Israel signs free trade deal with UAE, first-ever with an Arab state

Israel entered its first-ever free trade agreement with an Arab state, when Economy Minister Orna Barbivai signed the deal with her counterpart in the United Arab Emirates on Tuesday.

Ambassador to the UAE Amir Hayek in a few words announced the signing of the agreement on twitter, tweeting Done! in response to a previous tweet on the topic.

Prime Minister Naftali Bennett praised the FTA as historic and the fastest to be signed in Israel's history. He thanked Crown Prince of Abu Dhabi Mohamed Bin Zayed for accelerating the process.

"We are continuing to warm the peace between the countries," Bennett tweeted.

On Monday, Barbivai said her visit to Dubai, “It is of strategic importance to the economic relations between Israel and the United Arab Emirates.”

"Together we will remove barriers and promote comprehensive trade and new technologies," she added. 

Israel and the UAE established full diplomatic relations in August 2020, in what was called the Abraham Accords. Bahrain, Sudan and Morocco followed soon after.

Israel has nineteen free agreements, including the one with the UAE. Israel also has a more limited free-trade agreement with Jordan, but the new deal with the UAE is much broader and is similar to those with the United States and with the European Union.

The free trade agreement is the UAE’s second, following one with India earlier this year.

This agreement covers 96% of the trade between Israel and the UAE, which was recorded last year at US$885 million.

That is more than double Israel's US$330 million in trade with Egypt in 2021, even though the two countries have had a peace agreement since 1979.

According to the Economy and Industry Ministry, the level of trade in 2020 was reported at US$120 million and at US$ one million in 2010. 

The FTA signing proceeded as planned, even though the UAE criticized Israel a day earlier for allowing Jews to visit the Temple Mount, Judaism's holiest site.

"The UAE today strongly condemned the storming of Al Aqsa Mosque courtyard by extremist settlers under the protection of Israeli forces," a statement by the Emirati Foreign Ministry read, calling on Israel "to take responsibility for reducing escalation and ending all attacks and practices that lead to the continuation of tensions."

There was no documentation of violence by Jews or Israelis on the Temple Mount this week, though some did pray at the site in contravention of the rules for Jewish visitors. Some Muslims threw rocks at visitors and police from the Al Aqsa Mosque.

The statement came a day after the annual Jerusalem Day flag march through the Old City, which was mostly peaceful, though some Jews and Muslims chanted calls for violence and some minor clashes, leading to about 50 arrests.

 

India buys 34 million barrels Russian oil at discounted price

According to a Reuters report, India has received 34 million barrels of discounted Russian oil since Moscow invaded Ukraine on Feb 24, 2022. This has more than trebled the value of total imports from Russia, including other products, compared with the same period of 2021.

The volume of India's seaborne oil imports from Russia exclude CPC Blend oil, which is also exported via Russia's Black Sea port, but mostly supplied by Kazakhstan's subsidiaries of western countries as transit volumes.

India's oil imports from Russia have been rising since February this year, as Asia's third-largest economy and the world's third-biggest oil importer, turned to deeply discounted Russian oil, mostly Urals crude, to cut its energy imports bill.

India received more than 24 million barrels of Russian crude oil in May 2022, up from 7.2 million barrels in April and about 3 million barrels in March. The quantity is set to rise to about 28 million barrels in June.

Surging energy imports helped push India's total goods imports from Russia between February 24 and May 26 this year to US$6.4 billion, as compared to US$1.99 billion in the same period last year.

India's exports to Russia fell nearly 50% to US$377 million over that period, as its government is yet to set up a formal payment mechanism.

As the West responded to the invasion with a barrage of sanctions, India has come under fire for its continued purchases of Russian energy.

New Delhi has brushed off the criticism, saying those imports made only a fraction of the country's overall needs and has said it will keep buying cheap Russian oil, arguing a sudden stop would drive up costs for its consumers.

Russian and Indian energy companies have also been discussing term supply agreements and possible acquisitions of stakes in Russian oil and gas projects.

Former Prime Minister of Pakistan, Imran Khan has once again praised India for buying discounted oil from Russia despite being a key member of a US-led alliance called QUAD.

“Despite being part of QUAD, India sustained pressure from the US and bought discounted Russian oil to provide relief to the masses,” Khan wrote in a tweet.

“This is what our government was working to achieve with the help of an independent foreign policy,” he added.

In a second tweet, Khan claimed that for his government, “Pakistan’s interest was supreme but unfortunately the local Mir Jafars and Mir Sadiqs bowed to external pressure, forcing a regime change and are now running around like a headless chicken with the economy in a tailspin”.

Khan also tagged to his tweet a South Asia Index report, saying: “After buying discounted oil from Russia, the Indian government reduced petrol price by 9.5 Indian rupees per litre, Diesel price was also reduced by 7 rupees per litre.”

Michael Kugelman, a scholar of South Asian affairs at the Wilson Centre, Washington, also referred to this report, saying: “This is why Khan was praising India during his final days as PM.”

Khan wanted to import wheat and eventually gas from Russia.

 

Iran exploring ways to boost trade with India and Pakistan

Many analysts can recall the fanfare about Iran-Pakistan-India (IPI) gas pipeline project, which was sabotaged by the economic sanctions imposed on Iran by the United States. Anticipating that Iran nuclear negotiations may lead to easing of some of the restriction, the three countries have started exploring trade opportunities   

TPO hosts Indian trade delegation

Reportedly, a trade delegation from India’s PHD Chamber of Commerce and Industry visited Iran’s Trade Promotion Organization (TPO) to discuss ways of expanding trade ties between the private sectors of the two countries. The Indian delegation was received by the acting director of TPO’s Indian Subcontinent Office Reza Seyyed-Aghazadeh, the TPO portal reported on Monday.

Talking on the occasion, Seyyed-Aghazadeh expressed hope for the continuation of such meetings in order to develop trade relations and increase the volume of trade between Iran and India, and called for the expansion of relations between the two countries. He also expressed TPO’s full support for the private sectors of the two countries.

Iran-Pakistan trade workshop

Trade Promotion Organization (TPO) of Iran has also announced to hold a training workshop for Iranian businessmen who are interested in trading with Pakistan.

Marketing strategies and methods, cultural awareness, and the trade-related laws and regulations of Pakistan are among the subjects to be covered in the workshop which is due to be held on June 12, 2022.

It is pertinent to note that the TPO has held several business training workshops with different countries. However, the training workshop with Pakistan is the first such event that will be attended by TPO Head, Ambassadors and economic and trade advisors of the two countries, and officials of Pakistani and Iranian chambers of commerce.

  

Ukraine conflict reshaping global oil markets

According to a Reuters report, Russian invasion of Ukraine has reconfigured the global oil market, with African suppliers stepping in to meet European demand and Moscow, stung by Western sanctions, increasingly tapping risky ship-to-ship transfers to get its crude to Asia.

The reroutings mark the biggest supply-side shakeup of the global oil trade since the US shale revolution altered the shape of the market around a decade ago and suggest Russia will be able to navigate a European Union (EU) oil ban, provided Asia and China continue to buy its crude.

Sanctions imposed on Moscow after the conflict in Ukraine kicked off in February, including a US ban on its oil imports, have prompted Russia to pivot away from Europe, where its crude is shunned, to customers in India and China who are picking up cargoes at a steep discount, according to industry data and traders.

Russian exports were back to pre-invasion levels in April, according to data from the Paris-based International Energy Agency and oil prices have stabilized around US$110 after hitting a 14-year high above US$139 a barrel in March.

