bond during the third quarter of the year, but undisclosed issues related to forming a team to oversee the bond issue have delayed plans until late 2010 or early 2011, bankers and government sources say.

Sanaa’s ability to pay for imports reached a new low in April as the riyal tumbled to a record low against the US dollar, leaving the country’s finances in an increasingly precarious position.

The country faces increasing cash problems as oil revenues, which made up around 76 per cent of government income in 2009, fail to balance out expenditure. The country’s spending deficit topped 10 per cent in 2009, according to the Washington-headquartered World Bank.

According to IMF, Yemeni government debt hit 45.9 per cent of the country’s $26.6bn gross domestic product (GDP) in the same year.