Terms and conditions of Geneva pledges questioned

Businessmen fear funding can put Pakistan under more debt burden

KARACHI:

The financial instability currently haunting Pakistan has forced businesspeople to seek clarification from the government about the nature of financial commitments made at the International Conference on Climate-Resilient Pakistan in Geneva.

Pakistan Businesses Forum (PBF) Vice President Ahmad Jawad said there was uncertainty about the financing arrangement and asked the finance ministry to clarify whether they were loans or aid.

Talking to The Express Tribune, Jawad expressed concern that such borrowing could add to Pakistan’s already heavy debt pile. “What will be the timeline of the $10 billion pledged in Geneva and what are the terms and conditions,” he asked.

“Pakistan’s debt is now almost equivalent to its total GDP (gross domestic product). Government’s entire revenue collection is spent on debt servicing,” remarked SITE Association of Industries (SAI) President Riazuddin.

He said Pakistan was acquiring more debt just to pay back the old one and called it a debt trap that was engulfing future generations.

“Debt servicing is a long-standing problem. This has led to a cycle of borrowing and debt servicing that has been difficult to break,” he added.

The PBF VP feared that Pakistan’s external debt could reach $140 billion in 2023 while debt servicing would jump to $25 billion per annum. “We must seriously consider debt restructuring and rescheduling instead of acquiring more debt.”

In his view, the Geneva pledges will not immediately solve Pakistan’s dollar liquidity crisis.

State Bank’s foreign currency reserves stand quite low around $4.5 billion, covering less than four weeks of imports. After recent loan repayments to two UAE-based banks, the country needs immediate cash injection.

“IMF wants Pakistan to take fiscal measures and cut back on subsidies. Therefore, we need a bailout from leading economies by engaging in economic diplomacy,” asserted Jawad.

Arif Habib Commodities CEO Ahsan Mehanti called donor pledges a huge support at a time when Pakistan was facing a foreign exchange crisis.

“Financial commitments are in the shape of grants and loans. Both are in foreign currency, which is needed for import of essential items. Pakistan’s growth is highly dependent on foreign investment and securing the commitments is a huge success,” he said.

Prime Minister’s Economic Advisory Council former member Dr Abid Qaiyum Suleri pointed out that the World Bank and Asian Development Bank assistance announced at the Geneva meeting primarily comprised previously announced funds.

For instance, the World Bank has already committed $1.3 billion for the flood-hit areas and the additional announcement of $700 million takes the total to $2 billion. “It remains unclear how much of these pledges will actually be realised.”

Published in The Express Tribune, January 12^th, 2023.

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