Even if the European Union agrees to an oil ban in its next round of Russian sanctions, analysts said the impact could be tempered by demand from Asia.

"Unless the West puts diplomatic pressure on Asian buyers, we do not see the supply gap widening and oil prices spiking," said Norbert Rücker of Julius Baer.

A complex patchwork of US, EU and British sanctions have prohibited Russian-owned or flagged ships from calling at ports meaning that some of the increased trade to Asia is being facilitated via ship-to-ship transfer at sea -- a costly process where the risk of spills is greater.

Overall, the flow of Russian oil to Asia via the sea has jumped at least 50% since the start of the year, according to tanker-tracker Petro-Logistics and other data.

Transfers between vessels, which account for a small fraction of the overall sea trade, have shifted away from the Danish coast to the Mediterranean Sea to avoid sanctions and protests.

"Ship-to-ship (STS) transfers were common in Danish waters, at the entry point of the Baltic Sea," Petro-Logistics President Mark Gerber told Reuters. "Those are not happening anymore; hence the STS trend of sanctioned tanker to non-sanctioned tanker increasing in the warmer and friendlier Mediterranean waters."

Gerber put the volumes of Russian crude and products being transferred between tankers in the Mediterranean at about 400,000 barrels per day (bpd), of which the majority is going to Asia, adding to the 2.3 million bpd going directly.

In January, before the invasion, around 1.5 million bpd were being sent directly to Asia.

Russian oil is loaded on Aframax or Suezmax tankers that carry less than one million barrels and it is transferred at sea to larger vessels that can take 2 million barrels, making shipping more cost effective, traders said.

The seaborne volumes are only part of the total exports from Russia. Including pipeline supplies, total Russian crude and products exports increased to just above 8 million bpd in April, back to the pre-invasion rate.

To compensate for the loss of Russian oil, European refiners have been turning to imports of West African crude, which are up 17% in April compared to the 2018-2021 average according to Petro-Logistics.

Eikon data also shows an increase and indicates 660,000 bpd mostly from Nigeria, Angola and Cameroon is arriving in northwest Europe in May, with three cargoes of Nigerian Amenam coming compared to one in February.

Volumes of West African crude to India, meanwhile, have nearly halved, according to Gerber, with 280,000 bpd delivered in April from 510,000 bpd in March as Delhi switches to Russian supply.

With European demand red-hot, the prices of Nigerian light, sweet crude grades in particular are hitting record highs, according to traders, with Forcados crude for example offered at a premium of at least US$7 to Brent.

Supply from North Africa to Europe is up by 30% since March, Petro-Logistics said. Of this, Eikon data indicates arrivals into northwest Europe from Egypt's Sidi Kerir port, which analysts say is likely Saudi crude, will almost double versus March to above 400,000 bpd in May.

The United States has also boosted supply to Europe. European crude imports in May from the US on a delivered basis are up over 15% versus March, according to tracking company Kpler, the highest monthly pace in its records. Europe has discharged about 1.45 million bpd of crude from the United States.

 

Iranian immunity over, Israeli Prime Minister

In a hint to possible Israeli involvement in the recent assassination of an Iranian military officer, Prime Minister Naftali Bennett said on Sunday that Iran would not go unpunished for instigating attacks through its proxies. 

IRGC Colonel Hassan Sayad Khodai was shot dead last week while sitting in his car and by two people on a motorcycle. The tactic echoed previous killings in Iran that focused on nuclear scientists and were widely pinned on Mossad.

"For many years, the Iranian regime has carried out terrorism against Israel and the region via proxies but for some reason the head of the octopus – Iran itself – has enjoyed immunity," Bennett said at the start of the weekly cabinet meeting in Jerusalem.  "As we have said more than once, the era of immunity for the Iranian regime is over." 

"Those who finance terrorists, those who arm terrorists, and those who send terrorists – will pay the full price," he added.

In another attack on Thursday, an Iranian engineer was killed in an explosion said to have been caused by drones carrying explosives at the Parchin military base, where Iran has allegedly conducted nuclear weapons tests in the past. 

Israel has been on high alert over the last week amid concern that Iran will try to retaliate for Khodai's death. On Saturday, Iran revealed images from an underground secret drone base that it operates, amid simmering tensions in the Gulf.  State TV said 100 drones were being kept in the heart of the Zagros Mountains, including Ababil-5, which it said were fitted with Qaem-9 missiles, an Iranian-made version of air-to-surface US Hellfire.

At the government meeting Bennett recalled a story published last week in the Wall Street Journal claiming that a cache of 100,000 documents Israel spirited out of Tehran in 2018 included evidence that the Islamic Republic had used reports from the International Atomic Energy Agency to hide its former nuclear program.

"Iran has also been investing in lies such as its deliberate misleading of the IAEA in order to evade visits by the agency, as was revealed last week. The Iranian regime is based on tyranny, terror and lies," Bennett stated.

Bennett spoke in advance of a visit to Washington this week by an Israeli delegation led by National Security Adviser Eyal Hulata to discuss options should talks to revive the 2015 Iran nuclear deal fail. 

They are also likely to discuss the upcoming IAEA Board of Governors' Meeting in Vienna next week and the possibility of a resolution condemning Iran.

Regime Change: Best Pastime of United States

It may be recalled that when Imran Khan’s government was removed through ‘non-confidence vote’ he openly alleged that the United States was behind this. Although, the US administration categorically denies having played any role, many in Pakistan don’t accept the denials.

This morning I was lucky enough to find an article an article by by Lindsey A. O'Rourke published in The Washington Post as back as December 23, 2016 which stated that the United States tried to change governments of other countries 72 times during the Cold War era.

The CIA has concluded with “high confidence” that Russia intervened covertly during the presidential election to promote Donald Trump’s candidacy. They based this assessment on the discovery that Russian security agencies had hacked the Republican National Committee, the Democratic National Committee and the Hillary Clinton campaign — and had released selected Democratic documents to WikiLeaks to undermine Clinton’s candidacy.

However, it must be remembered that The US has a long history of hacking other democracies. If true, Russia’s actions are reminiscent of Cold War covert political warfare, with an Internet-era twist. Following are six key things the research uncovered about those efforts.

Obviously, studying covert interventions is tough. By definition, the operations are designed so that the intervening state can plausibly deny it was involved, deflecting blame onto other actors. It’s impossible to get reliable cross-national data, given how widely countries vary in their rules about government transparency and freedom of the press. Add in flourishing conspiracy theories, and it can be hard to separate historical fact from fiction.

To tackle these problems, the writer has spent the past several years investigating allegations of US-backed covert regime changes during the Cold War. She has done so by going through relevant documents from the National Archives, National Security Archive and presidential libraries. Fortunately, the combination of the US government’s declassification rules, congressional inquiries and journalistic coverage has revealed a great deal about these operations.

1. From 1947 to 1989, the United States tried to change other governments in other countries 72 times

That’s a remarkable number. It includes 66 covert operations and six overt ones. These 72 US operations were during the Cold War — meaning that, in most cases, the Soviet Union was covertly supporting anti-US forces on the other side. However, a look at these US actions allows us to survey the covert activities of a major power, so we can glean insight into such interventions’ causes and consequences.

2. Most covert efforts to replace another country’s government failed

During the Cold War, for instance, 26 of the United States’ covert operations successfully brought a US-backed government to power; the remaining 40 failed.

Success depended in large part on the choice of covert tactics. Not a single US-backed assassination plot during this time actually killed their intended target, although two foreign leaders — South Vietnam’s Ngo Dinh Diem and the Dominican Republic’s Rafael Trujillo — were killed by foreign intermediaries without Washington’s blessing during US-backed coups.

