Muslim Majorities Development: Corruption, Debt and Foreign Lenders

Summary

Lebanon, Egypt, Tunisia and Pakistan face spiralling debt, strict IMF lending conditions and entrenched elite corruption that squeeze public services and the poor, sources report.

What it argues

1. Lebanon's elite capture

   Political and business elites divided Lebanon's public and private sectors to extract rent, Carnegie's Lydia Assouad writes. A proposed WhatsApp call tax triggered 2019 protests rooted in anger at corruption; the 2020 Beirut port blast further exposed official negligence. Lebanon's political system is described as built to serve a narrow elite rather than the public.

2. War and a new government

   Israel's 2024 offensive degraded Hezbollah's capacity to support its base in Beirut's southern suburbs, the south and the Bekaa Valley, Al Jazeera reports. A new Lebanese government under President Joseph Aoun and PM Nawaf Salam has renewed hopes for reform, though deep structural problems remain. War losses and a new government leave Lebanon's political trajectory uncertain.

3. Lebanon's monetary collapse

   The Lebanese pound lost more than 98 percent of its pre-crisis value by 2023, with inflation averaging 171 percent in 2022, the World Bank reports. A dollarized cash economy reached nearly half of GDP, undermining fiscal and monetary policy and enabling tax evasion. Ad-hoc crisis management has normalised collapse rather than produced recovery, the World Bank says.

4. Egypt's IMF rollercoaster

   Egypt missed 2023 IMF loan targets on reserves and exchange-rate flexibility, with debt nearing 93-97 percent of GDP, Carnegie's Yezid Sayigh reports. Egypt signed an expanded $8bn IMF deal in 2024 after floating its pound; by 2025 it was the IMF's third-largest debtor at roughly $9bn, Al Jazeera reports. Egypt's debt and dependence on IMF lending have deepened even as deals are renegotiated.

5. Tunisia and Pakistan's debt traps

   Tunisia rejected IMF proposals, lost access to international capital markets, and saw private credit crowded out by state borrowing, Carnegie reports. Pakistan secured its 25th IMF programme in 2024, a $7bn loan, against $90bn in debt repayments due over three years, Al Jazeera reports. Both countries remain locked between unaffordable reform and unsustainable borrowing.

6. Corruption and weak oversight

   Lebanon's elite used sectarian institutions to extract rent across virtually all economic activity, Carnegie reports. Cartels and burdensome regulation fostered corruption in Tunisia; the IMF has pushed Egypt for transparency, including over military-linked business. Weak legal accountability is identified as a structural driver of the region's debt crises.

7. Conditional lending's demands

   IMF conditions for Lebanon and Egypt require transparency, reduced tax evasion and cuts to subsidies benefiting the wealthy, sources report. Carnegie recommends Lebanon adopt progressive income and wealth taxes to fund relief and rebuild state capacity. Lenders and analysts link accountability reform directly to any resolution of the debt crises.

8. Poverty and social strain

   Lebanon's poverty rate surpassed 60 percent by end-2020 and suicides linked to insolvency surged, while nearly 30 percent of Egyptians live in poverty, Carnegie and Al Jazeera report. Pakistani economists warn that stabilisation must not come at the cost of the poor, urging expanded social protection. Economic adjustment and crisis alike have fallen hardest on the poorest households.