Bangladesh: IMF Approves US$4.7 Billion Assistance

The International Monetary Fund’s US$4.7 billion loan program won’t be a miracle worker for the Bangladesh economy. The program would hold the economy back from falling off the cliff from the whiplash of the pandemic and the Ukraine war and turn it towards the right track.

“The authorities made the right decision to come to the Fund — and most importantly, to come to the Fund early,” said Rahul Anand, the IMF’s mission chief to Bangladesh.

Turning to the IMF when the country is already in crisis could make the adjustments particularly hard on people — a situation confronting Pakistan and Sri Lanka. But Bangladesh is not in crisis, Anand said.

“Just like countries around the world, Bangladesh is dealing with the impact of global shocks — first from the pandemic and then from the ongoing war in Ukraine,” he added.

In that vein, the program’s immediate task is to prop up the country’s shrinking foreign exchange reserves, which has already hit businesses and ordinary people hard.

While the IMF would make US$476 million immediately available, the lender’s impact would be beyond that: it would give the other multilateral agencies, such as the World Bank, to make more funds available for Bangladesh.

This along with the import curbs placed by the government will shore up the gross foreign reserves to US$30 billion by the end of the fiscal year, according to the IMF’s projections.

As per the lender’s balance of payments and investment position manual (BPM6), gross foreign reserves calculation does not include the various funds that the Bangladesh Bank has formed from the reserves as well as the loan guarantees provided for Biman, the currency swap with Sri Lanka, the loan to Payra Port Authority and the below-investment-grade securities. These account for about US$7.5 billion.

When these components are taken out, the IMF projection matches the government’s expected foreign currency reserve position at the end of fiscal 2022-23: US$37.7 billion.

Gross reserves would increase to US$34.2 billion in fiscal 2023-24 and to US$40 billion in the following year, as per IMF’s projections. It would hit US$46.4 billion once the program ends.

Other than restoring macroeconomic stability by way of the reserves, the program would also give impetus to some long-due structural reforms such as raising more tax revenues, scaling up social spending, modernizing the monetary policy framework, strengthening the financial sector and building climate resilience.

“While confronting challenges resulting from the global headwinds, the authorities need to accelerate their ambitious reform agenda to achieve a more resilient, inclusive and sustainable growth,” said Antoinette Monsio Sayeh, the deputy managing director of IMF, in a press release.

Thanks to the reforms ushered in by the program, Bangladesh’s tax revenue would increase from 7.8% of GDP this fiscal year to 8.3% next year and then 8.8%. At the end of the program, it would be 9.4% of GDP, as per the IMF’s projections.

The program would insist on cutting back on subsidies, which would free up more resources for social and development spending.

“Not all subsidies are helping the poor and vulnerable. In Bangladesh where gas and electricity are being subsidized, the rich drive more cars and use more air conditioning,” Anand said.

Rationalization of untargeted subsidies will free fiscal resources to strengthen social safety nets and increase development spending.

Substantial investment in human capital and infrastructure will be needed to achieve Bangladesh’s aspiration to reach upper-middle income status by 2031 and meet the Sustainable Development Goals.

By the end of the program, the size of the annual development program would increase from the existing 5.2% of GDP to 6.5%, as per the IMF’s projections.

Public investment would increase from 8.8% of GDP this fiscal year to 11.2% of GDP in fiscal 2025-26, when the program ends. Subsequently, Bangladesh’s real GDP growth would be back to 7% by fiscal 2024-25.

This fiscal year, the growth would be 5.5%, as the IMF’s projections, which is in line with other multilateral lenders’ forecasts.

Earlier last month, the WB pared back Bangladesh’s growth forecast for this fiscal year by 1.5% to 5.2%. In December last year, the government revised down the growth forecast from 7.2% to 6.5%.

The IMF will disclose the specifics of the loan program in the coming days.

The mandatory conditions would be a minimum level of net international reserves and domestic revenue collection and a ceiling on the government’s budget deficit, The Daily Star has learnt from people involved in the negotiations with the IMF staff mission to thrash out the terms for the loan.