Similarly, covert actions to support militant groups trying to topple a foreign regime nearly always failed. Of 36 attempts, only five overthrew their targets. Sponsoring coups was more successful; nine out of 14 attempted coups put the US-backed leaders in power.

3. Meddling in foreign elections is the most successful covert tactic 

The author found 16 cases in which Washington sought to influence foreign elections by covertly funding, advising and spreading propaganda for its preferred candidates, often doing so beyond a single election cycle. Of these, the US-backed parties won their elections 75% of the time.

Of course, it is impossible to say whether the US-supported candidates would have won their elections without the covert assistance; many were leading in the polls before the US intervention. However, as the CIA’s head of the Directorate of Intelligence, Ray S. Cline once put it, the key to a successful covert regime change is “supplying just the right bit of marginal assistance in the right way at the right time.”

In an election where Clinton won the popular vote by 2.86 million but lost the electoral college, thanks to 77,744 voters in Wisconsin, Michigan and Pennsylvania.

It’s impossible to say for sure, but the numbers were certainly close. If Clinton had replicated Obama’s 2012 turnout in those three swing states, she would have won them by more than half a million votes. Even if she had been able to convert just one percent of these states’ Trump voters, she would have won by a combined 55,000 votes.

The Clinton campaign undoubtedly had many strikes against it: high unfavorability ratings, inaccurate polling, FBI Director James B. Comey’s letter and strategic mishaps. Still, Russia’s covert campaign probably compounded these problems. Thanks to WikiLeaks’s slow trickle of hacked emails, the news cycle throughout October was flooded with embarrassing anti-Clinton stories, preventing her from building momentum after the debates.

4. Regime changes rarely work out as the intervening states expect

A Trump presidency might not be as much of a boon for Russia as hoped or feared. Clinton warned in the third presidential debate that Putin “would rather have a puppet as president of the United States.”

However, as the writer showed in a recent International Security article with Alexander Downes, leaders installed via regime change generally don’t act as puppets for long. Once in power, the new leaders find that acting at their foreign backers’ behest brings significant domestic opposition. They therefore tend to moderate their policies or turn against the foreign backer completely. In fact, there are already reports that the Kremlin is feeling “buyer’s remorse” over Trump’s victory, given his unpredictability.

5. Covert regime change can devastate the target countries

Author’s research found that after a nation’s government was toppled, it was less democratic and more likely to suffer civil war, domestic instability and mass killing, at the very least, citizens lost faith in their governments.

Even if Russia didn’t make the difference in electing Trump, it successfully undermined confidence in US political institutions and news media.

As historian Timothy Snyder pointed out, “If democratic procedures start to seem shambolic, then democratic ideas will seem questionable as well. And so America would become more like Russia, which is the general idea. If Trump wins, Russia wins. But if Trump loses and people doubt the outcome, Russia also wins.”

6. The best antidote to subterfuge is transparency

States intervene covertly so that they don’t have to be held accountable for their actions. Amid reports that Russian hackers have been emboldened by the success of the DNC hack, exposing Moscow’s hand is the first step toward deterring future attacks against the United States and upcoming elections in Germany, France and the Netherlands. It may also be the best way to dispel disinformation and restore faith in US democratic institutions at a time when 55% of Americans say they are troubled by Russian interference into the election,

The United States is beginning this effort. Congress has announced bipartisan investigations and Obama ordered a comprehensive report on covert foreign interference into US presidential elections going back to the 2008 election.

Given how serious these allegations are, and especially considering that President-elect Trump rejects the intelligence community’s consensus conclusion, releasing these reports publicly before the inauguration could help set US democracy right.

Getting Federal Budget approved should be the top priority of Shehbaz Sharif

In all probability, the incumbent government, headed by Shehbaz Sharif, is scheduled to present Federal Budget 2022-23 in the lower house on June 10, 2022. There is an overwhelming perception that the economic team hasn’t been able to put its much talked about plans and finalized the nitty-gritty.

This impression is based on the fact that Pakistan and International Monetary Fund are still polls apart, mainly because the Pakistani economic team is not paying heed to the instructions of the Fund.

Over the last six weeks the Shehbaz team has not met even the first target of raising prices of petroleum products and electricity and gas tariffs. Most of the time is being wasted on maligning the previous government headed by Imran Khan, rather than taking into account the harsh domestic and international realities.

The team faces the most tedious task of projecting income and expenses targets and meeting the deficit. It is too obvious that the coalition government has fewer options available to boost income and it will not be able to follow any austerity drive because of the mindset of the ruling elite. There is a consensus that the elected representatives will not be ready to accept any substantial cut in their salaries and perks.

It is feared that the axe will fall on federal and provincial public sector development programs. The top priority areas are: 1) improving irrigation system, 2) strengthening electricity and gas transmission and distribution infrastructures. The mounting circular debt can’t be contained without containing rampant pilferages.

For boosting country’s exports, cost of doing business has to be reduced. The top two expenses to be rationalized are interest rate and energy tariffs. The GoP expects to receive US$2 billion from IMF over the next two years. Experts believe that this much amount can be raised by exporting just one item, one million tons urea. The country has the surplus capacity to produce one million ton exportable surplus urea by ensuring uninterrupted supply of natural to the fertilizer plants.

There is no denying to that fact that huge quantities of wheat, edible oil, POL products and even urea fertilizer are being smuggled to the neighboring countries. The key problems are 1) highly porous borders and 2) restriction on the export of these commodities. These problems can be overcome by plugging boarders and bringing necessary changes in the Trade Policy.

Last but the foremost, the economic team has to come out of the illusion that hike in interest rate can help in containing inflation in the country. Let this be known to all and sundry that Pakistan suffers from cost pushed inflation. The biggest loser of hike in interest rate is the GoP. Let me reiterate that GoP is the biggest borrower and with each hike in interest rate, its debt servicing ability is marred.

 

 

 

Why should OPEC Plus increase energy supplies?

One is shocked and dismayed at the role being played by the developed countries in destroying oil producing countries one after another. Over the years they have partnered with United States in imposing embargoes and/or virtually destroying oil producing countries like Iran, Iraq, Venezuela, Libya and Russia being the latest target.

It may be said that only United States can be blamed for the ongoing Russia-Ukraine conflict. Instead of facilitating ceasefire, United States is dumping tons of lethal weapons as well as billions of dollars in Ukraine to further fuel the war.

This on one hand has cut off Russian oil and on the other hand stopped export of eatables from Ukraine, adding to unprecedented inflation throughout the world.

The ministers from the Group of Seven countries on Friday called on Oil Producing and Exporting Countries (OPEC) to act responsibly to ease a global energy crunch brought on by the Russian invasion of Ukraine, even as they announced a breakthrough commitment to phase out coal-fuelled power.

The call, made at the end of three-day talks in Berlin focused on climate change, underscored that the world’s major economies were grappling with how to contain inflation and higher energy prices while sticking to environmental goals.

OPEC and its allies, a group known as OPEC Plus, to which Russia is a part has so far rebuffed Western calls for a faster increase in oil production to lower surging prices.

“We call on oil and gas producing countries to act in a responsible manner and to respond to tightening international markets, noting that OPEC has a key role to play,” said a communiqué issued at the end of the G7 talks.

“We will work with them and all partners to ensure stable and sustainable global energy supplies.” Ministers from the G7 group stressed that they would not let the energy crisis derail efforts to fight climate change.

They announced a commitment on Friday to work to phase out coal-powered energy, although failed to set a date for doing so.

