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Pakistan

Experts react as Pakistan manages to secure pledges of over $8.5bn in Geneva

  • During first plenary alone, Pakistan saw commitments of over the targeted amount
Published January 9, 2023

Market experts expressed their delight after the government managed to successfully secure pledges of over $8.5 billion during the first plenary of the International Conference on Climate Resilient Pakistan in Geneva on Monday.

In a massively positive development, the chairman of the Islamic Development Bank (IsDB) Group, Muhammad Al Jasser, on Monday pledged $4.2 billion for flood rehabilitation and reconstruction in Pakistan.

In addition, the World Bank also committed $2 billion for the purpose while USAID pledged $100 million. Moreover, Japan committed $77 million and Germany committed €84 million.

Asian Development Bank (ADB) Vice President Shixin Chen stated that his organisation will “prioritise up to $1 billion”. The European Union (EU) announced over €500 million in pledges.

The development comes at a time when Pakistan is reeling from economic distress amid fast-depleting foreign exchange reserves, weakening rupee, and worsening macroeconomic indicators. Devastating floods last year also added to economic woes, as inflation hit multi-decades high, and shows little signs of respite.

“This is a positive development for the economy,” Tahir Abbas, Head of Research at Arif Habib Limited (AHL), told Business Recorder. “It is highly likely that the pledges announced would be as loans and grants,” he said.

The analyst added that the development would reduce pressure on the current account and reduce funding gaps required for external financing.

“The government now needs to resume the International Monetary Fund (IMF) programme, which is essential for unlocking funds from other bilateral and multilateral lenders,” he said.

Experts said the IMF programme, which remains stalled, is crucial for the country. “If this is also achieved, it would boost investor confidence, which was marred by uncertainty,” said Abbas.

Similar sentiments were echoed by Mustafa Pasha, Chief Investment Officer at Lakson Investments, who called it a “definitely positive development”.

“From the sentiment perspective, it is very good as the country saw its foreign exchange reserves deplete in recent months,” said Pasha.

Foreign exchange reserves held by the State Bank of Pakistan (SBP) declined to $5.577 billion as on December 30, 2022, compared to $5.822 billion as of December 23, 2022. The decline in the reserves is due to external debt repayments, SBP data said.

Pakistan also repaid some $1 billion over the weekend, which is likely to result in lower foreign exchange reserves when the SBP releases its data this week.

“The development would not give us leverage but would provide some space, while negotiating with the IMF, as the lender would be comforted that Pakistan is arranging funds,” Pasha added.

“If the IMF funding is combined with bilateral announcements, particularly from Saudi Arabia, this would also reduce pressure on the rupee as the spread between the inter-bank and grey market would narrow,” he said.

Federal Minister Finance Ishaq Dar recently claimed that a number of friendly countries have assured their support to build depleting foreign exchange reserves of the country and by the end of June reserves will be at a much better level.

Meanwhile, others remained apprehensive about whether the commitments would materialise.

“It remains to be seen, whether the pledges made are realised or not. Similar pledges were made earlier by the United Nations as well,” said Arsalan Siddiqui, Head of Research at Optimus Research.

Earlier, the United Nations (UN) conference did not achieve much success as against the UN flash appeal of $816 million, it was learnt that only $200 million was received from the international community.

“If the disbursement is realised in 2-3 months, it would give a temporary breathing space. However, the real issue is recurring, as we need external debt restructuring, reform measures and the IMF programme,” he said.

“The default risk is delayed in case these inflows are materialised,” he added.

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TimeToMovveOn Jan 10, 2023 12:56am
Pakistan delighted that it received alms--seriously? What do you expect these to be grants and not loans. rarely do pledges turn into reality. What is there to celebrate it.
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