Pledges feel too good to be true
The word ‘pledge’ appears in the news far too often, albeit accompanied by ‘unfulfilled’ or ‘failed.’
Over a decade ago, a climate pledge was made at a United Nations summit in Copenhagen, where rich nations promised to channel $100 billion a year to developing countries to help them adapt to climate change. That pledge was broken.
Similar commitments were made in response to numerous global crises, such as the Syrian conflict, the Global Fund to Fight AIDS, Tuberculosis and Malaria, and the donor conference for Gaza, all of which either failed or were partially met, and that too over extended timelines.
These are only a few in a long series of politically motivated assurances made by governments to reassure the world of their benevolence towards one another.
This begs the question of why someone would make a pledge if they intend to avoid following through with it. A pledge is essentially a form of social control, a policy instrument to encourage socially desirable behaviour.
However, unlike formal contracts or sanctions, failure to honour a pledge has minimal punitive consequences. Consequently, the commitment power of promises is often contingent upon the normative expectation that individuals would be held responsible after pledging, as well as self-investment and involvement with the cause. These crucial factors, when combined, inspire people to complete their pledge.
In a social experiment conducted at Cambridge University, people were first given the opportunity to make a promise to give to a charity (‘pledge’) and follow through later with actual donation.
Results showed that participants pledge more often when it is the “acceptable behaviour,” but those who pledge in that case are less likely to take further steps to donate than those who pledge when pledging is against the “default.” This behaviour can be interpreted in terms of motivation and transaction costs.
Some people pledge only to avoid the psychological costs of going against the default. Those people are closest to indifferent or suspicion between donating or not and are, therefore, less motivated to go on to donate.
So, having understood the mechanics of pledging, where does it leave the recent pledges made in support of Pakistan at the International Conference on Climate Resilient Pakistan in Geneva?
The moot had all the necessary ingredients: a cause that everyone could rally behind, a recipient on the brink of economic and climate meltdown, a sympathetic moderator, and economically sound donors.
In his remarks at the conference, UN Secretary General Antonio Guterres laid out the grim realities of the floods that hit Pakistan in 2022, saying, “A terrifying wall of water killed more than 1,700 people, injured thousands more, and affected more than 33 million, displacing 8 million people. It swept over roads, ruined millions of acres of agricultural land, and damaged or destroyed 2 million homes. And it pushed back 9 million people to the brink of poverty.”
He continued, “Pakistan is doubly victimised by climate chaos and a morally bankrupt global financial system. No country deserves to endure what happened to Pakistan...If there is any doubt about loss and damage – go to Pakistan. There is loss. There is damage. The devastation of climate change is real.”
The plea for survival and public shaming seemed to work, with the world community, including friendly states and institutions, responding to Pakistan’s appeal in the face of an impending economic and climate meltdown by pledging close to $10 billion.
The news was greeted throughout Pakistan, although cautiously over the nature of these pledges, as though Santa Clause had arrived early this year bearing gifts, ushering in a new period of riches and good fortune. It felt too good to be true...and it was.
Despite being praised by elements of Pakistan’s power structure, the conference’s outcome regrettably has little bearing on Pakistan’s current economic concerns and might even add to its financial burdens. Donors are unlikely to honour their obligations due to the domestic political climate, suspicion over funds management, and if the nation adopts a lax attitude moving forward.
Additionally, at a news conference on Wednesday, Finance Minister Ishaq Dar stated that nearly 90% of the pledges made at the Geneva conference were, in fact, project loans that would be released over the next three years. That translates to around $8.7 billion, which is enormous for a crippled economy!
Despite government assertions that the terms are expected to be lenient, the stipulations of these loans may make them even less acceptable, which seems to be the case.
Donors lack confidence in our record of accounting for assistance contributions. Widespread reports of rampant corruption, political instability, and the inability of funds to reach end victims undermine confidence in the system, resulting in more stringent conditions and disbursement mechanisms.
When asked about the disbursement timelines, the premier said, “The faster we can design and create feasibilities and impress them, the faster these pledges will materialise,” suggesting a long-winded road till we get to see paper pledges translated into cash flows, if at all.
In such a situation, Pakistan must engage in a trust-building initiative to persuade the international community that this time would be different; all money will be accounted for and utilised for its intended objectives.
An open and transparent flow of information is essential for a timely transfer of funds from donors to victims.
However, even if a miracle allows us to kick the imminent default can down the road one last time, the conditions of these and previous loans combined with the fresh slew of demands the IMF has imposed on us make it abundantly clear that Pakistan has run out of a road, rendering moot any debate over whether the pledges are loans or grants.
The writer is a sustainability and climate risk (SCR) professional, passionate about sustainable energy consumption and climate change
Published in The Express Tribune, January 16th, 2023.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.