Pakistan: Strategy for Navigating FY23

Through a joint statement issued by Ministry of Finance and State Bank of Pakistan, all the stakeholders and public in general has been assured that the present trauma will ease. While one may not agree with some of the points, this is an official strategy and only wait and see stance could be adopted.

Pakistan’s problems are temporary and are being forcefully addressed

Pakistan’s foreign exchange reserves have fallen since February as foreign exchange inflows have been outpaced by outflows. The inflows mainly comprise of multilateral loans from the IMF, World Bank and ADB; bilateral assistance in the form of deposits and loans from friendly countries like China, Saudi Arabia, and the UAE; and commercial borrowing from foreign banks and through the issuance of Eurobonds and Sukuks. The paucity of inflows has happened in large part due to the delay in completing the next review of the IMF program, which has lingered since February due to policy slippages. Meanwhile, on the outflows side, debt servicing on foreign borrowing has continued as repayments on these debts have been coming due over this period.

At the same time, the exchange rate has come under significant pressure, especially since mid-June. It has been driven by general US dollar tightening, a rise in the current account deficit (exacerbated by a heavy energy import bill in June), the decline in foreign exchange reserves, and worsening sentiment due to uncertainty about the IMF program and domestic politics.

However, important developments have happened recently that will address both of these temporary issues. On July 13, the critical milestone of a staff-level agreement on completing the next IMF review was reached. As of today, all prior actions for completing the review have been met and the formal Board meeting to disburse the next tranche of US$1.2 billion is expected in a couple of weeks. At the same time, macroeconomic policies—both fiscal policy and monetary policy—have been appropriately tightened to reduce demand-led pressures and rein in the current account deficit. Finally, the government has clearly announced that it intends to serve out the rest of its term until October 2023 and is ready to implement all the conditions agreed with the Fund over the remaining 12 months of the IMF program.

In FY23, Pakistan’s gross financing needs will be more than fully met under the ongoing IMF program

The financing needs stem from a current account deficit of around US$10 billion and principal repayments on external debt of around US$24 billion.

In order to bolster Pakistan’s foreign exchange reserves position, it is important for Pakistan to be slightly over-financed relative to these needs.

As a result, an extra cushion of US$4 billion is planned over the next 12 months. This funding commitment is being arranged through a number of different channels, including from friendly countries that helped Pakistan in a similar way at the beginning of the IMF program in June 2019.

Important measures have been taken to contain the current account deficit

In addition to high global commodity prices, the large current account deficit in FY22 was driven by rapid domestic demand (growth reached almost 6 percent for two consecutive years leading to overheating of the economy), artificially low domestic energy prices due to the February subsidy package, an unbudgeted and procyclical fiscal expansion, and heavy energy imports in June to minimize load-shedding and build inventories.

To contain this deficit going forward, the policy rate was raised by 800 basis points, the energy subsidy package has been reversed, and the FY23 budget targets a consolidation of nearly 2.5 percent of GDP, centered on tax increases while protecting the most vulnerable. This will help cool domestic demand, including for fuel and electricity.

In addition, temporary administrative measures have been taken to contain the import bill, including requiring prior approval before importing automobiles, mobile phones and machinery. These measures will be eased as the current account deficit shrinks in the coming months.

These measures are working, the import bill fell significantly in July, as energy imports have declined and non-energy imports continue to moderate

Foreign exchange payments in July were significantly lower than in June. This is true for both oil and non-oil payments. Altogether, payments were a sustainable US$6.1 billion in July compared to US$7.9 billion in June.

The latest trade data indicate that non-oil imports continue to fall. Specifically, non-oil imports fell by 5.7%QoQ during Q4 FY22. They are expected to reduce further going forward.

Looking ahead, a considerable slowdown has been witnessed in LC opening in recent weeks, again for both oil as well as non-oil commodities. Based on market reports, there was an 11%MoM decline in Oil Marketing Companies sales volume in June.

After the surge in energy imports in June, a stock of diesel and furnace oil sufficient for 5 and 8 weeks, respectively, is now available in the country, much higher than the normal range of 2 to 4 weeks in the past. This implies a lower need for petroleum imports going forward.

With the recent rains and storage of water in the dams, hydroelectricity is also likely to increase and need to generate electricity on imported fuel is expected to decline going forward.

As a result of these trends, the import bill is likely to shrink going forward and should begin to manifest itself more forcefully in lower FX payments over the next 1-2 months.

Overall, imports are expected to decline in coming months due to a decline in global commodity prices, the higher oil stock, the unfolding impact of higher domestic prices of petroleum products, adjustments in electricity and gas tariffs, the removal of tax exemptions under the FY23 budget, administrative measures taken to curtail imports, and the lagged impact of the monetary and fiscal tightening that has been undertaken.

The Rupee has overshot temporarily but it is expected to appreciate in line with fundamentals over the next few months

Around half of the Rupee depreciation since December 2021 can be attributed to the global surge in the US dollar, following historic tightening by the Federal Reserve and heightened risk aversion.

Of the remaining half, some is driven by domestic fundamentals, in particular, the widening of the current account deficit, especially in the last few months. As noted above, the deficit is expected to narrow going forward as the temporary surge in the import bill is brought under control. As this happens, the Rupee is expected to gradually strengthen.

The remaining depreciation has been overdone and driven by sentiment. The Rupee has overshot due to concerns about domestic politics and the IMF program. This uncertainty is being resolved, such that the sentiment-driven part of the Rupee depreciation will also unwind over the coming period.

Where the market has become disorderly, the State Bank has continued to step in through sales of US dollars to calm the markets and will continue to do so, as needed in the future. Strong steps to counter any speculation have also been taken, including close monitoring and inspections of banks and exchange companies. Further additional measures will be taken as situation warrants.

Rumors that a particular level of the exchange rate has been agreed with the IMF are completely unfounded. The exchange rate is flexible and market-determined, and will remain so, but any disorderly movements are being countered.

Going forward, as the current account deficit is curtailed and sentiment improves, we fully expect the Rupee to appreciate. Indeed, this was the experience during the beginning of the IMF program in 2019, when the Rupee strengthened considerably after a period of weakness in the lead-up to the program.

Clearly, the Rupee can overshoot temporarily as it has done recently. However, it moves both ways over time. We expect this pattern to re-assert itself in the coming period. As a result, the Rupee should strengthen in line with improved fundamentals in the form of a smaller current account deficit as well as stronger sentiment.

Beirut silo collapses ahead of blast anniversary

Part of the grain silos at Beirut Port collapsed on Sunday just days before the second anniversary of the massive explosion that damaged them, sending a cloud of dust over the capital and reviving traumatic memories of the blast that killed more than 215 people. There were no immediate reports of injuries.

Lebanese officials warned last week that part of the silos - a towering reminder of the catastrophic August 04, 2020 explosion - could collapse after the northern portion began tilting at an accelerated rate.

"It was the same feeling as when the blast happened, we remembered the explosion," said Tarek Hussein, a resident of nearby Karantina area, who was out buying groceries with his son when the collapse happened. "A few big pieces fell and my son got scared when he saw it," he said.

A fire had been smoldering in the silos for several weeks which officials said was the result of summer heat igniting fermenting grains that have been left rotting inside since the explosion.

The 2020 blast was caused by ammonium nitrate unsafely stored at the port since 2013. It is widely seen by Lebanese as a symbol of corruption and bad governance by a ruling elite that has also steered the country into a devastating financial collapse.

One of the most powerful non-nuclear blasts on record, the explosion wounded some 6,000 people and shattered swathes of Beirut, leaving tens of thousands of people homeless.

Ali Hamie, the minister of transport and public works in the caretaker government, told Reuters he feared more parts of the silos could collapse imminently.

