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Explainer: The money pledged at Geneva will not help forex crisis

LAHORE: At a press conference with the prime minister, the finance minister stated that most of the money pledged at the Geneva Moot is going to be project loans. 

Project loans usually represent long term financing for infrastructural or industrial development that is dependent upon, and paid off from that project’s cash flows. 

What this means is that not only will Pakistan not realize the money until the said projects’ plans are rolled out. But also that this money will take a lot of time to come in. The finance minister hopes for the most of it to come within 3 years.

So, contrary to political speculations and hopes, it is highly unlikely that the pledges at the Geneva Conference would be able to solve the liquidity crisis of Pakistan. 

According to media reports, State Bank of Pakistan’s midweek reserves stand at around $4.5 billion. That places Pakistan at a tight spot with an import cover of less than a month. This puts Pakistan in immense need of dollars, however, the Finance Minister, in his press conference today, hinted that the pledges at the Geneva conventions are majorly going to be project loans while some of them may still be in program lending’s form.

As per experts, the reinstatement of the IMF program is not only critical to solving the liquidity crisis but also to restore the confidence of the pledgers at the Geneva conference. 

The head of equity research at Ismail Iqbal Securities, Fahad Rauf told Profit, that “In the current context, most of the pledges without the ninth review of the IMF are close to meaningless.”

What exactly are Pakistan’s forex reserves? 

Earlier this week Ishaq Dar while talking to media said that “the reserves with the central bank, also belonged to Pakistan”. This raised concerns regarding the government taking over commercial banks’ reserves. In a tweet on Wednesday, Ishaq Dar clarified that his statement had been “greatly misconstrued” and “nothing of the sort will happen”.

In a press conference he further explained that he was merely giving a breakdown of the total forex reserves. “Whenever Pakistan’s reserves are quoted anywhere in the world, in a survey or a document — the [total figure] is quoted and then a breakdown is given. I gave a breakdown too,” said the Finance Minister.

 

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