Why the IMF is not giving loan to Pakistan?

Over the last six months, the government of Pakistan has exerted considerable effort to secure an agreement with the International Monetary Fund (IMF) to acquire a loan worth $1.2 billion. As part of the negotiations, the IMF has mandated various measures, including the elimination of subsidies and an increase in oil and power prices, which the government has dutifully implemented. Additionally, the IMF has demanded sovereign guarantees from other nations, which Pakistan has also provided. Despite these earnest efforts, the IMF has yet to finalize the loan agreement, leaving Pakistan's financial situation in a state of panic. The pertinent query that arises is: notwithstanding the government's compliance in augmenting inflation, phasing out subsidies, hiking oil and power prices, and providing sovereign guarantees, why is the IMF reluctant to grant the loan to Pakistan?

Several factors may be contributing to the IMF's reluctance to grant the loan to Pakistan. One possible reason is that the IMF claims the previous loan agreement made with the government of Imran Khan was violated when his tenure was put to an end by a vote of no confidence in April last year and replaced by the PDM alliance headed by PM Shahbaz Sharif. Consequently, the IMF may be hesitant to consider Pakistan's loan request keeping in view the past track record of loan agreement.

Secondly, the IMF is closely monitoring of the country's political landscape. The IMF is well aware that the current government's tenure is set to end in August, and general elections are scheduled for October or November. The Fund may be uncertain whether the current ruling government will remain in power, given the current popularity of Imran Khan. As a former prime minister and a possible candidate for PM in the upcoming election, Khan has a history of trust deficit with the IMF due to his government's violation of the previous loan agreement. This could also be a contributing factor to the IMF's reluctance to release the loan.

The denial of the loan request on seemingly trivial grounds may not be the only hindrance to concluding the agreement. There exists a significant factor impeding progress, wherein the International Monetary Fund (IMF) may be opposed to the completion of the China-Pakistan Economic Corridor (CPEC) project, and instead urging the country to push back on it. In a report published by the IMF in September of the previous year, it was stated that China constitutes 30% of Pakistan's foreign debt, and the country should request China to restructure the debt instead of going to the Fund. Subsequently, some members of the Pakistani media echoed the sentiment, opining that China should assist Pakistan. It was observed that China extended a $2 billion loan to Pakistan in response to the report's publication.

Although the International Monetary Fund (IMF) claims to maintain impartiality and depoliticization when interacting with all governments, regardless of their international stature, its actions may suggest otherwise. For instance, Ukraine, which currently faces a conflict with Russia, recently secured a $15.6 billion Extended Fund Facility (EFF) agreement from the IMF. However, it remains unclear whether Ukraine will overcome the ongoing conflict and would be able to repay the loan. On the other hand, Pakistan, which is not involved in any war, presents a more stable and secure position in terms of loan repayment, while it keeps on imploring for only $1.2 billion. This observation leads to the conclusion that the IMF may exhibit political bias, with the United States as the most prominent influencer as having the most contribution towards it.

The actions of the International Monetary Fund (IMF) suggest that the United States, which holds a significant influence in the organization, does not desire the success of the China-Pakistan Economic Corridor (CPEC). This is due to the ongoing Cold War between China and the US, and the US's reluctance to allow China to connect with other countries through the Belt and Road Initiative (BRI), of which CPEC is a landmark project. If CPEC proves successful, it could motivate other countries in Europe, Africa, and the Middle East to become part of the BRI, which is not in line with US interests. Additionally, the US expects China to bear the burden if Pakistan's economy defaults, rather than the US itself. Hence, the recent IMF report on Pakistan's economic situation appeared at a critical juncture, implying that the US is using the IMF as a means of pressuring Pakistan to discontinue the CPEC project and halt Chinese investment. However, the current government remains resolute in its commitment to the continue the project, recognizing it as the sole means of reviving the country's economy.

To sum up, the IMF is postponing the provision of a relief package to Pakistan primarily because the US desires Pakistan to scale back the CPEC project, and if not, to limit the project's progress so that if Pakistan suffers any economic falter, the burden should fall on China. Additionally, the US aims to reduce Chinese influence in Pakistan and impede the advancement of the Belt and Road Initiative.