Pakistan Reader# 513, 13 January 2023
Avishka Ashok
On 12 January, Dawn reported that the Pakistan government would be rolling out 90 per cent of the USD 10 billion in project loans over a period of three years. At the International Conference on Climate Resilient Pakistan in Geneva, private donors and 40 countries pitched USD 10 billion for the recovery. Prime Minister Shehbaz Sharif announced that the funds would be used only for bringing relief and rehabilitating the victims of the flash floods that hit Pakistan in 2022. Finance Minister Ishaq Dar referred to the collected funds and said, “Almost 90 per cent of pledges made by the international community at the donors’ conference in Geneva for flood-hit Pakistan were project loans that will be rolled out over the next three years.”
What were the contributions at the conference?
The conference was jointly hosted by Pakistan and the United Nations and aimed at seeking resistance for the rehabilitation of flood-hit people. The Islamic Development Bank funded the largest amount of USD 4.2 billion. Along with the IDB, the World Bank, ADB, AIIB, and the EU also contributed immensely towards the cause. Prime Minister Sharif claimed that the pledges from the friendly countries reflect the respect shown towards Pakistan and the confidence in the country’s ability to rise above the financial irregularities. PM Sharif reinforced the confidence in the government and promised that the funds would be used transparently and the accounts would be audited by a third party. He further assured the international community that the government would use every penny of the pledges.
How will the funds be used?
The Pakistani government will now work towards designing and creating feasibility to quickly materialize the pledges. At a press conference, Finance Minister Dar revealed that USD 8.7 billion of the pledges were project loans. However, the type of loans and the terms of repayment were not revealed. Nonetheless, project loans are associated with long-term financing for infrastructural and industrial development and is repaid through the project's cash flows. Essentially, the money will reach the grassroots level only when the projects’ plans are rolled out in finality. According to the head of equity research at Ismail Iqbal Securities, “In the current context, most of the pledges without the ninth review of the IMF are close to meaningless.” It is therefore unlikely that these funds would bring Pakistan out of the liquidity crisis.
There is another school of thought that believes that the government successfully presented its case, acquired funds and will be able to navigate out of the forex crisis as well. According to the President of the Forex Association of Pakistan Malik Bostan, the inflows from the Geneva conference will be able to control the market volatility and stabilize the exchange rate.
References
“Geneva aid pledges will be in shape of ‘project loans’,” Dawn, 12 January 2023
“Almost 90pc of Geneva pledges are project loans, Dar reveals,” Dawn, 11 January 2023
“Explainer: The money pledged at Geneva will not help forex crisis,” Pakistan Today, 11 January 2023
“Market expects Geneva pledges to help ease pressure on foreign exchange reserves,” Business Recorder, 10 January 2023
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