The commitment was weaker than a previous draft of the final communiqué which had included a target to end unabated coal power generation by 2030.

Sources familiar with the discussions said Japan and the United States had both indicated they could not support that date. But the pledge still marked the first commitment from the G7 countries to quit coal-fuelled power.

The war in Ukraine has triggered a scramble among some countries to buy more non-Russian fossil fuels and burn coal to cut their reliance on Russian supplies.

 

 

 

 

If India can buy Russian oil, why can’t Pakistan?

In Pakistan it is common that ministers often talk about decisions to be made by other ministries. One such trespassing was committed by Minister of State for Petroleum Musadiq Malik on Friday. He said that an increase in electricity tariff would follow fuel price adjustment through withdrawal of subsidies.

Talking about PTI’s claims of 30% cheaper oil and LNG import deals with Russia, the minister said there was no agreement or memorandum of understanding on record which could prove such claims. However, he admitted that the former energy minister had written a letter to the Russian minister showing interest in purchasing oil and gas from Russia, but there was no response from the other side.

Pakistan’s ambassador in Moscow approached the Russian energy ministry, but did not get a response either on cheaper oil or gas, said Malik.

I am ready to accept that Imran Khan spread disinformation, but will Malik be kind enough to share, has the incumbent government approached Russia for the purchase of cheaper oil?

I have a glut feeling that the present government, living under the shadow of the US administration just couldn’t have dared to do that.

Lately, India expressed its intention to continue to buy cheap oil from Russia.

"We will get cheap oil from Russia," the government official told reporters on Wednesday, adding that the average price at which the world's third largest oil importer buys crude is currently above US$100 a barrel.

With concerns that conventional payment routes could be blocked due to Western sanctions on Moscow, including on banks, work was ongoing to set up a rupee-rouble trade mechanism to facilitate transactions, the official said.

Without elaborating further, the official added that no final decision had been taken and all possible ways to pay for goods were still under discussion.

While Russia's oil exports have not to date fallen under Western sanctions, some international traders have avoided buying the barrels given the disruption to payment systems and shipping.

The official also said India was increasing its dependence on coal due to surging power demand, adding that state-run Coal India will produce more coal in the coming months.

There’s been a significant uptick in Russian oil deliveries bound for India since March after Russia’s invasion of Ukraine began — and New Delhi looks set to buy even more cheap oil from Moscow, industry observers say.   

China, already the largest single buyer of Russian oil, is also widely expected to buy more oil from Russia at deep discounts, they say. 

Major oil importing countries such as India and China have been grappling with higher crude prices, which have soared since last year. While oil prices have been volatile in recent weeks, swinging between gains and losses, they are still around 80% higher compared to a year ago.

“We believe that China, and to a lesser extent, India will step up to buy heavily discounted Russian crude,” said Matt Smith, lead oil analyst at Kpler.

“Urals crude from Russia is being offered at record discounts, but uptake is limited so far, with Asian oil importers for the most part sticking to traditional suppliers in the Middle East, Latin America and Africa,” the International Energy Agency said on March 17, 2022. Urals crude is the main oil blend that Russia exports.

“As of mid-March, we see the potential for 3 million barrels a day of Russian oil supply to be shut in starting from April, but that could increase if restrictions or public condemnation escalate,” the IEA said.

 ‘Significant uptick’ of Russian oil bound for India

However, since the beginning of March, five cargoes of Russian oil, or about 6 million barrels, have been loaded and are bound for India – set to be discharged in early April, he told CNBC in an email.

“This is about half the entire volume discharged last year — a significant uptick,” Smith said. 

 “Today, the Government of India’s motivations are economic, not political. India will always look for a deal in their oil import strategy. It’s hard not to take a 20% discount on crude when you import 80-85% of your oil, particularly on the heels of the pandemic and global growth slowdown,” Kapadia told CNBC in an email.

Both countries have had a long history. Russia has supported India on a variety of areas including the provision of military and defense-related equipment — as much as 60% of the Asian country’s needs, according to Kapadia.

In the late 1950s, India also leaned on Russia for rupee-ruble currency swap arrangements to finance its imports when the former was “broke,” said Kapadia.

Russia has also supported India on crucial issues such as the dispute with China and Pakistan surrounding the territory of Kashmir.

“White House pressure to curb purchases of crude oil from Russia has fallen on deaf ears in Delhi,” said Kapadia. “The real question will be how the US and Europe respond to India should they extend an olive branch to Russia by providing them an outlet for their oil.”

 

Pakistan: Like Minister, Prime Minister also lacks rational thinking

Yesterday, I posted a blog; its title was How can Finance Minister sound so dumb? My heart was even heavier to read the news today, “Prime Minister Shehbaz announces Rs28 billion relief package to mitigate impact of fuel price hike”.

I have all the reasons to believe that the prime minister is not fully aware of nitty-gritty of managing economy of Pakistan. However, he has a team of ‘economic experts’, which is fully aware of the targets agreed with the International Monetary Fund (IMF) and prevailing state of the affairs.

Having gone through the details I arrived at the conclusion that the prime minister is either stubborn or does not listen to what is being advised by the experts.

Reportedly, on Friday, Prime Minister Shehbaz Sharif announced his government would launch a new relief package of Rs28 billion per month to protect the poor from the burden of petrol and diesel price hike.

Any government has a right to pay subsidy provided it has enough money in its kitty. Pakistan already faced huge budget deficit, therefore, it can’t afford to pay untargeted subsidies.

Prime minister said under the relief package, the premier said, 14 million poor families, comprising 85 million people, would be given Rs2000 per family. I am surprised to read his statement as he is creating a new breed of baggers. He is also opening floodgates of corruption.

He said this was in addition to the monetary assistance being given to them under the Benazir Income Support Program. This relief package will be added in the next budget, the premier said.

Prime minister hasn’t come out of the shadow of Imran Khan. In his first address to the nation — a day after his government removed fuel subsidies and increased the price of petrol by Rs30, he made two points: 1) it was because of the previous government  2) he had to take the difficult decision with a heavy heart.

He termed the PTI government's decision to grant fuel subsidy a trap for the upcoming government. "Petroleum prices are increasing worldwide but they (PTI government) subsidized fuel despite knowing that the treasury cannot bear its burden."

The hike in petroleum prices is a universal phenomenon and Khan can’t be blamed for this. The added insult is huge depreciation of Pak rupee. This depreciation was mostly because of failure of the incumbent government to revive relationship with IMF.

This is also to remind the prime minister that his government is yet to announce increase in electricity and gas tariffs. Would he further increase the subsidy?

In my opinion, much of the burden of common man would be reduced if government orders 50% reduction in the remunerations of MPAs, MNAs, Senators and Ministers.  Similarly ‘fuel’ allocations should also be reduced to half.

If common man is required to pay higher prices of petroleum products, electricity and gas why perks of elected representatives can’t be reduced to half?

 

 

 

Pakistan: How can Finance Minister sound so dumb?

I am completely shocked after reading the details of press conference of Finance Minister, Miftah Ismail, particularly his rationale for the hike in the prices of petroleum products. Two of his explanations sound too comical.

The finance minister said: 1) the decision has been taken to revive the International Monetary Fund (IMF) program and 2) the government had no other option but to raise the prices, adding that the government would still bear a loss.

Many of the readers would burst into laughter after reading that the government was aware of the political repercussions of the decision, saying "we will face criticism but the state and its interests are important to us and it is necessary for us to save it."

He didn’t have the realization whatsoever, when he said, the country could have gone in the "wrong direction" if the steps were not taken.

