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Since Pakistan is still struggling from economic recovery, why did the IMF refuse further loans to a sovereign nation?

See the BBC's Pakistan IMF: Crucial bailout deal eludes negotiators:

Eleventh-hour negotiations between Pakistan and the International Monetary Fund (IMF) have failed to unlock $1.1bn in crucial funds aimed at preventing the country from going bankrupt.

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    To be clear, the question is asking why a creditor (which happens to be a political entity) refused further loans to a debtor (which also happens to be a political entity)? Even without context, I'm fairly certain the answer is credit worthiness.
    – uberhaxed
    Commented Feb 17, 2023 at 23:13
  • @uberhaxed That is one factor. Politics is another as many of these international financial institutions were also created to economically pressure weaker countries to kowtow to the wishes of the stronger powers. Sometimes the loan conditions included genuine reform conditions. Sometimes the conditions are an attack on a country's sovereignty.
    – sfxedit
    Commented Feb 22, 2023 at 16:06

2 Answers 2

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(Are you asking about the 2021 event in the article? Or, as I am assuming in this answer, are you interested in the current ongoing tug of war between the IMF and Pakistan, with the background of a possible default?)

The IMF and Pakistan have a long history:

In 2019, when economic conditions worsened, they went to IMF for the twenty-second time for a loan of US$1 billion.

2019 conditions were agreed to, but not implemented:

Khan, who was ousted last year in a no-confidence motion, negotiated a multibillion-dollar loan package from the IMF in 2019.

But he reneged on promises to cut subsidies and market interventions that had cushioned the cost-of-living crisis, causing the program to stall.

It is a common pattern in Pakistan, where most people live in rural poverty, with more than two dozen IMF deals brokered and then broken over the decades.

Currently the sticking points seem to be needing to cut subsidies and increase taxes.

The conditions set by the IMF include a return to a market-based exchange rate and higher fuel prices, measures that Pakistan recently implemented and that have already sent inflation to a record high - 27.5% year on year in January - and created shortages in some imported goods.

IIRC the tax base in Pakistan is very narrow - few pay income tax).

These figures highlight the failure of successive governments in reforming Pakistan’s regressive tax system which continues to place a tremendous burden on poorer households to meet the country’s growing fiscal needs. At the heart of the issue is elite capture of the state and vested interests have continued to overtly and covertly push back against efforts to reform the taxation system.

See also 2010 NYT article

And citing VOA (Feb 3, 2023) again:

An International Monetary Fund delegation landed in Pakistan on Tuesday for last-ditch talks to revive vital financial aid that has stalled for months.

The government has held out against tax rises and subsidy slashing demanded by the IMF, fearful of backlash ahead of elections due in October.

Tensions between the IMF and poorer countries regarding subsidies are a frequent occurrence. Things are not always super clear between subsidizing basic necessities to keep poor people from really bad hardships. And maintaining unsustainable payouts out of state budgets because of the unpopularity of bringing the cost of goods back up to regular world market rates (here's an example about Iranian fuel subsidies - probably not all that related to the IMF tho).

p.s. I wonder if one additional background factor no one alludes to is the 4% of GDP Pakistan is spending on defense - they are just very spendthrift trying to keep up with India. But I don't know if military budgets are usually interfered with - Greek spending vis a vis Turkey during the Greek financial crisis might give some insight.

p.p.s. some background on IMF, including criticism.

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  • As well as a common pattern in Pakistan, it is also a common pattern in IMF. They don't give loans for charity, they give loans because they expect to make more money back, hence why they demand higher prices. Commented Feb 17, 2023 at 22:11
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    @user253751 I get the sense the IMF is somewhat of a pathfinder loaner: they may not loan all that much, but if they don't do it, then other financial actors will steer clear out of loaning themselves because they would fear to lose their money. If the IMF suddenly greenlights bad prospects, that may make others more leery to loan money. Not all that sure here, that would be another question, but beware of unintended consequences. Commented Feb 17, 2023 at 22:17
  • @ItalianPhilosophers4Monica I am refereeing to current tug of war happening between IMF and Pakistan
    – Up-In-Air
    Commented Feb 18, 2023 at 12:55
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Pakistan is a part of China's "Belt and Road Initiative" (BRI). Modern global economy is largely a maritime economy with sea routes being the cheapest way to connect and trade with countries. The western economies dominate this sphere and hence why most of them have such large Naval armed forces. The Chinese BRI seeks to create a land-based global economy similar to how the old "silk road" trades made ancient China an economic powerhouse. Since this economic vision directly challenges American dominance on the global economy, they are very much opposed to it. As such, they are bent on making sure that any country that allies with China for the BRI fails economically so that the Chinese economic influence weakens globally. IMF is one of the institutions that the United States of America (and its western allies) often use in such kind of economic warfare.

