NICOSIA, Cyprus – The International Monetary Fund said Wednesday it will contribute 1 billion euros to an overall financial rescue package of 10 billion euros ($12.8 billion) for Cyprus.

IMF Managing Director Christine Lagarde said the contribution would be made via a three-year loan that’s expected to be cleared by the fund’s executive board in early May.

Earlier this week, the final terms of the Cyprus bailout were agreed between the small Mediterranean island nation and the European Union and the IMF, following a protracted crisis that saw the country’s banking sector shut down for the best part of two weeks.

Lagarde and Olli Rehn, the top monetary affairs official at the European Commission, the EU’s executive arm, said “significant challenges lie ahead for Cyprus” as the government sets in motion a multi-year program of reforms to rebuild its banking sector and austerity.

Apart from spending cuts and tax increases worth around 5 percent of Cyprus’ annual gross domestic product that have already been put in place, Lagarde said the country will need to do more. She said Cyprus will have to raise another 2 percent through measures such as a corporate tax rate hike from 10 to 12.5 percent, and the doubling of the interest rate tax to 30 percent.

The IMF chief said an additional 4.5 percent will be needed over the medium term if the country is to achieve a budget surplus worth 4 percent of its annual GDP by the target date of 2018. That surplus is needed to get the country’s debt “on a firmly downward path.”

“This is a challenging program that will require great efforts from the Cypriot population,” Lagarde said.

EU Commission spokesman Olivier Bailly said the bailout will need parliamentary approval from several of Cyprus’ euro partners by the end of this month so that the first batch of rescue money can reach Cyprus in May.