He said the decision was a tough one for Prime Minister Shehbaz Sharif, saying "we cannot let the state sink for the sake of politics."

He claimed the price revision was not solely due to the IMF's pressure, saying "the Fund indeed refused to grant further loan until we raise prices ... but we [also] had to take this decision after all."

One can recall, the price hike came a day after the government and the IMF failed to reach an agreement on an economic bailout mainly because of the indecision of Shehbaz Sharif government on fuel and electricity subsidies and resultant next year’s budget uncertainties.

I am inclined to draw a conclusion that the strings on incumbent government are still pulled by certain external forces, if not many of the acts sound ‘childish’.

It may be recalled that most of the analysts, even the worst critics of PML-N policies have been asking the incumbent government to announce hike in the prices of energy products and get US$ one billion tranche released.

I may also go to the extent of saying that general public was ready to accept the hike to avoid further delays in discussions with the IMF. However, Pakistanis will be right in asking the Minister, what took you so long to arrive at the conclusion which was writing on the wall?

Shehbaz Sharif government deprives overseas Pakistani from voting rights

In a highly contemptuous move, the government headed by Shehbaz Sharif has deprived overseas Pakistanis from voting on Thursday. The move simply shows that he and his team has no regard what so ever for those who have been remitting billions of US dollars every month and are the saviors of Pakistan. 

The remittance flows are one of the largest sources of foreign income for Pakistan. These prove to be more stable than capital flows and remained resilient during the coronavirus pandemic.

It is the remittances of overseas Pakistanis that have saved the country from committing default. The amount received from International is paltry around US$2 billion per annum, which alone cannot keep the country afloat.

The National Assembly of Pakistan passed the Elections (Amendment) Bill 2022 on Thursday, which seeks to remove the use of electronic voting machines (EVMs) in general elections as well as disallows overseas Pakistanis from voting.

Parliamentary Affairs Minister Murtaza Javed Abbasi presented the bill that was passed with a majority vote, with only members of the Grand Democratic Alliance opposing it.

Before presenting the bill, Abbasi presented a motion for allowing the bill to be sent directly to the Senate for its approval, bypassing the relevant standing committee. The motion was also passed by the NA with a majority vote.

Speaking about the legislation, Minister Azam Nazeer Tarar said it was of immense significance. He recalled the previous PTI government had made multiple amendments to the Election Act, 2017, including those that allowed the use of EVMs and granted overseas Pakistanis the right to vote in general elections.

He also dispelled the impression that the amendments were aimed at depriving overseas Pakistanis of their right to vote. "Overseas Pakistanis are a precious asset of the country and the government does not believe in snatching their right to vote," he said.

It may be recalled that the remittances from overseas Pakistanis rose to a record high of US$3.1 billion in April, 2022. Remittances crossed US$3 billion for the first time ever. These inflows increased 11.2% MoM and 11.9%YoY basis.

As a result, total remittances in 10 months of this fiscal year rose to US$26.1 billion, 7.6% higher than in the same period in 2020-2021. The figures suggest that Pakistani expatriates sent home more funds to support their families.

Pakistan-IMF discussions remain inconclusive

In the simplest words, Pakistan-IMF discussions held in Doha remained inconclusive. The International Monetary Fund (IMF) on Wednesday emphasized upon Pakistan the urgency of removing fuel and energy subsidies to achieve program objectives.

The incumbent government does not seem ready to withdraw subsidies.

According to the IMF, the mission held highly constructive discussions with the Pakistani authorities to reach an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform program.

It said the considerable progress was made during the discussions, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable.

"In this regard, the further increase in policy rates implemented on May 23, 2022 was a welcome step. On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February this year."

Meanwhile, Foreign Minister Bilawal Bhutto-Zardari said the ongoing bailout deal between Pakistan and the IMF was "outdated" given a number of global crises.

"This IMF deal is not based on ground realities, and the context has absolutely changed from the time that this deal was negotiated," Bilawal told Reuters on the sidelines of the World Economic Forum.

"This deal is a pre-Covid deal. It is a pre-Afghanistan fallout deal. It is a pre-Ukrainian crisis deal. It is a pre-inflation deal," said Bilawal.

Terming the deal "outdated" he said it would be unfair and unrealistic to expect a developing country like Pakistan to navigate geopolitical issues under the current agreements.

"We have to engage with the IMF and we have to keep Pakistan's word to the international community ... However, going forward, it is very legitimate for Pakistan to plead its case," Bilawal said.

The newly-elected government began talks with the Fund a week ago over the release of a US$ one billion tranche under an Extended Fund Facility, a process slowed by concerns about the pace of economic reforms in the country.

A US$6 billion IMF bailout package signed in 2019 has never been fully implemented because the government reneged on agreements to cut or end some subsidies and to improve revenue and tax collection.

Over the past weeks as the government has failed to take decisive economic decisions, most prominent being reversal of fuel subsidies.

Analysts and experts have linked the economic pressure to uncertainty over the continuation of the IMF loan program coupled with a rising oil import bill and widening trade deficit.

In recent meetings with Pakistan, the IMF linked the continuation of its loan program with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif has multiple times rejected summaries by the Oil and Gas Regulatory Authority and the finance ministry to increase fuel prices.

The PTI had announced a four-month freeze until June 30, 2022 on petrol and electricity prices in February this year as part of a series of measures to bring relief to the public.

PML-N and other political parties, part of the new coalition government were critical of Imran Khan's government for derailing the IMF program through unfunded fuel subsidies, but despite being in power for nearly six weeks, have not reversed these subsidies.

 

Suez Canal revenues to rise by 27% for financial year ending June 30, 2022

According to Finance Minister Mohamed Maait of Egypt, Suez Canal revenues are expected to rise to US$7 billion for the financial year 2021-22 ending on June 30, 2022, up 27% from US$5.5 billion for the last year.

Calendar year 2021 saw canal revenues hit a record US$6.3 billion, up 13% from US$5.6 billion seen in 2020.

The canal is the fastest route between Europe and Asia, and despite a 10% increase in toll rates implemented in March 2022, still saves shipping lines potentially hundreds of thousands of dollars in time and fuel, compared to sailings around the Cape of Good Hope.

Asian ship owners have been among the most vocal to complain about the toll hike, in addition to tariff increases introduced at the beginning of February this year.

Seatrade Maritime News calculates a 9.4% rise in fees for a southbound transit by a standard dry bulk vessel, as well as a similar increase in rebate, as of today, as compared to rates in November 2020.

Egypt mobilized public support for a widely subscribed national public debt program to finance a US$8.5 billion canal expansion, finished in 2015. Completion of further works is expected next year.

With container shipping lines reporting profits of around US$190 billion last year, US$60 billion in the first quarter of 2022, Egypt can be expected to maintain the pressure on toll rates for some time to come.

Despite the fact that tourism flows to Egypt declined by 35% due to the Russian invitation of Ukraine, Maait expects tourism revenues to hover around US$12 billion by the end of the financial year.

The canal, as well as tourism receipts are important to Egypt’s GDP, which the International Monetary Fund expects to reach US$435.6 billion in nominal terms in 2022.

The Asian Shipowners’ Association (ASA) member hit out at recent proposed toll changes at both the Panama Canal and Suez Canal.

At a meeting on April 18, 2022, ASA delegates noted the significance of the Suez and Panama canals as critical global infrastructure and called for the canals to avoid “sudden and significant” changes in tolls and charges.