Environment Minister Nasser Yassin said that while the authorities did not know if other parts of the silos would fall, the southern part was more stable.

The fire at the silos, glowing orange at night inside a port that still resembles a disaster zone, had put many Beirut residents on edge for weeks.

The government took a decision in April to destroy silos, angering victims' families who wanted them left to preserve the memory of the blast. Parliament last week failed to adopt a law that would have protected them from demolition.

Citizens' hopes that there will be accountability for the 2020 blast have dimmed as the investigating judge has faced high-level political resistance, including legal complaints lodged by senior officials he has sought to interrogate.

Prime Minister-designate Najib Mikati has said he rejects any interference in the probe and wants it to run its course.

However, reflecting mistrust of authorities, many people have said they believed the fire was started intentionally or deliberately not been contained.

Divina Abojaoude, an engineer and member of a committee representing the families of victims, residents and experts, said the silos did not have to fall.

"They were tilting gradually and needed support, and our whole goal was to get them supported," she told Reuters.

"The fire was natural and sped things up. If the government wanted to, they could have contained the fire and reduced it, but we have suspicions they wanted the silos to collapse."

Earlier this month, the economy minister cited difficulties in extinguishing the fire, including the risk of the silos being knocked over or the blaze spreading as a result of air pressure generated by army helicopters.

Fadi Hussein, a Karantina resident, said he believed the collapse was intentional to remove "any trace of August 04, 2020".

"We are not worried for ourselves, but for our children, from the pollution," resulting from the silos' collapse, he said, noting that power cuts in the country meant he was unable to even turn on a fan at home to reduce the impact of the dust.

Nancy Pelosi sets off on Asia tour

According to South China Morning Post, US House Speaker Nancy Pelosi has begun her anticipated trip to Asia, with her office naming four destinations but making no mention of Taiwan. 

This comes amid more stormy warnings from Beijing amid heightened tensions over her planned visit to the island.

Pelosi, No 3 in the line of US presidential succession, is leading a six-member congressional delegation to Singapore, Malaysia, South Korea and Japan, according to a statement released by her office on Sunday.

The statement skipped any mention of Taiwan, after days of intense speculation about a likely stop there fuelled tensions, with Beijing calling it a provocation and warning Washington against playing with fire.

“In Singapore, Malaysia, South Korea and Japan, our delegation will hold high-level meetings to discuss how we can further advance our shared interests and values, including peace and security, economic growth and trade, the Covid-19 pandemic, the climate crisis, human rights and democratic governance,” the statement quoted Pelosi as saying.

“America is firmly committed to smart, strategic engagement in the region, understanding that a free and flourishing Indo-Pacific is crucial to prosperity in our nation and around the globe,” the 82-year-old Democratic lawmaker said.

Beijing regards Taiwan to be a breakaway province, to be reunited by force if necessary, and warns against any official exchange with the self-governed island.

It earlier said Pelosi’s planned trip to Taiwan was a move to support Taiwan independence, in violation of one-China policy, followed by the United States.

On Thursday, Biden and China’s Xi Jinping spoke on the phone for over two hours. During the call, Biden tried to reassure Xi that US policy towards Taiwan has not changed.

“On Taiwan, President Biden emphasized that US policy has not changed and that the US strongly opposes unilateral efforts to change the status quo or undermine peace and stability across the Taiwan Strait,” an official readout on the White House website said.

After the leaders’ phone call, China’s Foreign Ministry quoted Xi as telling Biden that those who play with fire will perish by it and that they hoped the United States will be clear-eyed about this.

However, Pelosi indicated on Friday that she will be on a trip to Asia, but did not mention Taiwan. “I am very excited if we were to go to the countries that you will hear about along the way,” she said, Reuters reported.

White House spokesman John Kirby said, “Where she (Pelosi) is going to go and what she is going to do is up to the speaker to speak to.”

However, he added that the United States has not observed any signs of a specific military threat from China. “(We have) seen no physical, tangible indications of anything untoward with regard to Taiwan,” Kirby said.

  

United States remains adamant at not releasing frozen Afghan assets

Please allow me to begin my today’s blog with the Iranian indictment, “United States is the biggest terrorist in this world”. The United States is often accused of killing of hundreds and thousands of people every year in proxy wars or through direct assaults. 

It played ‘the game of death’ in Afghanistan for four decades. After facing the defeat in August last year, it may have pulled its troops from Afghanistan but it is still making lives of Afghans miserable on one or the other pretext.

It is a fact that the United States has neither recognized the Taliban government nor allows other countries to recognize their government is Afghanistan. On top of all it has frozen Afghan foreign exchange reserves. The acts of United States tantamount to worst kind of aggression against Afghans, as the country find it almost impossible to import even basic necessities due to non-availability of foreign exchange.

To maintain the US hegemony in Afghanistan, Secretary of State Antony Blinken has launched the US-Afghan Consultative Mechanism (USACM), which would enable Afghan citizens to communicate directly with American policymakers.

Addressing the launching ceremony, the top US diplomat said that besides Pakistan, the Organization of Islamic Cooperation, Qatar and Turkey, and others were also backing US efforts to convince the Taliban to reverse their decision to keep Afghan girls out of school.

The new platform — USACM — is aimed at bringing together Afghan women, journalists, and at-risk ethnic and religious communities with the representatives of the US State Department. It will facilitate regular engagement with the US government on issues ranging from human rights documentation to women in Islam.

With USACM’s launch, “We are taking these relationships to the next level. That’s why I’m so pleased about today,” Secretary Blinken said. He identified the group’s priorities as supporting income-generating activities for Afghan women; strategizing ways to help Afghan human rights monitors safely document abuses, and devising new methods to promote religious freedom.

The United States has discussed with Taliban officials the possible release of Afghan central bank’s assets frozen after the fall of Kabul in August last year. The two sides discussed ongoing efforts to enable the US$3.5 billion Afghan central bank reserves to be used for the benefit of the Afghan people.

However, in nearly one year, the US administration has failed in addressing the urgent humanitarian situation in Afghanistan.

To further complicate the situation a meeting, involving Special Representative for Afghanistan Thomas West and Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson, took place on Wednesday in Tashkent. The meetings took place after the conclusion of the Tashkent Conference on Afghanistan that Uzbekistan hosted on July 26.

Media reports on the meeting claimed that the talks had made some progress and the US and Taliban officials had exchanged proposals for unfreezing the assets. But some differences remained unresolved.

One of the key differences was over the Taliban’s refusal to replace the bank’s top political appointees, “one of whom is under US sanctions as are several of the movement’s leaders,” one of the reports added.

Iran aspires to become a gas hub with Russian support

Iran is currently under sanctions and involved in nuclear deal discussions with the United States and the West. It is also positioning itself to work with China and Russia.

The investment by Gazprom in Iran’s National Iranian Oil Company was announced during a recent visit by Russian President Vladimir Putin to Iran. This creates hope that Russian investment could help Iran become a regional gas hub.

Analyst and energy expert Habibollah Zafarian was quoted in an article at Iran’s Fars News arguing that the country could become a gas hub based on gas trade with neighboring countries. “Iran's gas reserves and privileged geographical location allow the country to play an influential role in the gas trade of the region.” 

Zafarian said “Iran's strategy should be defined in such a way that it buys the surplus gas of the countries of the region as much as possible and exports gas to the requesting countries at a higher price.”

Those like Zafarian, quoted in Iran pro-government media, are part of a push for the Islamic Republic to get out from under the West’s shadow and increase energy independence. 