Implementing the income tax law, setting up an asset management company to dispose of soured loans, bringing down the banking sector’s default loans to within 10% and raising the capital adequacy ratio to the BASEL 3 requirement of 12.5%, are among the reforms agreed upon.

Periodically adjusting the fuel price through a formula and increasing remittance receipts through formal channels are also on the task list.

A social spending floor and better targeted social safety net programs, market-based exchange rate interest rate, developing the capital and bond market, expanding and diversifying exports and modernizing the monetary policy framework and reporting on net foreign reserves are the other agreed reforms.

The interest rate on the loan would be about 2.2%. Of the US$4.7 billion, US$1.4 billion can be repaid over a 20-year horizon with a grace period of ten years. The remaining amount must be paid back within ten years; the grace period for a portion of the sum is 3.5 years and for another portion 5.5 years.

 

Container spot rates start receding

According to Seatrade Maritime News, there is no longer fundamental support for the very high container spot rates seen in the market over the last 18 months as vessel utilization numbers start to normalize.

Container spot rates are starting to decline sharply from their highs and last week the Shanghai Containerized Freight Index (SCFI) dropped 9.7%WoW down 306.56 points to 2846.42 points on 2 September and is down 32%QoQ. The SCFI stood at a record high of 5,051 points in January this year.

The record high spot rates seen over the last 18 months have been driven by exceptionally high utilization rates, very close to 100%, on the main deep-sea trades, at which point Lars Jensen, CEO of Vespucci Maritime said the pricing curve become almost vertical.

 “This is the point where there is physically no more capacity at all whilst there is excess demand in the market. The data shows that it is at this point spot rates go to the historical highs we have seen over the past 18 months,” he said in report published by the Baltic Exchange.

Utilization rates on the Transpacific trade have dropped to 90% or below over the last three months, below what Jensen says is the 91 – 95% threshold on the trade that drove record high spot rate levels.

Similarly on Asia – Europe utilization has dropped to 81% or below over the last five months while the threshold is around 85% to drive a near vertical pricing curve.

 “This means that there is no structural support for the pricing dynamic where insufficient demand leads customers to overbid on pricing to ensure available space on the vessels,” Jensen said. Further weakening of spot rates going forward is expected.

A similar conclusion is drawn by Parash Jain, Head of Shipping & Ports & Asia Transport Research, HSBC Global Research. “As vessel utilization declines from 95-100%, skyrocketed spot freight rates could lose support quickly and revert back to a more normalized level,” he said in a note sent on Monday.

HSBC forecasts spot rates could fall another 58% in 2023 and 37% in 2024 on average before reaching the bottom.

Jensen noted that bottlenecks in global container trades had decreased with 9.8% of the global fleet unavailable due to delays in July compared to 13.8% in January.

Current levels are still well above the 2% seen in normal market conditions, does in effect release more capacity into the market at a time when global container volumes are falling.

What the sharp falls in spot rates will mean for long-term contract rates and container line profitability is a point of contention.

Last week HSBC’s Jain forecast an 80% drop in profitability for container lines in 2023-24.

While Blue Alpha Capital founder John McCown believes too much emphasis is being placed on spot at that while container lines maybe at or near their peak of profitability, a collapse is not imminent.

International Financial Institutions plan to address food insecurity

Kristalina Georgieva, Managing Director, International Monetary Fund (IMF) has made a statement following the publication of a Joint International Financial Institution (IFI) Plan to Address Food Insecurity.

Russia’s invasion of Ukraine has precipitated serious economic and social consequences around the globe. Among them, many countries are now facing dangerous food shortages and sharply higher prices for food, energy, and fertilizers. 

These pressures occur at a time when countries’ public finances are already stretched from the pandemic and public debt burdens are high. With inflation reaching the highest levels seen in decades, vulnerable households in low- and middle-income countries are most at risk of acute food insecurity. And history has shown that hunger often triggers social unrest and violence.

If we have learned one lesson from the 2007-08 food crisis, it is that the international community needs to take fast and well-coordinated actions to effectively tackle a food crisis, by maintaining open trade, supporting vulnerable households, ensuring sufficient agricultural supply, and addressing financing pressures. I am honored to have been able to work together with the heads of other International Financial Institutions to propose concrete actions. Coordination between us will be critical for the plan to have maximum impact in quickly alleviating food insecurity, especially for the most vulnerable households in the most vulnerable countries.