“Delegates expressed their confusion against new surcharges introduced on March 01, 2022 with only 48 hours prior notice, then to be revised on May 01, 2022 by the Suez Canal Authority (SCA), which resulted in roughly a 7% to 20% toll increase for many types of vessels, in addition to a 6% tariff hike for most types of vessels, implemented on February 01, 2022,” said ASA.

Uncertainty around how surcharges operate could undermine the stability of the Canal, said the committee, calling for the industry to express its concerns to SCA.

ASA delegates some positives in the Panama Canal’s new toll system proposed earlier in April 2022 by the Panama Canal Authority (ACP). Delegates said the ACP had given sufficient notice and a formal consultation period, but were concerned that significant toll hikes could affect the long-term viability of the canal, “as the mark-up for some types of vessels may exceed 100% in 2025, compared with the current toll.”

The ASA meeting also discussed the review of anti-trust exemptions for carriers on the US, a policy delegates said was “indispensable for the healthy development of the liner shipping industry and the maintenance of a reliable service to the entire trading community.” ASA will continue its efforts to maintain anti-trust exemptions for liner shipping agreements.

 

Record barrels of Russian oil floating in seas

According to a Reuters report, some 62 million barrels of Russian crude oil are floating in vessels at seas, as traders struggle to find buyers.

The United States and other countries have banned imports of Russian crude and oil products alleging its invasion of Ukraine and others have avoided acquiring cargoes out of fear of future sanctions. The European Commission is considering an embargo of Russian oil.

The volume of Urals crude oil on the water is triple the pre-war average, even as Russian seaborne oil exports fell to 6.7 million barrels per day (bpd) in May, down about 15% from the 7.9 bpd in February this year.

"The headline numbers, showing Russian exports are still relatively strong, don't tell the full story," said Houston-based energy strategist Clay Seigle. "Russian oil at sea is continuing to accumulate."

The number of Urals cargoes at sea with no set destination is 15% of the total, also a new high, Seigle added. Some of the oil could be in transit to undisclosed buyers, while others could be unsold cargoes.

Most barrels of Russian crude oil have headed to Asia, mainly India and China, while volumes to Europe have also ticked up ahead of a ban

China a key buyer

China is quietly ramping up purchases of oil from Russia at bargain prices, according to shipping data and oil traders who spoke to Reuters, filling the vacuum left by Western buyers backing away from business with Russia after its invasion of Ukraine in February.

The move by the world's biggest oil importer comes a month after it initially cut back on Russian supplies, for fear of appearing to openly support Moscow and potentially exposing its state oil giants to sanctions.

China's seaborne Russian oil imports will jump to a near-record 1.1 million barrels per day (bpd) in May, up from 750,000 bpd in the first quarter and 800,000 bpd in 2021.

Unipec, the trading arm of Asia's top refiner Sinopec Corp, is leading the purchases, along with Zhenhua Oil, a unit of China's defense conglomerate Norinco, according to shipping data. Livna Shipping, a Hong Kong-registered firm, has also recently emerged as a major shipper of Russian oil into China, the traders said.

These firms are filling the hole left by western buyers after Russia's invasion of Ukraine, which Russia calls a "special military operation."

The United States, Britain and some other key oil buyers banned imports of Russian oil shortly after the invasion. The European Union is finalizing a further round of sanctions, including a ban on Russian oil purchases. Many European refiners have already stopped buying from Russia for fear of running afoul of sanctions or drawing negative publicity.

Vitol and Trafigura, two of the world's biggest commodity traders, phased out purchases from Rosneft, Russia's biggest oil producer, ahead of an EU rule that came into effect on May 15 barring purchases unless "strictly necessary" to secure the EU's energy needs.

The situation began taking a drastic turn after the exit of Vitol and Trafigura that created a vacuum, which could only be filled by companies that can provide value and are trusted by their Russian counterparts.

The low price of Russia's oil – spot differentials are about US$29 less per barrel compared with before the invasion, according to traders - is a boon for China's refiners as they face shrinking margins in a slowing economy. The price is well below competing barrels from the Middle East, Africa, Europe and the United States.

QUAD slams coercive attempts to alter status quo in Indo-Pacific

In unprecedentedly strong language, the leaders of the Quadrilateral Security Dialogue (QUAD) expressed opposition to coercive, provocative or unilateral actions that seek to change the status quo in the Indo-Pacific.

The joint statement, issued after the leaders of Japan, Australia, India and the United States met for a summit in Tokyo on Tuesday, did not mention China by name, but the finger-pointing was clear.

The leaders were less clear when it came to Russia. The joint statement avoided blaming Russia directly for the war in Ukraine and only described the situation there as a ‘tragic crisis’.

The nuanced position reflected the difficult position of Indian Prime Minister Narendra Modi, who has so far avoided tarnishing India's long-standing friendship with Moscow. In his opening remarks, Modi said a free, open and inclusive Indo-Pacific is a shared objective of all of us, but did not mention Russia or Ukraine.

US President Joe Biden, Japanese Prime Minister Fumio Kishida, new Australian Prime Minister Anthony Albanese and Modi met for two hours at the Japanese Prime Minister's office for the fourth summit of the group and their second in-person meeting, after one in Washington last September.

The attendance of Albanese, sworn in just a day earlier, reflected how prominent a platform the QUAD has become since the four countries formed an unofficial core group to lead the international assistance after the 2004 Sumatra earthquake.

"Since we last met in person in September, an incident that overturns the rules-based international order has happened the Russian invasion of Ukraine," Kishida said in introductory remarks. "It is a blatant challenge to the principles set in the United Nations charter. We must not allow the same thing to happen in the Indo-Pacific."

Albanese, who was offered the opportunity to speak first after Kishida, said, "My government is committed to working with your countries and we are committed to the Quad.

"The new Australian government's priorities align with the QUAD agenda, taking action on climate change, and building a stronger and more resilient Indo-Pacific region through better economic security, better cybersecurity, better energy security and better environmental and health security," Albanese said.

Biden said that the world is navigating a dark hour in our shared history, in reference to the Ukraine war. This is more than just a European issue. It's a global issue.

"As long as Russia continues the war, the United States will work with our partners to help lead a global response because it's going to affect all parts of the world," Biden said.

Meanwhile, Modi commended the group's coordination in areas such as coronavirus vaccine delivery and climate actions, and said: "The QUAD has a constructive agenda for the Indo-Pacific, which will further strengthen its image as a force for good."

A joint statement issued after the meeting indirectly slammed China's actions in the East and South China seas.

"We strongly oppose any coercive, provocative or unilateral actions that seek to change the status quo and increase tensions in the area, such as the militarization of disputed features, the dangerous use of coast guard vessels and maritime militia, and efforts to disrupt other countries' offshore resource exploitation activities," it said.

The leaders agreed to hold the next in-person summit in Australia next year.

India's role in the regional security landscape is becoming more critical, after the border clashes of June 2020 made India's military one of the very few to have faced the Chinese People's Liberation Army on the field in recent years.

The QUAD summit comes three months after Russia's invasion of Ukraine, which has raised concerns in Asia about unilateral changes to the status quo.

India has historically had strong defense ties with Russia and abstained from United Nations votes against Moscow, taking a stance distinct from other QUAD members. As such, how the four QUAD nations will unite and align over the pressing security issues will be closely watched.

Shamshad Ahmad Khan, an Assistant Professor of International Relations at the BITS Pilani Dubai Campus, said the QUAD summit is taking place at a time when the Russian onslaught in Ukraine continues, North Korea is planning another missile test, experts in strategic circles are speculating on a Ukraine-type invasion of Taiwan by China, and Beijing's expansionist designs are a cause of security concerns for Japan and India.