Iran is well positioned to trade with Qatar, Azerbaijan and Turkmenistan, which have a surplus of gas, the article said, adding that gas is currently being exported by various countries to Armenia, Turkey, Iraq, Kuwait and the Persian Gulf countries – especially the UAE – and Oman, Pakistan and Afghanistan. 

“Everyone wants to import gas,” Zafarian said. “As a result, there is a great opportunity for Iran to become a regional gas hub with gas trade between exporting and importing countries.” 

Iran wants to take advantage of the war in Ukraine and the global economic crisis to work closely with Qatar and also improve its gas fields and its liquefied natural gas (LNG) infrastructure

“Also, in the recent developments of the gas market, Russia has minimized gas exports to Europe, and America is trying to increase its LNG exports in order to replace a part of Russian gas in the European market,” an expert told Fars News.

Iran can now purchase Russian gas and then export it. There could even be an export pipeline. Gas could be exported to Turkey, Armenia, Georgia and Syria.

"In return, we can also help Russia and buy Qatar gas, which is one of the most serious options to replace Russian gas in the European market, and sell it to our destination markets."  

Clearly Iran is plotting to take advantage of the global crises, openly saying what it wants to do. The regime has been trying to develop north-south rail and transport lines for years so that it can hook up Turkey with southern Iran and also develop links to Central Asia and Pakistan or even India.  

Supporters of Iraqi cleric Sadr storm Baghdad Green Zone

Storming Baghdad twice in a week by supporters of Moqtada al-Sadr and chanting anti-Iran slogans can fuel turmoil in the country. Iraqis linked neither to Sadr nor to his opponents say are they caught in the middle of the political gridlock.

Analysts have reasons to suspect the riots are being sponsored and supported by the elements who don't want any reduction in animosity between Iran and Saudi Arabia. Lately, Iraq has played a key role in bringing Iran and Saudi Arabia closer.  

Thousands of supporters of populist cleric Moqtada al-Sadr stormed Baghdad’s fortified government zone on Saturday for the second time in a week, escalating a political stand-off that is hitting ordinary Iraqis hardest.

Protesters rallied by Sadr and his social-political Sadrist Movement tore down concrete barriers and entered the Green Zone, which houses government buildings and foreign missions, heading for Iraq’s parliament, a Reuters witness said.

The scenes followed similar protests on Wednesday, although this time several protesters and police officers were hurt as Sadr’s supporters threw stones and police fired teargas and stun grenades, according to security officials and medics.

Sadr’s party came first in a general election in October but he withdrew his lawmakers from parliament when he failed to form a government which excluded his rivals, mostly groups backed by Iran.

Sadr has since made good on threats to stir up popular unrest if parliament tries to approve a government he does not like, saying it must be free of foreign influence and the corruption that has plagued Iraq for decades.

The Sadrists chanted against Sadr’s political rivals who are now trying to form a government. Iraq has been without a president and prime minister for a record period because of the deadlock.

Sadr maintains large state power himself because his movement remains involved in running the country — his loyalists sit in powerful positions throughout Iraqi ministries and state bodies.

Iraqis linked neither to Sadr nor to his opponents say are they caught in the middle of the political gridlock.

While Baghdad earns record income from its vast oil wealth, the country has no budget, regular power and water cuts, poor education and healthcare, and insufficient job opportunities for the young.

Indian Army Chief visits Bangladesh

The chief of army staff of India, General Manoj Pande completed his Bangladesh visit recently (from July 18 to July 20) as part of the outstanding bilateral defense relations between Bangladesh and India.

General Manoj Pande was on his first trip abroad since taking over the post. First day of his visit, the army chief laid a wreath at Shikha Anirban to honor the valiant souls who made the ultimate sacrifices during the Liberation War of 1971.

Indian Army chief General Manoj Pande received a Guard of Honour at a convention centre of Bangladesh Armed Forces.

Indian Army Chief General Manoj Pande paid a courtesy call on his Bangladesh counterpart General SM Shafiuddin Ahmed at the Army Headquarters in Dhaka.  The two discussed ways to enhance and strengthen bilateral defense cooperation.

Manoj Pande met with senior members of the security establishment several times throughout the day to discuss defense-related topics. In Dhanmondi, at the Bangladesh’s Father of the Nation Bangabandhu Sheikh Mujibur Rahman Memorial Museum, he also paid respects. He met with Bangladesh PM Sheikh Hasina on Tuesday and focused on strengthening bilateral ties.

The army chief spoke the Defense Services Command and Staff College, Mirpur, professors and students on the second day of his visit.

He met with staff at the Bangladesh Institute of Peace Support and Operation Training, a prestigious institution in Bangladesh that prepares peacekeepers for work in a variety of UN peace operations, and engaged in conversation with them. After that, he visited the Bangabandhu Military Museum in Mirpur.

Manoj Pande’s visit has strengthened relations between the two armies on a bilateral level and served as a catalyst for improved coordination and collaboration between the two nations on a variety of strategic problems.

In South Asia, Bangladesh is an important ally of the India. The two nations work closely together on problems like climate change, counterterrorism, and regional security. This visit may serve to cement bilateral defense ties. Defense cooperation between nations could strengthen bilateral ties.

Both India and Bangladesh are essential to the region. Despite some bilateral issues, both countries are greatly interested in further solidifying their bilateral ties, which was made clear by this visit.

This could assist in bolstering bilateral ties and reflecting better bilateral understanding. This visit is highly important for Bangladesh and India in the region. Bangladesh and the India must work together as reliable partners to address some shared issues. Through this visit, India and Bangladesh have further reinforced their defense ties.

India played a significant role in the Bangladesh War of Liberation in 1971, helping the then-East Pakistan transform into the new country of Bangladesh, which permanently altered the dynamics of South Asia. India and Bangladesh agreed to a “Treaty of Friendship and Cooperation” that would last for 25 years.

Given the numerous cultural, diplomatic, economic, and security linkages that exist between India and Bangladesh today, the two nations’ bilateral ties are now stronger than ever. Bangladesh occupies a special place in India’s heart as a close neighbor and an essential part of the country’s “Neighborhood First Policy.”

In March this year, two Indian naval ships—INS Kulish and INS Sumedha—visited Bangladesh’s Mongla Port, making it the first naval visit India had made in the previous 50 years.

Bangladesh is still India’s “closest neighbor,” and relations with it are at a “golden age.” India wants to strengthen its relationship with Bangladesh just as the US wants to engage with it more strategically. Of sure, both nations would benefit from the situation.

In recent years, India and Bangladesh’s defense and security relations have improved. The 50th anniversary of Bangladesh’s Liberation was in 2021. Both India and Bangladesh have highly trained, experienced military, and they work together to keep the Eastern region peaceful.

The Bangladeshi and Indian militaries are increasingly collaborating on defense. Through a variety of initiatives, such as joint training and drills and defense discussions, the two countries’ armed forces have been working together more and more.

In order to achieve self-sufficiency in defense manufacturing in Bangladesh, India will assist Bangladesh in setting up manufacturing and service facilities for the defense platforms that both nations currently possess. Additionally, India will offer the Bangladesh military specialized training as well as technical and logistical support. India also gave a neighboring nation, Bangladesh, its first ever line of credit for defense-related purchases, in the amount of US$500 million.

India’s determination to combat terrorism in all its manifestations was echoed by Bangladesh’s resolute stance against terrorism. India is aware of Bangladesh’s efforts to prevent terrorist organizations from using space to conduct activities against India. In response, India should keep up its efforts to stop any terrorist group from using its territory to harm Bangladeshi interests.

India had encountered challenging circumstances in some of the States bordering Bangladesh, but since Prime Minister Shiekh Hasina’s government came to office in 2009, it has provided all assistance.