Working closely with the World Bank and other International Financial Institutions, the IMF will provide policy advice, capacity development assistance, and financial support to catalyze and complement financing from other institutions. The IMF is investing in its monitoring capacity to allow for timely identification of countries with the most pronounced financing pressures, especially fragile and conflict-affected states, which will particularly be affected by food insecurity.

The IMF is working with country authorities on macroeconomic frameworks and policy priorities. A critical area of focus is to assist countries in their efforts to rapidly improve social safety nets to protect vulnerable households from the imminent threat of hunger. Helping members identify ways to safeguard food security without resorting to export restrictions has been another priority. These policy objectives are reflected in the IMF’s program engagement. IMF financial support for Moldova (recently augmented to help address the harmful effects of the war) and Mozambique, for instance, includes a focus on strengthening social safety nets for vulnerable households.

The IMF will also bring to bear its new Resilience and Sustainability Trust, which will provide affordable longer-term financing for countries facing structural challenges, while countries with acute financing needs could access IMF emergency financing, where appropriate. The IMF is intensifying efforts with the World Bank and others to support debt restructurings where needed.”

Background: Following a meeting of International Financial Institutions (IFIs) and global leaders convened by the US Treasury on April 19, 2022, “ Tackling Food Insecurity: the challenges and call to action,” the International Monetary Fund (IMF), the African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB), the World Bank, and the International Fund for Agricultural Development (IFAD) have worked together to formulate a joint action plan to address food insecurity.

According to the plan, the IFIs will pursue actions to step up, surge, and scale their work across six priority goals: 1) support vulnerable people; 2) promote open trade; 3) mitigate fertilizer shortages; 4) support food production now; 5) invest in climate-resilient agriculture for the future; and 6) coordinate for maximum impact.

 

Who is responsible for killing of one million US citizens? COVID or Administration

According to a report by The Hill, deaths from COVID-19 have reached one million in the United States. The source of this data is none other than the Centers for Disease Control and Prevention. 

The US has had more deaths per capita than Western Europe or Canada. While new deaths have fallen, the total death count is still rising.

It is also expected that the United States, like other countries, has under counted the true number of deaths from the coronavirus.

Illustrating how high one million deaths originally seemed, then-President Donald Trump said in March 2020 that holding the country to between 100,000 and 200,000 deaths would mean “we all, together, have done a very good job.” 

Deaths have continued stacking up even into 2021 and 2022, after vaccines became widely available, disproportionately among people who did not get vaccinated or did not get booster shots.  

An analysis from the Peterson Center on Healthcare and the Kaiser Family Foundation found that about 234,000 US COVID-19 deaths, or roughly one quarter of the total, could have been prevented if people had been vaccinated. 

The share is even higher, at 60%, of deaths since vaccines became widely available in June 2021.  

“Since vaccines became widely available last summer, a total of 389,000 adults in the United States have died of COVID-19, and 6 in 10 of those deaths — about 234,000 deaths — could have been prevented by timely vaccinations,” the researchers found. “This analysis underscores the importance of continued efforts to increase the number of people vaccinated and boosted against COVID-19.” 

Globally, the World Health Organization recently reported that the total number of deaths is more than twice the number officially reported, once indirect deaths due to factors like health care systems being overwhelmed are taken into account. That wider total is almost 15 million deaths worldwide.  

While vaccines and booster shots continue to provide important protection against severe disease, new variants of the virus have thrown curveballs that have meant cases continue to spread, though they are much less dangerous among vaccinated and boosted people.  

There are still more than 300 people dying every day from the virus in the US on average, according to a New York Times tracker, though that is one of the lowest levels since the pandemic began. In addition to vaccinations, a new treatment pill from Pfizer known as Paxlovid has helped to take some of the teeth out of the virus.  

The White House is preparing for another wave of the virus in the fall and winter, which could infect as many as 100 million Americans, a senior administration official said earlier this month.  

