Finance Minister Shawkat Aziz said on Tuesday under the agreement Pakistan would repay $200 million to the US, which would save it about $400 million-$500 million in interest payments over the period of the loan. 

The rest of the money would mainly be used to improve health and education in Pakistan, he told a news conference. 

Pakistan's foreign debt and liabilities total $35 billion, of which $33 billion is debt. 

Framework

Aziz said Pakistan and the US had also agreed on a framework of how to utilise another $3 billion promised by the US over the next five years. 

"The theme of this programme will be investment, growth and human development. These, we have agreed, will be the focus of five-year engagement with the United States," Aziz said. 

Pakistan won financial incentives from the US and its allies for its support in the US-led "war on terror", especially against the Taliban and al-Qaida network, after the 11 September 2001 attacks on the US. 

The $3 billion package was announced by President George Bush at Camp David in a meeting with Pakistan's President Pervez Musharraf in June last year.

According to the agreement, $600 million will be disbursed each year. Half of the amount will be for defence equipment purchases by Pakistan and the other half for economic development.