 

US oil companies the biggest beneficiaries of sanctions on Russian energy companies

The US super-majors ExxonMobil and Chevron both reported their highest-ever quarterly profits on Friday. Higher oil and gas prices, the highest refining margins, increased production, and aggressive cost control all contributed to the record-breaking profits at Exxon. Chevron also reported record-breaking profits, announcing an increase in share buybacks.

ExxonMobil results were far above analyst expectations and posted second-quarter earnings of US$17.9 billion, or US$4.21 per share assuming dilution. This is nearly quadruple the US$4.69 billion earnings for the second quarter last year, and more than triple the earnings from the first quarter of this year. Exxon’s per share earnings easily beat the analyst consensus of US$3.84.

Higher oil and gas prices, the highest refining margins in years, increased production, and aggressive cost control all contributed to the record-breaking profits at Exxon, were higher than its previous quarterly earnings record in 2012 and the quarterly profits in 2008, when Brent prices hit a record US$147 per barrel.

“Second-quarter earnings were driven by a tight supply/demand balance for oil, natural gas, and refined products, which have increased both natural gas realizations and refining margins well above the 10-year range,” Exxon said.

Another US super-major, Chevron, also posted record earnings beating analyst forecasts, thanks to high oil and gas prices and tight fuel markets driving multi-year high refining margins.

Chevron recorded adjusted earnings of US$11.4 billion, or US$5.82 per share, for the second quarter, up from US$3.3 billion earnings, or US$1.71 per share, for the same period of 2021. The analyst consensus was for US$5.08 EPS for this past quarter.

Chevron increased the top end of its annual share repurchase guidance range to US$15 billion, up from the US$10 billion guidance from March.

Following the results release, Chevron stock was up by more than 3.5% pre-market on Friday, while Exxon was advancing by 2.5%.

The record earnings from the US super-majors add to similarly strong earnings from the European majors, each of which reported much higher profits as commodity prices rallied.

 

 

 

United States GDP falls for second straight quarter

Economy of the United States appeared to shrink for the second consecutive quarter, according to federal data released Thursday, amid growing concern the country could be slipping into a recession.

US gross domestic product (GDP) shrunk between April and June, the Commerce Department reported, marking the second-straight quarter of economic contraction.

GDP fell at a yearly pace of 0.9% in the second quarter, according to the Commerce Department’s first estimate of economic growth over the previous three months.

“The US economy is struggling,” Scott Hoyt, senior director at Moody’s Analytics, wrote in a Thursday analysis.

“We now expect growth to struggle to reach potential both this year and next. However, we don’t believe the economy is in a recession,” he continued.

Many economists expected GDP to fall for a second consecutive quarter as the economy faced more pressure from high inflation, rising interest rates, slowing job growth, falling home sales and other headwinds. 

While the economy was almost certain to slow after growing 5.7% in 2021, experts have become more fearful of the US slowing into a recession after GDP fell at an annualized rate of 1.6% in the first quarter.

Two straight quarters of negative economic growth have long been used as a rule of thumb to determine when the US is in recession and is the formal threshold for a recession in other countries. But economists in the US consider a broader range of data when determining if the US is in recession.

“The headline of a second straight decline in real GDP highlights the abrupt change in the path of the US economy, but the ongoing strength in the job market and other signs of growth make it unlikely that this will be categorized as a recession at this point,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association, in a Thursday analysis.

A steep decline in business investment and a 3.1% surge in imports, which detract from GDP in calculations, were the two major forces behind the second quarter decline.

 “The data fits with our view that the rate of US economic growth will slow noticeably this year, as households and businesses grapple with record high inflation and a steep rise in interest rates,” Cailin Birch, a global economist at the Economist Intelligence Unit, said in a Thursday analysis.

President Biden and White House officials have tried to convince Americans that the US economy is not yet in a recession thanks to a strong job market. They’ve focused heavily on the NBER’s definition of a recession to show Americans that the economy is not as weak as it may seem.

“It’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation. But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure,” Biden said in a Thursday statement.

Republican lawmakers were quick to release their own declarations of recession. They blamed Biden for driving the economy into ruin and accusing the White House of trying to dupe the American people.

“As Biden and his Democrat allies in Congress busy themselves with changing the definition of a recession, Americans continue to shoulder the burden of troublesome economic conditions,” Rep. Blaine Luetkemeyer, the ranking member on the House Small Business Committee, said in a Thursday statement.

The Federal Reserve is likely to keep boosting interest rates as inflation rises, which will continue to slow the economy, as the war in Ukraine and pandemic-related supply chain challenges threaten to make inflation worse.

 “Whether the economy meets the conventional or formal definition of recession is in many respects immaterial. Either way, households and firms are reeling from combined energy, inflation, and rate shocks that have damped individuals’ purchasing power and are in the process of reducing household living standards,” wrote Joe Brusuelas, chief economist at audit and tax firm RSM.

“That is the toll levied by the inflation tax and is why it is critical to restore price stability to the economy as soon as is reasonably possible,” he continued.

 

Pakistan Mild Respite Ahead

Pakistan ended FY22 with a 4-year high current account deficit (CAD) of US$17.4 billion (4.6% of GDP) as against US$2.82 billion (0.8% of GDP) a year ago.

CAD for June 2022 swelled 59%MoM to US$2.3 billion as imports hit a record high of US$7.04 billion on the back of energy imports. This was despite the second highest monthly exports and seasonal rise in remittances.

In the absence of adequate foreign exchange liquidity, the disruption in goods imports along with administrative ban on non-essential items is likely to trim CAD to a sizeable extent in the coming months.

However, Pakistan’s leading brokerage house Inter Market Securities sticks to its base case estimate of US$12.6 billion (3.0% of GDP) for FY23. The most contraction in import bill will be led by absence of TERF-related machinery and COVID-19 vaccinations in addition to the respite from palm oil imports.

Trade deficit hit an all-time high of US$3.9 billion in June 2022 owing to record imports of US$7.04 billion, despite second highest monthly exports of US$3.1 billion, up 26%MoM.

Pakistan’s energy requirements surged tremendously during June 2022, as country’s monthly oil import bill hit the highest mark of US$2.9 billion.

Going forward, imports are likely to stay lower than FY22 monthly average of US$6.0 billion owing to low machinery and vaccination imports, coupled with relatively lower international oil prices and crack spreads.

Some savings will also likely emerge from Foods imports as international palm oil prices have come off by 50% recently. All this is in addition to bottlenecks created by inadequacy of foreign exchange liquidity and administrative measures to curb non-essential imports.

A against this , export of textiles and clothing remained high in FY22 owing to summer demand and adequate energy availability, but home textile demand growth may unlikely stay put in FY23.

Remittances during June 2022 increased 18% to US$2.8 billion on account of seasonal rise from Eid-festivity-flows, managing to remain above FY22 monthly average of US$2.6 billion.

Cumulatively, remittances have risen 6%YoY to US$31.2 billion in FY22. The brokerage house believes, remittance growth is likely to remain tepid as the normalized travel, opening up avenues of non-banking channels.

Despite the US$2.3 billion rollover from China in June 2022, Reserves held by State bank of Pakistan (SBP) increased by a meager US$420 million June 2022 amid elevated imports keeping import cover around 1.5 months.

The IMF staff level agreement is through and the US$1.17 billion tranche is subject to Board approval, and likely to be released by end August 22.

The brokerage house believes, Pakistan’s attempts towards overcoming the foreign exchange liquidity constraints will be difficult, more specifically in terms of bond issuances in the current scheme of things.

This will garner an approval for executing an express transaction to sell government stake in State-Owned Entities (SOEs).