Khan said China remains the biggest geopolitical challenge for India but added that given the economic interdependence of the two countries, they are involved in a dialogue to resolve their boundary issues.

"India is not likely to aggressively counterbalance China, and that is visible when you see the QUAD taking up softer security issues, climate change, vaccine diplomacy, while the newly formed AUKUS alliance of Australia, the United Kingdom and the United States aims to take up increasing defense cooperation to counterbalance China, he told Nikkei Asia.

Srikanth Kondapalli, a professor of Chinese studies at the Jawaharlal Nehru University in New Delhi, agreed that India sees Beijing as its biggest geopolitical challenge but took a different view on economic interdependence.

The professor said that India - which is estimated to grow at a rate of about 8% in the ongoing financial year - has received only US$8.2 billion investment from China. "That is quite a ridiculous amount," he said, observing that in contrast Beijing has invested a whopping US$52 billion in Pakistan, whose economy is going through a crisis.

At the QUAD, the leaders discussed a new maritime initiative called the Indo-Pacific Partnership for Maritime Domain Awareness (IPMDA), which will connect existing surveillance centers in India, Singapore, the Solomon Islands and Vanuatu to share information and monitor activities on the sea.

"This addresses a real need and something that the administration has heard a true demand signal from almost across the region ... The ability to know what is happening in countries' territorial waters and in their exclusive economic zones," a senior US administration official told reporters.

After the summit, the leaders held an event to open applications for the Quad Fellowship, which will sponsor 100 American, Australian, Indian, and Japanese students to study in the US for graduate degrees in science, technology, engineering, and mathematics (STEM) fields.

The QUAD meeting came on the last day of Biden's five-day Asia trip, which will likely be remembered for the president's bombshell statement on Monday that the US would be willing to use force to defend Taiwan.

On Tuesday, Biden was asked by a reporter if the policy of strategic ambiguity toward Taiwan was dead. He responded, "No."

Asked to elaborate, the president said "No," again.

Asked whether he would send troops to Taiwan if China invaded, Biden only noted, "The policy has not changed at all. I stated that when I made my statement yesterday."

 

Gwadar: The Gateway to CPEC

The initiatives in the domain of Corporate Social Responsibility (CSR) undertaken by China Overseas Ports Holding Company (COPHC) and other Chinese firms in Gwadar are appreciable and are aimed at the right direction. 

Effective development communication and positive engagement with local communities is critical for the effectiveness and long-term success of these projects. 

All stakeholders should devise a mechanism for an integrated socio-economic development strategy and ensure inclusion of the hopes and aspiration of the inhabitants of Gwadar vis-à-vis China Pakistan Economic Corridor (CPEC).

This was the crux of a two-day media conclave and roundtable conference titled ‘CSR Initiatives in Gwadar: The Gateway to CPEC’ co-organized by Institute of Policy Studies (IPS), Islamabad and the University of Gwadar in collaboration with COPHC, Gwadar Port Authority (GPA) and Gwadar Development Authority (GDA) in the strategic port town.

Speaking on the occasion, Jawad Akhtar Khokhar, Advisor, Maritime Affairs, Ministry of Planning, Development & Special Initiatives gave a detailed overview of the development projects in Gwadar under various modalities and highlighted the CPEC projects in Gwadar worth US$2.1 billion so far.

He said so far three projects worth US$314 million have been completed. These projects included Gwadar Smart Port City Master Plan, physical infrastructure of Gwadar Port and Free Zone Phase-1, and Pak-China Technical and Vocational Institute.

Another seven projects worth US$1.44 billion are under implementation process. These projects include Eastbay Expressway, which is almost complete; facilities of fresh water treatment, water supply and distribution, which are 70% cent complete; New Gwadar International Airport; Pak-China Friendship Hospital Gwadar; infrastructure of Gwadar Free Zone Phase-II; 300 MW coal power plant and 1.2 million gallons’ desalination plant.

Khokhar said under the short-term strategy the prioritized projects include provision of water in three months and electricity in five months for Gwadar, Trading Corporation of Pakistan has been authorized to import one-third cargoes at Gwadar; and completion of M-8 motorway. Highlighting long-term strategy, he said the government is aiming to build LNG and POL terminals at Gwadar port and ensure availability of electricity, water and gas to enable phase-2 expansion of the port.

Naseer Khan Kashani, Chairman, Gwadar Port Authority (GPA) stressed the importance of bringing the locals together through CSR.  “We must prioritize people over infrastructure development. Drinkable water and electricity is the top priority of the authorities in Gwadar”, he stated.

Kashani said a desalination plant of about 1.2 million gallons would become operational in six to eight months that would provide drinkable water for the locals. Moreover, the newly inaugurated state-of-the-art Pak-China Vocational & Technical Training Institute will provide three years’ training to local youth, which is a big contribution by our Chinese friends, he added. “Chinese authorities have also recently provided 3,000 solar panels to the poorest of the poor in Gwadar for the provision of electricity,” he informed.

While delivering the keynote speech, Zhang Baozhong, Chairman COPHC spoke at length about the experiences of his seven-year stay in Gwadar. “We are cognizant of the fact that Gwadar deserves more rapid development to live up to the expectations of the local people. There is no denying the fact that it has developed much during the past seven years”, he remarked. 

He stated three reasons for the promising prospects of Gwadar: 1) cooperation of the Gwadar people, 2) its vast resources, and 3) its strategic location. “The inhabitants of Gwadar deserve respect and development according to their rightful demands”, Baozhong underscored.

“We are sending 20 students to China on scholarships every year. We have been running a primary school here for the last five years and soon we will construct a secondary school as well. More than 6000 solar panel units have been distributed among the people of Gwadar so far, and around 500,000 trees have been planted,” Shahzad Sultan, Country Head Marketing of COPHC informed while providing details of the CSR initiatives.

Chairman IPS Khalid Rahman highlighted the concept of CSR and elements that can improve the lives of the local inhabitants. “We must have solution-oriented recommendations, not problem-oriented,” he said adding that positive thinking and improvement in governance will bring a huge change in the life of the people of Gwadar. “CSR activities do not mean spending a share of your profit, it’s about creating an environment which is not harmful for the society in any way,” he added.

Professor Dr. Abdul Razzaq Sabir, Vice Chancellor, University of Gwadar, in his welcome address earlier appreciated the initiatives of IPS for identifying challenges in the area. He said giving back to the society is the biggest responsibility of corporate sector. Working on development of human resources should be the biggest priority of the government and private sector. As Gwadar is expanding after development of the port, it is important to learn from China’s experience and expertise through student exchange program. “We must train our youth to become productive elements of Gwadar.”

He was of the view that CSR must be defined in local perspective. Local issues could be considered to resolve people’s genuine and basic issues and problems through CSR initiatives. He emphasized that engaging local community and civil society could result in better planning, befitting solutions and better implementation with local wisdom and participation.

Dr. Rashid Aftab, director Riphah Institute of Public Policy (RIPP) commented that reservations of locals must be addressed with evidence-based data sharing with all relevant stakeholders.

Dolat Khan, Registrar, University of Gwadar and Arsalan Ali, Head of Investments, Gwadar Development Authority (GDA) also spoke on the occasion. Media conclave and roundtable conference was attended by a number of senior journalists and academics from Karachi, Islamabad and Gwadar. The delegates also visited China-Pakistan Vocational and Technical Training Institute and other sites under CSR to witness the pace of progress. They interacted with the local students and teachers to observe their views.

