The loan, which will also boost Pakistan's foreign exchange reserves, will be made under the extended fund facility, the IMF said on its website. The announcement was made at a news conference in Islamabad by Jeffrey Franks, who led an IMF mission during the long negotiations. He was joined by Pakistani Finance Minister Ishaq Dar.
The loan must still gain approval by the IMF board of executive directors, which is expected in September.
In a statement, Franks said Pakistan faces a challenging economic outlook, compounded by an uncertain global and regional environment. He said macroeconomic imbalances have combined with longstanding structural problems, particularly in the energy sector, to sap the country's growth potential.
He said growth "has only averaged 3 percent over the past few years, well below that needed to provide jobs for the rising labor force and to reduce poverty" and that falling capital inflows have been insufficient to finance "even a modest current account deficit, leading to large reduction in international reserves."
Franks said a determined effort is required to improve medium-term growth and move toward sustainable fiscal and external positions.
The Financial Times said the agreement comes when Pakistan's foreign currency reserves have dropped to about $6 billion, just enough to finance less than six weeks of imports.
The country also has been wracked by years of Taliban and separatist violence.
The Times said it would be up to the Sharif government to ensure financial discipline required under the IMF loan program. The report quoted analysts that without such discipline, the economy will only become more unstable.
Notable deaths of 2014 [PHOTOS]