Pakistan: Uncertainty continue to mar economic performance

The Supreme Court of Pakistan has announced its verdict in favor of Ch. Pervaiz Elahi, who has finally assumed the charge of Chief Minister Punjab.

Punjab’s economic and political importance is unparalleled for any party looking to form a government in the center. The province has a population of about 110 million, making up 52% of the country’s populace.

In the FY23 budget, Punjab had budgeted a surplus of PKR125 billion, and federal allocations of PKR1.7 trillion were envisaged for the province (50% of the divisible pool). Any alterations to the budgeted provincial surplus, though unlikely, can result in trouble for future tranches from the IMF.

PTI Chairman, Imran Khan, has repeatedly asked for fair and free elections ever since his ouster in April this year. Following the recent events, PML-N Chief, Nawaz Sharif, also stated that he was in favor of holding early general elections as delaying the same would be disadvantageous to the country.

With Punjab firmly under the PTI coalition and its nominee Pervaiz Elahi at the helm of the provincial government, PTI is now expected to make a move towards the National Assembly and make its government in the center.

The political crisis in the country which started after the dismissal of Imran Khan from his office has seen Pak Rupee depreciate by 27% against the Greenback.

The current political uncertainty comes at a time when the country is already struggling with soaring current account deficit and colossal foreign debt repayments which in confluence with the political uncertainty had put serious pressure on the currency.

The current political and economic uncertainty has resulted in markets starting to price in default risk, resultantly the yields on Eurobonds/Sukuks have reached all-time high, with the December 2022 maturity instrument yields soaring to 45.6%.

At the same time, the PKR depreciation has continued unabated, despite Pakistan having reached an SLA, where concerns over filling a US$4 billion funding gap identified by the IMF remain.

Analysts expect the IMF program to resume soon irrespective of political developments, toning down the uncertainties surrounding Pakistan’s external vulnerability.

However, domestic issues (elections, inflation, interest rates) are likely keep Pakistan’s equities market under pressure.

Eroding foreign exchange reserves rendering State Bank of Pakistan helpless

One of the prime mandates of the central banks around the world, particularly of the third world countries, is to manage exchange rate efficiently and effectively, and State Bank of Pakistan (SBP) is no exception.

However, the recent free-fall of parity raises many questions that include:

1) Isn’t SBP allowed to intervene?

2) Has SBP lost capacity to intervene?

3) Aren’t some groups having vested interest responsible for the present trauma?

 With the utmost disgust, I have to say that the SBP is helplessly watching from the sidelines as the rupee is registering from one all-time low to another low.

Even a Pakistani of ordinary wit understands that in the absence of enough foreign exchange reserves, the SBP can only watch the trauma helplessly.

Please allow me to say that purposely created political turmoil has become the source of all kinds of shocks, pushing Pakistan to imminent default.

Added to political instability are: 1) structural weaknesses of the external sector, 2) higher global prices of fuel and food commodities, 3) geopolitical pressures rendering Pakistan helpless and 4) delay in the revival of the International Monetary Fund (IMF) program.

Between April 7 and July 22, rupee has lost more than 21% value against US$.

Now, the most disturbing question is how long will the rupee continue to decline?

I am afraid neither the Government of Pakistan (GoP), nor the SBP has the reply. Copybook reply being presented is, “Things will become better when US$ 1.17 billion tranche is released, hopefully in last week of August”.

However, analysts say Pakistan needs around US$35 billion for debt serving etc. Therefore, IMF tranche is peanuts and inflows from China, Saudi Arabia and UAE will provide a temporary breathing space only.

One needs not be a genius to understand that if Pakistan’s import bill of goods and services continues to eat up more than 90% of the foreign exchange earnings through remittances, export proceeds and foreign investment then hardly anything is left for external debt servicing.

I am forced to infer that the GoP will continue to borrow for debt servicing and will never attain comfortable level of foreign exchange reserves in the foreseeable future.

Dishonest western media not reporting correct situation of oil market

Over the years I have been saying that Western media often rum ‘tinted’ reports. This morning I got yet another proof to support my attribution.

It has been reported that for the second straight week, the main oil futures contracts have seen a marked rejuvenation in open interest, primarily coming from bullish long positions.

It was inferred that despite ongoing fears of an economic recession, traders believe that the selloff earlier this month was overdone.

This means the markets are largely ignoring the return of Libyan oil. In addition, Europe’s natural gas woes have strengthened demand prospects for middle distillates, with diesel switching in the winter months now a very real possibility.

The spread between the world’s two leading crude benchmarks, Brent and WTI, is as wide as it has been in more than three years, moving as far as US$8.50 per barrel recently.

Previous strength in WTI has been tangibly beaten down by weakening gasoline demand and several consecutive stocks builds.

US crude exports have seen a substantial drop compared to record highs seen in April-May, but the wide Brent-WTI spread will provide a huge boost to European buying of the American benchmark.  

The OPEC+ group had a massive shortfall of 2.84 million barrels per day (bpd) in June between actual production and the target oil output level as part of the deal. 

As OPEC+ is unwinding its cuts, more and more members are falling further behind their quotas due to a lack of capacity or investment in supply.

In June, the compliance rate at the OPEC+ group soared to 320% from an estimated 256% in May, according to Argus’s sources, suggesting that the gap between nameplate production per the agreement and actual production continues to widen. 

Per an Argus survey from earlier this month, OPEC+ pumped more than 2.5 million bpd below its target in June, despite a rebound in Russia’s oil production that helped the group’s output rise by 730,000 bpd from May. 

Russia’s oil production rose in June and was approaching the levels last seen in February, just before the Russian invasion of Ukraine. Most of the rebound was due to higher intake from domestic refiners.  

The ten OPEC producers in the OPEC+ pact pumped 24.8 million bpd of crude oil in June, with production falling one million bpd short of the target levels.

Top OPEC producer Saudi Arabia naturally raised its crude oil production by the most in June compared to May.

Yet, per OPEC’s secondary sources, even the Saudis were lagging behind their quota for June. Saudi Arabia’s oil production rose by 159,000 bpd to 10.585 million bpd. To compare, the Saudi target was 10.663 million bpd, the Kingdom was 78,000 bpd below its quota last month using secondary source figures.

OPEC+ is expected to continue to underperform by a lot compared to its production targets for July and August after the group decided to accelerate the rollback of the cuts and have those completely unwound by the end of August. 

Would Hezbollah risk war with Israel over Karish gas rig?

Less than a month before the Karish gas rig is set to start operations, Hezbollah’s Secretary General Hassan Nasrallah has upped his rhetoric to use force to stop Israel from extracting gas.

“If the extraction of oil and gas from Karish begins in September before Lebanon obtains its right, we would be heading to a problem and we will do anything to achieve our objective,” Nasrallah said in an interview on al-Mayadeen TV on Tuesday night.

“No one wishes for war and the decision is in Israel's hands, not in our hands,” he said. But his opponents say, “It is in Nasrallah’s hands, and the leader of the Lebanese terror group knows it. They say, “He is making a calculated gamble that the negotiations over the disputed maritime border will end in favor of Lebanon.

Nasrallah warned, “All fields are under threat and that no Israeli target at sea or on land is out of the reach of the resistance’s precision missiles.”

While tension has risen significantly between Israel and Hezbollah, the intelligence community does not think that Nasrallah would drag the entire region into war over the rig. But, the intelligence community is not always right. 

They refer to the Second Lebanon War. Haaretz’s Amos Harel, a senior officer said that a day before the ambush of troops and kidnapping of two reservists in 2006, we didn’t have a clue.

Another example where the military did not expect war was last year in May when Hamas launched a barrage of rockets toward Jerusalem. That led to 11 days of conflict between Hamas, Palestinian Islamic Jihad and the IDF and over 4,000 rockets and mortars fired into Israel.

