The International Monetary Fund (IMF) has approved a $1.8 billion loan to Greece but says Athens can receive the loan only if it gets debt relief from its European creditors.
The announcement was made by the IMF board on Thursday. It praised Greece for taking steps to reduce its budget deficits, including expanding its tax base and cutting spending on pensions.
However, it said it wanted to pressure Greece's European lenders to provide enough relief to ensure the country can pay its bills.
If an agreement on debt relief is reached, the IMF will join the lenders in an ongoing bailout, AP reported.
The approval came just in time for Athens to avert a default on a seven-billion euro debt payment.
It is also believed to help keep pressure on Europe to deliver debt relief and prevents Athens from raising fresh cash in the markets anytime soon.
The Greek economy nearly collapsed in 2010 under a mountain of debt. Eurozone partners, however, bailed out Athens to prevent it from bringing down the single currency bloc.
AP further quoted IMF managing director Christine Lagarde as saying that she expected "a plan to restore debt sustainability to be agreed soon between Greece and its European partners."
Greece’s creditors -- the IMF and European lenders – had been stuck in disagreements about how the country should be assisted on its path to financial recovery.
The IMF argues that Greece’s debt should be lightened if the Europeans wanted the New York-based fund to contribute to a next bailout program, which is slated to start after 2018.
Greece’s European lenders had so far ruled out any debt write-off for Greece although it said an extension in repayment periods or reducing the interest rates on loans is possible if the country manages to fulfill its commitments at the end of the current bailout, which expires next year.
The group, led by Germany and the Netherlands, insisted that there would be no other bailout without the participation of the IMF. It also said the IMF was too optimistic in its forecast about Greece’s economic recovery.