During an April 2015 visit to Islamabad, Chinese President Xi Jinping and Pakistani Prime Minister Nawaz Sharif unveiled the $46 billion China-Pakistan Economic Corridor (CPEC), the Belt and Road Initiative’s (BRI) flagship project and its most ambitious undertaking in any single country... Pakistani Prime Minister Sharif called CPEC a “game changer,” and it did improve Pakistan’s infrastructure, reduce its blackouts, create tens of thousands of jobs, and boost economic growth. At the same time, CPEC was plagued by stalled projects, reports of corruption, and terrorist attacks. A Pakistani government committee concluded that Chinese contractors were overcharging Islamabad by $3 billion on two CPEC power plants, and reports emerged that Chinese investors were guaranteed large annual returns on their investments. Almost no commercial shipping calls at Gwadar, and the Lahore metro appears to be economically unviable.

... Although Pakistan’s economic woes preceded BRI, CPEC sparked a further rise in the country’s debt. The International Monetary Fund (IMF) warned that CPEC was contributing to a widening current-account deficit in Pakistan, as the country imported billions of dollars of materials for the projects. Pakistan soon experienced a balance-of-payments crisis and turned to the IMF for a three-year, $6.3 billion bailout. - The China-Pakistan Economic Corridor—Hard Reality Greets BRI’s Signature Initiative

Now, Pakistan is trying to do what India does - juggle its relationship with two allies that are foes while trying to derive maximum benefit for itself. Unfortunately for Pakistan, the US administration has suddenly decided China is a bigger threat to it than Russia. And Pakistan's growing closeness with China, and India's improved relationship with the USA means Pakistan is stuck economically between a rock and a hard place. Thus, a west (mostly Americans and the Brits) that has helped Pakistan a lot in the past with economic aid, is not in a very giving mood and thus Pakistan is having a tough time negotiating a good deal with the IMF without losing their economic sovereignty while trying not to upset the Chinese.

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  • You're probably getting downvotes because this is a heavily propagandized post. The quoted block doesn't support your statements. Actually, it counters some of what you're saying.
    – David S
    Commented Feb 21, 2023 at 23:29
  • @DavidS The source and cited text specifically highlights the point how BRI has lead PK to incur huge debt that is now forcing it to again turn to the west (IMF) for help. The IMF is a western agency known to squeeze concessions out of economically desperate countries in the guise of "reforms", especially if they have pissed of the US. This SE has a bias for western politics and alternate factual political views prevalent in the east are often not "popular" here. So sometimes people downvote just to disagree and that can't be helped. Specific feedback like yours do help me to improve posts.
    – sfxedit
    Commented Feb 22, 2023 at 8:42
  • @DavidS And I do improve my answers slowly over time, without regards to the votes it receives. But unfortunately that sometimes is counterproductive vis the voting system as those who are hellbent on downvoting get an opportunity to downvote again after any edit. I feel votes should be recorded only once and you should only be allowed to change it.
    – sfxedit
    Commented Feb 22, 2023 at 8:52
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    Save your edits for good changes then. Points I imagine are causing downvotes would be a lack of citation on the US bent on causing economic failure in Chinese allies. The IMF being engaged in economic warfare would need further support, or some wordsmithing to make it sound less aggressive. Further, there is a lot of talk about the US and China, but none of Pakistan's own mistakes in handling its finances. With that, this answer can be expanded upon to be less "propagandistic" with more fleshed out points that western audiences find offensive.
    – David S
    Commented Feb 22, 2023 at 15:45

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