Israel knows Hezbollah is not like Hamas. Over the last 15 years, since the Second Lebanon War, Hezbollah has significantly increased its capabilities which will cause untold damage and cause significant casualties in Israel.

With the help of Iran, the group has rebuilt its arsenal and it is estimated that Hezbollah has between 130,000-150,000 rockets and missiles, many that can reach deep into Israel, including ballistic missiles with a range of 700 kilometers and a handful of precision missiles that are expected to be fired toward strategic sites.

It is believed that in the next war, Hezbollah will try to fire some 1,500-3,000 rockets per day until the last day of the conflict. 

Threats from Nasrallah are nothing new; it’s almost as if whenever he says something it’s to threaten Israel and the IDF.

But recently, Israel has taken the threats more seriously, and Defense Minister Benny Gantz told Alon Ben David of Channel 13 that the situation on the northern border is sensitive.

 "The person who made the lives of Lebanon's citizens worse is Nasrallah, I hope he stops while he still can. He understands that he needs to be careful,” Gantz said, adding, "If he challenges us, we will take off our gloves and we will hurt them.”

Israel sees the Karish rig as a strategic asset several kilometers south of the area over which negotiations are being conducted, and has warned that it will defend it.

But Nasrallah, who sees himself as the defender of Lebanon, also wants to defend it from Israel, even if that means dragging the already crumbling Lebanese state into war with the IDF.

When asked if the group could win a future war with Israel, Nasrallah said that the Lebanese should be confident in the resistance’s capabilities.

 Nasrallah, who answers to Tehran and not to Beirut, added that while the group has not asked anyone to join a future war on our side, it is not known if other forces might join such a war, and this a strong probability.

Hezbollah has made it clear that they will continue to challenge Israel over the rig, despite the real risk of deteriorating into a full-blown war. 

Unlike previous wars, this would be a war over a strategic economic asset. Lebanon has been suffering from a crippling economic crisis since 2019 that has only gotten worse with the global food and fuel crisis. A ruling in favor of Lebanon would allow the country to finally have some breathing room for its population which has not had a break in years.

Israel, of course, is not immune to the crisis and the Karish was set to be an answer to the country’s expanding demand for energy. The excess gas would also be available for export, such as for Europe, which is reeling from Russia’s war in Ukraine and its threat to shut off or reduce supply to the continent over its support for Kyiv.

Isreal anticipates that it would not look like a war with Hamas and it would not look like the war between Russia and Ukraine. A war with Hezbollah would drag the entire region into a war that would also see all terror groups and Iranian proxies take part. And the complete destruction and deadly consequences of the war would be on Nasrallah, not the IDF. 

China sends troops and tanks to Russia to participate in military games

Reportedly, Chinese People’s Liberation Army has sent a delegation to Russia to take part in Moscow’s International Army Games next month, the first time the event has been held since Russia invaded Ukraine.

A train carrying personnel, military tanks and vehicles recently left Manzhouli, Inner Mongolia in China’s north, headed to Zabaikalsk in Russia’s Far East, the military channel of state broadcaster CCTV reported on Monday, without giving further details.

The Chinese team is expected to compete against counterparts from 37 countries and regions at the event – Russia’s largest multinational military exercise. It will take place between August 13 and 27 across 12 countries, including Russia, Iran, India, Kazakhstan, Uzbekistan, Azerbaijan and Armenia.

First held in 2015, this year’s International Army Games is being held amid heightened tensions between Russia and the West after Moscow attacked Ukraine on February 24.

Venezuela – which broke off relations with the United States in 2019 after President Nicolas Maduro assumed a second term in an election that Washington considered a “sham” – is to host a sniper competition as part of the war games.

It will be the first time the Russian-led exercise has been held in the western hemisphere. That could be a “strategic move” for China, Russia, Iran and Venezuela “to preposition forward-deployed military assets in Latin America and the Caribbean”, the Centre for a Secure Free Society, a Washington-based think tank, said in a recent report.

Meanwhile, Niger and Rwanda will be the first African countries to make their debut at the games, according to the Russian defence ministry.

China has been a regular participant since 2015 and will host three competitions, including an infantry fighting vehicles game and a frigate race.

Chinese and Russian forces have stepped up joint military exercises since 2005, both bilaterally and through multilateral platforms, and these have become more regular in recent years as both countries face increasing acrimony from the West.

China’s PLA is also looking to learn from its Russian counterparts, which have carried out military operations in a number of regions in recent years, from the North Caucasus and Georgia to Ukraine and Syria.

While Beijing and Moscow have said their military cooperation does not target any third country, it has prompted growing suspicion from the West.

In its latest defence white paper released on Friday, the Japanese defence ministry said the deepening of military cooperation between China and Russia, including joint air and navy drills in Northeast Asia, “will have a direct effect on the security situation surrounding” Japan.

The International Army Games, organized by Russia’s defence ministry, brings together the militaries of dozens of countries every year in an event it says is to sharpen their skills in combat operations, including a 50km (31-mile) march through the snow.

It comes as 14 NATO allies last month took part in a 13-day joint exercise in the Baltic. Among those taking part were the United States, Norway, the United Kingdom, Germany, France and Belgium. Finland and Sweden – which applied for Nato membership after Russia’s invasion of Ukraine – also joined the exercise.

It involved more than 45 ships, 75 aircraft and 7,500 personnel and covered amphibious operations; anti-submarine and air defence drills that NATO said would demonstrate the flexibility of the maritime forces.

  

Global food crisis demands urgent response

Russian President Vladimir Putin’s invasion of Ukraine shocked the world, forced Western countries to respond, and is driving up the cost of energy and food across the globe. 

However, the most urgent economic, social, and human crises are unfolding in poorer countries where populations face war, spillover-driven inflation, and more expensive foreign-currency debt.

Together these dynamics put populations in Asia, Africa, and some parts of Latin America and the Caribbean at risk of shortages, riots, unrest, and famine. The conflict in Ukraine is directly affecting supplies of food. News of a deal between Russia and Ukraine to allow grain exports is welcome. Russia and Ukraine together account for nearly a third of global wheat supplies, so any stoppage or constriction in trade affects access to basic foodstuffs for many.

Wheat prices are up while sunflower oil, meat, poultry, and a raft of other staples have also risen, driven by higher fuel and fertilizer costs. The United Nations' Food Price Index, which captures the effects of war and supply disruptions, recently reached an all-time high of 156, up from 103 in 2020.

The alarming economic and political crisis in Sri Lanka shows what may occur elsewhere. Long-standing poor governance and corruption in the South Asian country has combined with economic crises, price hikes, and fuel and food shortages to snap the threads of economic and societal stability. The result is unrest, riots, and a collapse of the government.

Sri Lanka is unlikely to be the last country to face economic and governmental strife. Other poorly run, indebted, and stressed states - and their populations - could be weeks or months from similar turmoil. As Kristalina Georgieva, Managing Director, International Monetary Fund, points out, food crises “can unleash social unrest, (yet) … hunger is the world’s greatest solvable problem”.

As the rich in the West grumble, governments in poorer states are reacting by placing restrictions on food exports, according to World Bank President, David Malpass. While inflation is bad for all, the poorest were already spending at least half of their income on food. They have extraordinarily little room to absorb price increases before they go hungry and their children face malnutrition.

Oxfam estimates as many as 323 million people are on the brink of starvation; the United Nations reckons 869 million are facing hunger. Unfortunately, the leaders of the world’s wealthy states are so far doing too little to avert the developing food emergency. In June the G7 group of nations, led by the United States, pledged US$4.5 billion to address the looming food shortage, but this is not enough to avoid disaster.

