The UK has been forced to provide a £10 million emergency bail-out to the corruption-hit Turks and Caicos Islands (TCI), Parliament has been told.
International Development Secretary Andrew Mitchell said the short-term loan would be used to pay the salaries of police, medics and teachers in the British overseas territory.
Mr Mitchell told MPs the financial crisis in the islands meant immediate UK support was needed. The £10 million loan will be followed by a package of financial support agreed with commercial banks.
Britain assumed day-to-day control of the islands last year after the local government was suspended amid allegations of corruption by senior politicians and officials. The interim government consists of the TCI's Governor Gordon Wetherell supported by an advisory council and consultative forum.
In a written statement, Mr Mitchell said: "The financial situation in TCI has worsened to the point where it was not possible for its government to meet its June financial commitments, including payment of public sector salaries.
"Without immediate UK support, TCI would fall further into economic crisis," said Mr Mitchell. "Following discussions with the Foreign and Commonwealth Office I have decided to provide a temporary package of financial support.
"This support is conditional on the TCI government strengthening its capacity and systems to manage its public finances and balancing its budget within the next three years."
Full details of the package have yet to be confirmed but Mr Mitchell said the cost to the UK would be "at or near zero ... over the medium-term".
The £10 million loan was agreed last week "to help meet unavoidable commitments including staff salaries for the police, health and education services" and will be repaid once the support package is in place.
The islands' former premier Michael Misick resigned in March last year and, along with other senior officials, continues to deny accusations of corruption. A commission led by former Lord Justice of Appeal Sir Robin Auld found "clear signs of political amorality and immaturity and of general administrative incompetence" on TCI.