The administration argues the country now has the tools to make such a wave much more manageable, and that the number of cases could be lower if Congress provides the funding necessary to purchase updated vaccines, more tests, and additional treatments. Without those tools, the virus could take a much more significant toll in a coming wave.  

As much of the country looks to move past the virus, though, funding is stalled in Congress. Republicans have opposed new funding unless it can be paid for with cuts elsewhere, and the parties have sparred over how to pay for it. The GOP has also demanded a vote to overturn the Biden administration’s move to lift a Trump-era pandemic border policy known as Title 42.  

White House COVID-19 response coordinator Ashish Jha on Twitter pointed to a hopeful trend, that even as cases have risen recently in the Northeast, deaths have stayed largely flat, which he attributed to high booster rates in those states and the effectiveness of new treatments. 

But he said funding is needed to ensure supplies of treatments and updated vaccines are available.  

“We’re at a point in the pandemic where we know how to manage the virus,” he wrote.  

OPEC plus likely to stick to planned March output increase

OPEC plus is likely to stick with a planned increase in its oil output target for March 2022 when it meets on Wednesday next week. Several sources from the producer group said, as it sees demand recovering despite downside risks from the pandemic and looming interest rate rises.

While two OPEC plus sources said oil at a seven-year high close to US$90 a barrel might prompt the group to consider further steps, the vast majority of sources said no new decision was expected at the February 02, 2022 online meeting.

One Russian source told Reuters the country was concerned the price rally might revive a boom in US shale production.

"OPEC plus countries should be on high alert with this price level given the bullish forecasts for shale oil production in 2022," the source said.

The source added that high oil prices were also hurting profit margins of Russian refineries.

OPEC plus, which groups the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, has raised its output target each month since August by 400,000 barrels per day (bpd) as it unwinds record production cuts made in 2020.

Current plans would see OPEC plus do so again in March.

"We are very likely to go for another 400,000 barrels per day," one of the OPEC+ sources said. "There are no reasons against it."

OPEC plus has resisted pressure from the United States since last year to raise supplies more quickly.

Despite its increased targets, actual output from OPEC plus has not kept pace as some members struggle with capacity constraints, and this has been a factor underpinning prices.

OPEC plus missed its production target by 790,000 bpd in December 2021 as members such as Nigeria and Angola struggled to raise output, the International Energy Agency said.

Several banks and analysts including Morgan Stanley and JP Morgan, expect oil prices to top US$100/barrel later in the year 2022 amid tight OPEC plus spare capacity and strong demand.

Some OPEC plus sources believe that the recent price rally is driven more by geopolitical tensions than fundamentals.

"With Russian-Ukrainian tension one could expect that, but [it is] not a supply issue for sure," one of the sources said about prospects for US$100 oil.

Hong Kong to Kill 2000 Pets

Hong Kong officials are killing hamsters by the thousands after declaring the rodents responsible for spreading COVID-19. Meanwhile, in China’s mainland, the blame has been put on international mail packaging.

As one of the world’s last major holdouts of a zero-tolerance approach to the virus, China is fanning unusual theories about the source of emerging COVID-19 clusters despite doubts from overseas experts over the likelihood of such claims.

On January 18, 2021 Hong Kong ordered 2,000 hamsters, chinchillas, rabbits, and other small animals to be “humanely” put down after a health check on the rodents found 11 to carry the Delta variant of COVID-19. All of them are hamsters imported from the Netherlands, from a local pet shop where a 23-year-old worker had tested positive to COVID-19.

While the officials acknowledged there’s no clear evidence hamsters could transmit the virus to humans, they are telling pet owners who bought hamsters from any store in the city beginning December 22, 2021 to hand over their animals for culling. Those who visited the pet store after January 07, 2022 are subject to quarantine. All 34 pet stores in the city that sell hamsters are now shuttered, and imports of all small mammals have come to a halt.

Hong Kong’s pet killing follows heightened virus containment measures in Beijing, where authorities suggested that mail from Canada might have been the culprit for the city’s first Omicron case.

The city’s health officials noted how the first Omicron patient, a 26-year-old woman, who has not traveled outside Beijing recently, handled a parcel sent from Canada via the United States and Hong Kong, before developing a sore throat two days later. They have detected the Omicron variant on both the outside of the package and in its contents, as well as on other mail samples delivered from the same origin, the officials said.

 “This is something not only new but intriguing and certainly not in accordance with what we have done both internationally and domestically given what we know about the transmissibility of Omicron,” he told reporters at a January 17, 2022 press conference.

Health experts have assessed the risks of virus transmitting through contaminated surfaces to be extremely low. The World Health Organization (WHO) said that coronavirus in general “need a live animal or human host to multiply and survive and cannot multiply on the surface of food packages.”

Touting the theory that the virus might have come from somewhere other than China is hardly new for the Chinese authorities. In October 2020, Beijing said an outbreak in the port city of Qingdao originated from a shipment of imported cod. In a June outbreak linked to a Beijing wholesale market, officials pointed to frozen salmon from Norway as the cause, citing a sample on a cutting board used for processing the fish that tested positive for COVID-19.

July last year, amid tensions between India and China, Beijing withheld over 1,000 containers of Indian shrimp on the grounds that the packaging allegedly contained virus residues.

In a bid to deflect growing scrutiny on Beijing’s coverup of the pandemic origins, authorities and state media have consistently put forward claims, without credible evidence, that the virus originated outside of the country. Following a WHO-China joint virus probe in China’s Wuhan last year, authorities have also repeatedly called for origin tracing efforts to begin outside of China.

The regime’s pandemic-control actions, though, have also come at a particularly sensitive time for Beijing. Less than three weeks before the country’s capital opens the Winter Olympic Games, Beijing and cities across China have struggled to stamp out waves of COVID-19 infections.

Hundreds of Omicron infections have surfaced in multiple parts of China even as Delta cases continue to spike. After the Omicron variant extended its reach to Beijing, Olympic organizers called off ticket sales to the general public, saying the entry will be reserved for a targeted group of spectators only.

Cyclone closes one of the world’s busiest ports

The number of vessels waiting to enter one of the world's busiest ports has jumped to the most since August this, threatening to further snarl global supply chains strained by a surge in consumer demand for everything from cars to computers.

China's Yantian port in Shenzhen suspended pickup and drop-off of containers as tropical cyclone Kompasu approached the nation's southern coastline. The number of ships waiting outside the port rose to 67, the most since August 26, according to shipping data compiled by Bloomberg.

Located near China's tech capital of Shenzhen and the manufacturing belt of the Pearl River Delta, Yantian is one of the world's busiest ports, with a cargo throughput of 13.34 million twenty-foot equivalent units in 2020, according to figures from the Shenzhen Transportation Bureau. It typically serves about 100 ships a week.

Kompasu is the second tropical storm to affect southern China in the last few days, after Lionrock brought flooding to some low-lying areas of Hong Kong over the weekend. The damage from Kompasu could be more severe based on its current track and intensity forecasts, Bloomberg Intelligence analyst Steven Lam wrote in a note on Monday, October 11, 2021.

Bottlenecks at container terminals around the world have added to pressure on supply chains already struggling to keep up with demand. Covid-19 outbreaks at ports, along with shortages in shipping containers and labour have exacerbated the problem, with China - the world's biggest manufacturer - seeing a number of port disruptions this year.

The country has a zero-tolerance approach to the coronavirus, and has shut down port operations on single cases in the past. An outbreak at Yantian in June this year saw it closed, resulting in falling volumes as far away as the Port of Los Angeles. The Ningbo-Zhoushan port shut for two weeks in August because of a Delta variant infection.

Weather has also played havoc, with Shanghai's container port, the world's biggest, halting some operations last month amid a typhoon.

 

Oxygen for strengthening Indo Pakistan diplomatic relations

Today, I received a message, “Two nuclear powers, one without Oxygen and other without vaccine”, the two countries referred to were India and Pakistan. For a second I was traumatized, but soon gathered the courage to write this blog.

I am of the opinion that Pakistan can play a role in saving the lives of Indians who are dying due to acute shortage of Oxygen. My suggestion is well supported by the efforts of employees of Pakistan Steel Mills, working to bring its Oxygen plant back into operations.

Luckily, Pakistan enjoys road as well as rail links and gas cylinders can be swiftly transported to India, within a very short span of time. India can complement the supply chain by sending empty cylinders to Pakistan.

In this endeavor the border forces/customs can also play their role by ‘clearing’ cylinders expeditiously, may be round the clock for a while. To reciprocate Pakistan’s good will gesture, India may also consider supplying COVID-19 vaccine to Pakistan.

Both the countries have lost hundreds and thousands of people due to COVID-19 and the near and dear will face the trauma for a long time to come. This must also brighten a fact that in case the two countries indulge in another war, with high probability of using atomic warheads, the death toll may run into millions.

Therefore, both the countries have to make concerted efforts to resolve all the long outstanding issues, including Kashmir. A huge percentage of population on both the sides on the border lives below the poverty line.

It goes without saying that both the countries enjoy potential to complement each other’s economy. Trading between the two countries is still going on through third country, which added to cost and extends transit time. India has already granted Pakistan ‘Most Favored Nation’ status and Pakistan has yet to reciprocate.

Though, the Government of Pakistan decided not to import cotton from India, but no word is the last word in politics, it can be reviewed. To ease the tension India can also reduce number of troops deployed in Indian Administered Kashmir.

Friendship between two countries flourishes, when their social and economic goals become common. In the prevailing circumstances, both India and Pakistan face a mammoth task of saving precious human lives. They can take the first step by exchanging Oxygen and vaccine.

Is OPEC getting control over supply and price of crude oil, once gain?

The contraction of oil industry in the United States this year means the OPEC members probably won’t need to worry too much about losing market share for some time. But the group has a few challenges to consider at the upcoming crucial summit, for the first time in years the shale boom won’t be at the top of the list.

A devastating global pandemic and a reckoning with Wall Street appear to have broken the resolve of the shale wildcatters who made the US the world’s biggest oil producer. Years of breakneck growth, at the expense of crude kingpins in the Middle East and Russia, seems to be coming to the end. If there was ever any doubt, it’s now abundantly clear who has the upper hand in the global oil market.

It is believed that OPEC has got control over oil prices to a large extent. The US oil output will be around 11 million barrels a day in 2021, about the same as it is now. Experts don’t see growth until 2022, 2023, and prospects are lean that the US shale industry will post significant growth.

At the start of 2020, OPEC plus efforts to control prices were facing increasing difficulties. The breakthroughs in horizontal drilling and fracking that ushered in the shale revolution made it look as though US production growth might never end. Output surpassed 13 million barrels a day for the first time in February 2020.

After COVID-19 hit, people around the world stopped driving and flying and the oil market crashed. President Donald Trump brokered a historic deal with OPEC in April to remove almost a 10th of global production from the market. He said the US contribution would come in the form of market-driven cuts.

That pledge was delivered faster than most predicted, and it made a huge difference. Investors who were already tiring of the shale industry’s cash-burning spree retreated from the sector, and several producers went bankrupt. Before the summer was over, the US output had collapsed by 3.4 million barrels a day.

Output from shale wells typically declines in a matter of months, therefore, new ones need to be drilled and fracked just to maintain production at existing levels.  A recent uptick in drilling and fracking doesn’t seem to be enough to ensure production growth.

Since hitting bottom in the summer, the number of rigs searching for crude in shale fields has increased by 69 to 241 lately, still down from 683 in March. 

Similarly, the number of fracking crews in the once vibrant Permian Basin straddling Texas and New Mexico has increased to 63, an improvement from a meager 20 in June. But that’s less than half the 146 teams that were pumping mixtures of water, chemicals and sand into wells in January to release oil from shale rock in the area. 

It seems that the US has gone from being a thorn for OPEC to being an unofficial member of the cartel’s alliance with Russia and other producing nations. Since June, benchmark US oil prices have been remarkably stable, hovering around US$40 a barrel.

While shale’s retreat has made OPEC’s life easier, for the US oil industry it’s been brutal. There have been 43 bankruptcies of exploration and production companies this year through October, according to a report. Shale may be down but it’s certainly not out, though. The US is still an oil superpower, and will remain so for years to come. And there’s always the possibility that higher prices will get explorers drilling and fracking relentlessly like before.