It’s not the first time insufficient pledges by the world’s richest economies have delivered worse outcomes for the planet. Two years ago epidemiologists estimated that vaccinating the populations of lower-income countries against Covid-19 would cost just US$2 billion. The costs of a failure to equitably distribute the vaccine are conversely massive. 

It is estimated that the negative impact for lower-income countries was US$156 billion in 2021–2022 and US$216 billion the following year. Yet rich nation donors came up with only US$700 million, while providing economic support worth US$15 trillion for their own populations.

The food crisis requires rapid action and resources of at least US$22 billion, according to the UN World Food Program. Delay will only increase the human, economic, and societal costs.

The invasion of Ukraine has hobbled the G20, whose members include Russia. The group’s recent meeting in Indonesia ended in discord. Yet the pandemic also demonstrated that when crisis strikes only state actors, acting collectively, can marshal the necessary resources, spur private and public policy action, and get fast results.

The International Monetary Fund, World Bank, and regional multilateral development banks in Asia, Latin America and Africa should be charged with managing the food and fuel crisis and equipped to step in urgently. These bodies, although consensual in nature, can direct resources and relief without a veto from Russia or its allies. This institutional room to act must be used swiftly.

We believe the response cannot wait until the World Bank and IMF hold their annual meetings in October. The leadership of these and other pillars of the global financial system must be empowered and act now.

First, they should monitor the fiscal and economic stability of countries facing increased distress from debt and rising food prices.

Second, they should redirect existing and additional multilateral and bilateral resources. Current promises, such as the US$2.3 billion committed by the World Bank, are insufficient.

Third, leaders whose countries are in or nearing a crisis should receive multilateral support, with no shaming of that necessary step from public or private creditors and credit ratings agencies.

Finally, public and private creditors should exercise restraint and be willing to take haircuts on their debt to secure stability. No one should profit from malnutrition and misery. Lenders must be part of the solution, not the problem.

National political and financial leaders still must work to avoid a food price crisis, famine, and human catastrophe. Recent history suggests politicians often lack the will to act, even though they know what is needed and that the upfront financial costs are manageable.

What is the reality of Zelensky being portrayed as nobler than Winston Churchill, saintlier than Mother Theresa?

Despite campaigning on a peace platform, Zelensky provoked war with Russia by a) enacting a major troop buildup in eastern Ukraine in February; b) increasing shelling of eastern Ukraine in violation of ceasefire agreements; and c) calling for the retaking from Russia of Crimea and city of Sevastopol, which houses the Russian Navy’s Black Sea fleet.

Before the Russian invasion, CIA reports linked Volodymyr Zelensky to an oligarch so dirty and so mired in significant corruption that the State Department banned him from entering the United States. Now CIA propaganda portrays Zelensky as nobler than Winston Churchill and saintlier than Mother Theresa.

In 2019, the CIA-run Radio Free Europe reported on Ukrainian President Volodymyr Zelensky’s connection to Ihor Kholomoisky, a Ukrainian oligarch whom the State Department banned from entering the US in March 2021 due to his significant corruption.

It is ironic that, since Ukraine’s war with Russia began over four months ago, Radio Free Europe along with the rest of the Western media has depicted Zelensky as something equivalent to a reincarnation of Winston Churchill and Mother Teresa, driving a campaign for his nomination for the Nobel Peace Prize and inspiring a flamboyant musical tribute during the 2022 Grammy awards.

In January 2022, the US Department of Justice filed a civil forfeiture complaint —the fourth against him—which alleged that Kholomoisky and Gennadiy Bogolyubov, who owned PrivatBank, one of the largest banks in Ukraine, embezzled and defrauded the bank of US$5.5 billion which went missing.

The two allegedly obtained fraudulent loans and lines of credit from 2008 through 2016 and laundered portions of their criminal proceeds using an array of shell companies’ bank accounts, primarily at PrivatBank’s Cyprus branch, before they transferred the funds to the US where they continued to launder them illegally through an associate operating out of offices in Miami.

According to a profile in The American Spectator, Kholomoisky laundered millions in Cleveland, Ohio, and across the Midwest where, as one of the region’s biggest real-estate landlords. H e steered one of the biggest Ponzi schemes in world history.

Born in Soviet Ukraine in 1963, Kholomoisky was among those to benefit after the Soviet collapse in the early 1990s from the sale of formerly state-owned enterprises like steel plants and gas wells at fire-sale prices.

According to The American Spectator, Kholomoisky had two advantages over other nascent oligarchs. First, he had a background in metallurgy—in the science of making and molding metals and alloys in demand. Second, Kholomoisky displayed a ruthlessness that made even other oligarchs, no strangers to violent crime, blanch.

According to Oleg Noginsky, the president of the Suppliers Customs Union, after Ukraine’s February 2014 Euro-Maidan Revolution, Kholomoisky “hired the guys who carried out the Odessa massacre”— the killing of several dozen supporters of deposed Russian-allied President Viktor Yanukovych who were holed up in a trade union building.

As Governor of Dnipropetrovsk Oblast from 2014 until 2016, Kholomoisky bankrolled anti-Russian units operating with the Ukrainian army in Donetsk and Luhansk—which voted to secede after the post-Maidan government tried to impose the Ukrainian language on them.

These units included the neo-Nazi Azov Battalion which terrorized the people of eastern Ukraine, along with the Dnipro and Aidar battalions, which were sometimes deployed as personal thug squads to protect Kholomoisky’s financial interests.

The New York Post reported that Kholomoisky had a controlling interest in Burisma Holdings—the Ukrainian energy company which employed Hunter Biden as a board member for US$50,000 per month. Russian media, quoted in State Department emails, referred to Burisma as part of Kholomoisky’s financial empire.

Six months after Hunter Biden departed, Burisma appointed Cofer Black to its board—a position that he maintains. Black was a career CIA officer who served as Director of the CIA’s Counterterrorism Center following the September 11 attacks.

This appointment raises questions as to whether Burisma served as a CIA-front operation that was designed to help finance the anti-Russia militias in eastern Ukraine.

Kholomoisky’s relationship with Zelensky goes back to around 2012, when Zelensky and his partners in a television production company, Kvartal 95, began making regular content for TV stations owned by Kholomoisky.

A comedian and actor who had been famous since the 2000s, Zelensky began his political rise a few years after taking on a starring role in the political satire “Servant of the People,” which began airing on Kholomoisky’s network in 2015.

The show starred Zelensky as a humble history teacher whose anti-corruption rant in class is filmed by a student, goes viral online, and wins him national office.

In a case of life imitating art, Zelensky ended up winning the real-world Ukrainian presidency just three-and-a-half years after the show’s launch, with more than 73% of the vote.

Zelensky capitalized on widespread public anger at corruption, but his 2019 campaign was dogged by doubts over his anti-graft bona fides given his connection to Kholomoisky.

In the heat of the campaign, an ally of incumbent Petro Poroshenko, Volodymyr Ariev, published a chart on Facebook purporting to show that Zelensky and his television production partners were beneficiaries of a web of offshore firms, which they had set up beginning in 2012 that allegedly received US$41 million in funds from Kholomoisky’s Privatbank.

Ariev did not provide smoking-gun evidence, though the Pandora Papers—11.9 million leaked documents published by a consortium of investigative journalists in October 2021—show that at least some of the details in this alleged scheme correspond to reality.

In specific, the Pandora Papers reveal information on ten companies in the network that match structures detailed in Ariev’s chart, and show that Zelensky and his partners used companies based in the British Virgin Islands (BVI), Belize and Cyprus.

Forbes magazine currently places Zelensky’s net worth at between US$20 and US$30 million—a total he could not have earned simply as a TV performer and comedian.

Zelensky allegedly owns lavish properties in central London, Italy and Miami Beach—to which he could retire if he is forced to flee Ukraine.

Two of Zelensky’s associates in the offshore network, who were also part of his TV production company, have held powerful positions in his government. Serhiy Shefir is Zelensky’s top presidential aide, while Ivan Bakanov headed until very recently the feared Security Service of Ukraine (SBU), which is Europe’s largest security agency and nearly the same size as the FBI despite Ukraine being 16 times smaller than the United States.

Besides providing financial support during Ukraine’s 2019 election, Kholomoisky supplied Zelensky with a car and lent his personal lawyer to him to be campaign adviser and promoted his candidacy on various media outlets that he owned.

The close ties between the two were apparent in 2018 when Zelensky traveled to Geneva Switzerland, for Kholomoisky’s birthday, and then afterwards back to Geneva another ten times.

When Kholomoisky moved to Tel Aviv, Israel, Zelensky traveled there to visit with him three times, according to Radio Free Europe.

Zelensky claimed that his relationship with Kholomoisky was not political; rather he had gone to visit him because of TV work.

However, Zelensky made sure to reward him when he became president. He removed Kholomoisky’s opponents, the Prosecutor General, the Governor of the National Bank of Ukraine, and his own prime minister, who tried to regulate Kholomoisky’s control of a state-owned electricity company.

Ukraine’s parliament also passed a measure that prevented Kholomoisky from having to pay higher taxes on his mining operations.

Zelensky’s long-standing ties to Kholomoisky belie the pristine public image of a man hailed by US politicians as a “lion of a leader” and person of “incredible bravery”.

A neoliberal who advanced a sweeping privatization initiative, Zelensky has banned eleven opposition parties and carried out a reign of terror against political opponents.

The victims include the former leader of the Ukrainian left forces, Vasily Volga, and the Kononovich brothers, leaders of Ukraine’s Young Communist League who were accused of being pro-Russian.

Despite campaigning on a peace platform, Zelensky provoked war with Russia by a) enacting a major troop buildup in eastern Ukraine in February; b) increasing shelling of eastern Ukraine in violation of ceasefire agreements; and c) calling for the retaking from Russia of Crimea and city of Sevastopol, which houses the Russian Navy’s Black Sea fleet.

Map showing Ukrainian troop concentrations on eastern Ukraine’s border on eve of the Russian invasion of February 24, 2022. According to the Russian Deputy Foreign Minister, Ukraine had massed 122,000 troops on the border with Donbass. The Duma furthermore has claimed to have intelligence indicating that these troops were planning an offensive into Donbas, which the Russian invasion preempted.

Since the fighting began, Zelensky has eschewed negotiations and instead begged the West for more and more weapons while inviting foreign mercenaries into Ukraine.

Swiss journalist Guy Mettan has written that Zelensky will ultimately be held responsible for Ukraine’s devastation in the war as he preferred the ruin of his country to a timely compromise.

This assessment is at odds with the current media hagiography of Zelensky, which also obscures his ties to Kholomoisky that the CIA itself has acknowledged.

Journalist John Helmer points out that Hillary Clinton, Victoria Nuland and Christine LaGarde, the former IMF Directors, ignored the evidence of Kholomoisky’s corruption and the squandering of IMF loan money in a ponzi scheme; probably because of the political imperative underlying the IMF’s policy towards Ukraine after the Maidan coup.

Russia and China Creating New Global Reserve Currency

Some analysts have been talking about the possibility of Russia and China challenging the US dollar’s global reserve status. Now, it’s happening. As often happens with consequential news in the United States and the West, no one seems to notice or even care.

It shouldn’t be any surprise to those paying attention that Russia and China are strengthening their economic ties amidst continued Western sanctions on Russia.

Russia and the BRICS countries, including Brazil, Russia, India, China, and South Africa, are officially working on their own “new global reserve currency,” RT reported in late June. Nobody even seemed to notice.

“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” Vladimir Putin said at the BRICS business forum in June.

Russia has been cut off from the SWIFT system; it is also pairing with China and the BRIC nations to develop “reliable alternative mechanisms for international payments” in order to “cut reliance on the Western financial system.”

In the meantime, Russia is also taking other steps to strengthen the alliance between BRIC nations, including re-routing trade to China and India, according to CNN

President Vladimir Putin said last Wednesday that Russia is rerouting trade to "reliable international partners" such as Brazil, India, China and South Africa as the West attempts to sever economic ties.

"We are actively engaged in reorienting our trade flows and foreign economic contacts towards reliable international partners, primarily the BRICS countries," Putin said in his opening video address to the participants of the virtual BRICS Summit.

In fact, “trade between Russia and the BRICS countries increased by 38% and reached US$45 billion in the first three months of the year 2022”, the report says. Meanwhile, Russian crude sales to China have hit record numbers during spring of this year, edging out Saudi Arabia as China’s primary oil supplier.

Putin said last month, "Contacts between Russian business circles and the business community of the BRICS countries have intensified. For example, negotiations are underway to open Indian chain stores in Russia and to increase the share of Chinese cars, equipment and hardware on our market."

Putin accused the West of ignoring the basic principles of the market economy" such as free trade. "It undermines business interests on a global scale, negatively affecting the wellbeing of people, in effect, of all countries," he said.

President Xi echoed Putin’s sentiments, according to a June write up by Bloomberg:

“Politicizing, instrumentalizing and weaponizing the world economy using a dominant position in the global financial system to want only impose sanctions would only hurt others as well as hurting oneself, leaving people around the world suffering. Those who obsess with a position of strength, expand their military alliance, and seek their own security at the expense of others will only fall into a security conundrum.”

There is a coordinated global challenge taking place to the US dollar - and it would be the biggest news story in decades. Now, remember that both countries have been working on, and preparing for, this situation for years.

De-dollarization has been a priority for Russia and China since 2014, when they began expanding economic cooperation following Moscow's estrangement from the West over its annexation of Crimea. Replacing the dollar in trade settlements became a necessity to sidestep US sanctions against Russia.

It seems to that the BRIC nations understand exactly how precarious of a financial situation the US and US dollar - is in. Despite the dollar’s recent strengthening, these nations have been in the midst of a multi-decade-long plan to de-dollarize.

Even before the Ukraine conflict started, both China and Russia were stockpiling gold and working on denominating transactions outside of the US dollar. It was another “secret” that was out there in the open.

Since the BRIC conference, ties between Russia and China continue to tighten, with Japan even warning this week about the pair’s strengthening of military ties - at the same time China has closely scrutinized a planned trip by House Speaker Nancy Pelosi to Taiwan.

 “As a result of the current aggression, it is possible that Russia’s national power in the medium to long term may decline, and the military balance within the region and military cooperation with China may change.

In the vicinity of Japan, Russia has made moves to strengthen cooperation with China, such as through joint bomber flights and joint warship sails involving the Russian and Chinese militaries, as well as moves to portray such military cooperation as strategic coordination.”

Japan said this alignment between the two countries “must continue to be closely watched in the future.”

While the economic gears turn behind the scenes, China is also becoming increasingly cagey about Taiwan. The country has sent warplanes into Taiwan's self-declared air defense zone identification zone many times in recent months, according to CNN, and recently alluded to the idea of a no-fly zone over Taiwan ahead of a planned visit by Nancy Pelosi.

President Biden commented on Pelosi’s travel plans this week, stating, “The military thinks it’s not a good idea right now. But I don’t know what the status of it is.”

We’re sure Pelosi will wind up going anyway. Remember, this is the same woman who danced her way through Chinatown while Covid was spreading to the US, from China, to prove she wasn’t racist.