Pakistan: How can Finance Minister sound so dumb?

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

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

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

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

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

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

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

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

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

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

Shehbaz Sharif government deprives overseas Pakistani from voting rights

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

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

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

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

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

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

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

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

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

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

Pakistan-IMF discussions remain inconclusive

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

The incumbent government does not seem ready to withdraw subsidies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Record barrels of Russian oil floating in seas

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

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

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

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

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

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

China a key buyer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Gwadar: The Gateway to CPEC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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