State Bank justifies hike in interest rate

The Monetary Policy Committee (MPC) of State Bank of Pakistan (SBP) believes that the hike of 150bps on May 23, 2022 together with ‘much needed’ fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability.

It believes the headline inflation is likely to increase temporarily and remain on the higher side in FY23, but expects it to fall to 5% to 7% range in FY24, assuming moderating growth, normalizing global commodity prices and base-effect. NCPI currently is at a 2 year high driven primarily by perishable food items and core inflation. Nevertheless, central banks globally are responding to inflation.

Despite some respite in MoM current account deficit, the Rupee has remained under pressure due to the weak sentiment and a strengthening US dollar. Exports have continued their growth momentum along with robust remittances.

Moreover, growth in imports has been generally driven by crude oil, food items and chemicals including vaccines FY22 TD. Slight drop in volumes recently has been partially offset by higher oil and edible oil imports and higher international prices.

Pakistan is in a comfortable position to meet external financing requirements for FY23. Gross financing needs for Q4FY22 and FY23 stand at US$45 billion. Financing is available to the tune of US$51 billion – large part of which is multilateral loans. Pakistan expects a rollover of US$2.3 billion loan from China. 

Discussions with the International Monetary Fund (IMF) are progressing well in Doha. However, delays might occur given that the budget for FY23 is also part of the ongoing discussions. The IMF requires ‘political assurances’ which may not preclude a caretaker setup from negotiating the program as well. The IMF has negotiated with caretaker setups in other countries in past.

The incumbent coalition government headed by Shehbaz Sharif is keen on continuing with the low-cost housing schemes. However, given the need for fiscal consolidation lending targets assigned to commercial banks for lending to private developers etc. might be reviewed.

The MPC also emphasized the need for strong and equitable fiscal consolidation to complement monetary policy measures.

 

 

State Bank of Pakistan raises policy rate by 150bps to 13.75 percent

In its meeting on May 23, 2022, the Monetary Policy Committee (MPC) decided to raise the policy rate by 150 basis points to 13.75%. This action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability.

Since the last MPC meeting, provisional estimates suggest that growth in FY22 has been much stronger than expected. Meanwhile, external pressures remain elevated and the inflation outlook has deteriorated due to both home-grown and international factors.

Domestically, an expansionary fiscal stance this year, exacerbated by the recent energy subsidy package, has fueled demand and lingering policy uncertainty has compounded pressures on the exchange rate. Globally, inflation has intensified due to the Russia-Ukraine conflict and renewed supply disruptions caused by the new Covid wave in China.

As a result, almost all central banks across the world are suddenly confronting multi-year high inflation and a challenging outlook.

After contracting by 0.9% in FY20 in the wake of Covid, the economy has rebounded much more strongly than anticipated, growing by 5.7% last year and accelerating to 5.97% this year, as per provisional estimates. At 13.4%YoY, headline inflation unexpectedly rose to a two-year high in April and has now been in double digits for six consecutive months.

Inflation momentum was also elevated, at 1.6%MoM, and core inflation rose further to 10.9% and 9.1% in rural and urban areas, respectively. On the external front, notwithstanding some encouraging moderation in the current account deficit during April, the Rupee depreciated further due both to domestic uncertainty as well as recent strengthening of the US dollar in international markets following tightening by the Federal Reserve.

The MPC’s baseline outlook assumes continued engagement with the IMF, as well as reversal of fuel and electricity subsidies together with normalization of the petroleum development levy (PDL) and GST taxes on fuel during FY23. Under these assumptions, headline inflation is likely to increase temporarily and may remain elevated throughout the next fiscal year. Thereafter, it is expected to fall to the 5 to 7% target range by the end of FY24, driven by fiscal consolidation, moderating growth, normalization of global commodity prices, and beneficial base effects.

Considering the balance of risks around this baseline, the MPC felt it was important to take effective action to anchor inflation expectations and maintain external stability. In addition to today’s policy rate increase, the interest rates on EFS and LTFF loans are also being raised.

Going forward, to strengthen monetary policy transmission, these rates will be linked to the policy rate and will adjust automatically, while continuing to remain below the policy rate in order to incentivize exports. At the same time, the MPC emphasized the urgency of strong and equitable fiscal consolidation to complement today’s monetary tightening actions. This would help alleviate pressures on inflation, market rates and the external account.

Real sector

Unlike most emerging markets, Pakistan experienced a relatively mild contraction after the Covid shock in 2020, followed by a sustained and vigorous rebound. As a result, output is now above its pre-pandemic trend, such that tightening of macroeconomic policies that is necessitated by the presently elevated pressures on inflation and the current account is also warranted from the perspective of demand management. Most demand indicators have remained strong since the last MPC—including sales of POL and automobiles, electricity generation, and sales tax on services—and growth in LSM accelerated in March. Both consumer and business confidence have also ticked up. With the output gap now positive, the economy would benefit from some cooling. On the back of monetary tightening and assumed fiscal consolidation, growth is expected to moderate to 3.5% to 4.5% in FY23.

External sector

The current account deficit continues to moderate. In April, it fell to US$623 million, less than half the average for the current fiscal year, on the back of lower imports and record remittances. Based on PBS data, the trade deficit shrank by 24% relative to its peak last November. These developments are in line with SBP’s projected current account deficit of around 4% of GDP this year.

Next year, the current account deficit is projected to narrow to around 3% of GDP as import growth continues to slow with moderating demand and the recent measures taken by the government to curtail non-essential imports, while exports and remittances remain resilient.

This narrowing of the current account deficit together with continued IMF support will ensure that Pakistan’s external financing needs during FY23 are more than fully met, with an almost equal share coming from rollovers by bilateral official creditors, new lending from multilateral creditors, and a combination of bond issuances, FDI and portfolio inflows.

As a result, excessive pressure on the Rupee should attenuate and SBP’s FX reserves should resume their previous upward trajectory during the course of the next fiscal year.

Fiscal sector

Instead of the budgeted consolidation, the fiscal stance in FY22 is now expected to be expansionary. At 0.7% of GDP, the primary deficit during the first three quarters of the year compares unfavorably with the primary surplus of 0.8 percent of GDP during the same period last year. This slippage was driven by a sharp rise in non-interest expenditures, led by higher subsidies, grants and provincial development expenditures.

The resulting demand pressures have coincided with the sharp rise in costs from the surge in global commodity prices, exacerbating inflationary pressures and the import bill. Timely action is needed to restore fiscal prudence, while providing adequate and targeted social protection to the most vulnerable. Such prudence enabled Pakistan’s public debt to decline from 75% of GDP in FY19 to 71% in 2021 despite the Covid shock, in sharp contrast to the average increase of around 10% of GDP across emerging markets over the same period.

Monetary and inflation outlook

In nominal terms, private sector credit growth remained robust through April, reflecting strong economic activity and higher input prices which have enhanced working capital requirements of firms. Since the last MPC meeting, secondary market yields, benchmark rates and cut-off rates in the government’s auctions have risen, particularly at the short end. The MPC noted that the market rates should be aligned with the policy rate and in case of any misalignment after today’s policy decision, SBP would take appropriate action.

Headline inflation rose from 12.7%YoY in March to 13.4% in April, driven by perishable food items and core inflation. The rise in core inflation reflects strong domestic demand and second-round effects of supply shocks.

At the same time, measures of long-term inflation expectations have also ticked up. As electricity and fuel subsidies are reversed, inflation is likely to rise temporarily and may remain elevated through FY23 before declining sharply during FY24. This baseline outlook is subject to risks from the path of global commodity prices and the domestic fiscal policy stance. The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth.