Another blow to coalition government in Israel

The gyrations of Israel’s coalition government, which still hopes to survive to its first anniversary on June 13, only make sense in its unique context. On Monday, June 6 it lost an important vote, in which more than half of the Knesset members on both sides voted against their own most fundamental beliefs.

It can be termed a desperate effort to either bring down the coalition or to save it. The substance of the legislation was barely more than a pretext, but the opposition smelled blood and was willing to do virtually anything to regain power.

The legislation at issue was a routine bill to maintain Israel’s jurisdiction over the West Bank for another five years, in order to ensure that the half-million Israelis who live there are treated as if they live within the “Green Line,” Israel’s pre-1967 borders. Though, much of the Knesset — including Prime Minister Naftali Bennett — would very much like to permanently annex part or all of the West Bank that is not on the agenda for this government. The bedrock principle is to maintain the status quo with regard to the West Bank and the Palestinians. A fundamental aspect of this policy is the perpetuation of a military regime for West Bank Palestinians and an ordinary life for Israelis living there — and thus the legislation extending it for five more years has always passed with ease.

It’s not that the majority of the MKs disagreed with the legislation. Probably between 80 and 100 of them would have supported it in a free vote, out of the total of 120. However, politics in Israel are now decisively split between supporters and opponents of former Prime Minister Benjamin Netanyahu, which takes precedence even over the left-right divide.

That is the only reason why the current government, unprecedentedly, contains far and mainstream rightists, centrists, leftists, and an Arab party, many of whom would be politically more comfortable with the opposition were it not for the divisive figure of Netanyahu, whose Likud Party and its allies, with a total of 60 members in the evenly divided Knesset, are determined to prove the country ungovernable under the current coalition. The chaos that would theoretically ensue if this legislation isn’t passed, even though they themselves are unashamedly holding it up, is, for them, a perfect example of the government’s inability to accomplish anything.

In fact, it is unlikely that Israeli settlers would spend even one day under the military regime that governs their Palestinian neighbors. They are an important enough constituency that a workaround will probably be found, one way or another. But the process would be chaotic enough that the government’s image, already tarnished, would suffer another heavy blow.

It is not only the right, however, that voted against its basic values. Even more distressed was the left-wing minority in the coalition from the Meretz and Labor parties, whose main political banner is fighting against the occupation. They are ardently against privileges for the settlers, yet cold calculation tells them that anything outside of this coalition would be much worse for them and their values — so they gritted their teeth and voted with the coalition.

There was one exception, Meretz MK Ghaida Rinawi Zoabi, who last month had bolted the coalition but returned after three days, and who voted “no” this time, against the coalition. Meretz MKs know that their constituency wants them to maintain the government as long as possible, but their voters are also asking themselves what the point of voting for a left-wing party is, when it is stuck in a coalition sworn to uphold the occupation. At least some might well switch to the majority-Arab Joint List, which refused to join the coalition, and thus voted against the bill with an absolutely clear conscience.

Perhaps the only more anguished group were the four MKs of the Arab and Islamist United Arab List, known by its Hebrew acronym, Ra’am, which, unprecedentedly for an Arab party, is part of the governing coalition. Three of them absented themselves and the fourth, like Zoabi, voted no. The final vote, including some genuine illnesses, was 52 for the bill and 58 against.

As noted, it is unlikely that this will change things at all for the settlers. Nor was it designated a vote of confidence, by which a loss might have brought down the government. But things can’t go on like this. The coalition was formed last year with 61 votes, but a right-wing MK from the PM’s own party defected in April, leaving the opposition unable to bring the government down, but the coalition unable to govern. Both blocs are desperately trying to encourage more defections — with no success so far. The general assumption is that there may have to be new elections by the end of the year, coming on the heels of four successive elections in less than two years, the first three of which were unable to produce a functional government

Of course that may not settle anything. Recent polls indicate that the country continues to tilt heavily toward the right, but that in a new election the current balance of pro- and anti-Netanyahu seats in the Knesset may well remain the same. Netanyahu’s ongoing trial for fraud and breach of trust is expected to last for at least another year, and he maintains his political power.

Were Netanyahu to disappear from the scene, a government of the mainstream right would almost certainly emerge, perhaps also including some of the “centrists” who dominate this one.

But the former PM is a vigorous 72 and no one is counting him out yet. So, paradoxically, though Netanyahu is loathed by the political left and the center, it is solely his continued presence in politics and his insistence on leading the Likud that has enabled their presence in the current government, unwieldy as it is, and their ability, such as it is, to block possible annexation of the West Bank, among other rightist policies.

 

Iran likely to turn off all cameras beyond Safeguards agreement

Chief of the Atomic Energy Organization of Iran (AEOI) announced on Thursday night that Iran has turned off a number of IAEA cameras which were monitoring Iran’s nuclear activities beyond the Safeguards agreement and plans to turn off the rest soon.

“We ended the activities of a number of these cameras and we will do the rest tonight and tomorrow,” Mohammad Eslami told the national TV.

The cameras that have been removed or are being removed were installed voluntarily. Their activity fell outside the scope of the Safeguards agreement of the International Atomic Energy Agency.

Iran embarked on removing such cameras in response to a resolution by the IAEA Board of Governors against Iran late on Wednesday.

The resolution, proposed by the United States and the European trio ‑ Germany, France and Britain ‑  was approved by the IAEA’s 35-nation board with 30 votes in favor, two against and three abstentions. Russia and China voted against the resolution and India, Libya and Pakistan abstained.

The resolution was drafted on the basis of a report by IAEA Director General Rafael Grossi in which it was claimed Iran had refused to provide answers to traces of uranium enrichment found at three undeclared sites. This is while Iran had provided answers to the IAEA about these alleged sites, which finally led to the conclusion of the 2015 nuclear agreement, officially called the Joint Comprehensive Plan of Action (JCPOA).

Questions about the alleged nuclear sites, which were referred to as possible military dimensions (PMD), were answered and the issue closed.

“You closed all these allegations and charges within the PMD…. And now you have come and say you want to return to the JCPOA. Okay, return to the JCPOA but why do you reopen the closed package which form the essence of the JCPOA?” Eslami asked.

Prior to the debate on Iran’s nuclear program at the IAEA board, Grossi had visited Tel Aviv for talks with Israeli officials, a move which put in serious question Grossi’s neutrality and professionalism by the Agency under his leadership.

Eslami went on to say that the IAEA, based on its articles 2 and 3, is tasked to transfer nuclear technology to NPT signatories for civilian uses but the reality is that the IAEA is “a pawn of the Zionists”.

It is widely believed that these alleged nuclear sites have been raised by Israel through bogus documents.

“It is regretful that an international institution is exploited in such a way by a fake regime and puts its credibility in question,” the AEOI chief lamented.

Israel, which has been launching an intensive campaign against Iran’s nuclear program for about two decades, has not signed the nuclear Non-Proliferation Treaty and according to the Stockholm International Peace Research Institute (SIPRI) has about 90 nuclear weapons. It also played a key role in provoking the Trump administration to quit the JCPOA, which was the product of 12 years of negotiations.

The nuclear chief went on to say that all the commitments made by Iran under the JCPOA was beyond the Safeguards agreement and were chiefly intended to create confidence about Tehran’s nuclear activities.

“Why has the Islamic Republic accepted to limit itself and be under more intensive surveillance and control by the Agency for a rather long term? It was just because it wanted to get rid of these accusations and build trust,” he explained.

However, Eslami added, this good intention which was shown in the negotiations and the JCPOA is not being considered at all by the IAEA, including its Director Grossi.

There is no will by Grossi to become convinced of Iran’s answers and this shows that he is a hostage to Israelis and that he has adopted a political behavior toward Iran.

 

EU members to buy gas from Egypt and Israel

The European Commission has proposed a deal to European Union (EU) member states with Egypt and Israel to boost imports of natural gas from the eastern Mediterranean. The draft memorandum of understanding, which is still subject to changes and needs approval from the governments involved.

It is part of the European Union's efforts to reduce fossil fuel imports from Russia following the war in Ukraine.

"The natural gas to be shipped to the European Union will originate either from Egypt, Israel or any other source in the East Mediterranean region, including EU member states in the region.

The EU has said publicly it intends to conclude a trilateral agreement with Egypt and Israel before the summer.

The draft deal establishes the principles for enhanced cooperation between the three partners but does not say how much gas the EU would import nor set any timelines for deliveries.

The document said shipments would include the use of liquefied natural gas (LNG) infrastructure in Egypt, noting the North African country's plan to become a regional hub for natural gas.

The memorandum of understanding would run for nine years from its signature, the document says, although that part is still in brackets, a sign that there is a higher chance it could be changed than other paragraphs.

Egypt already exports relatively small amounts of gas to the EU, and both countries are expecting to ramp up production and exports in the coming years.

Egypt exported 8.9 billion cubic meters (bcm) of LNG last year and 4.7 bcm in the first five months of 2022, according to Refinitiv Eikon data, though the majority goes to Asia.

Israel is on track in the next few years to double gas output to about 40 bcm a year as it expands projects and brings new fields online, industry officials say. Israel has said it hopes to reach a deal to supply gas to Europe and is also considering building a pipeline to export more gas to Egypt.

The EU imported 155 bcm of gas from Russia last year, accounting for about 40% of the bloc's overall consumption.

Under the draft agreement, Egypt would be able to purchase some of the gas being transported to the EU or other countries via Egyptian infrastructure, the document said, adding that Egypt could use it for its own consumption or for export.

The parties "will work collaboratively to set forth the appropriate ways and means for implementing the purpose of this memorandum of understanding in order to expedite the export of natural gas to the EU," the document said.

The deal does not introduce any binding legal or financial obligation on the signatories, the document said.

Under the plan, the EU could fund new infrastructure if it is in line with its commitment to discourage all further investments into fossil fuel infrastructure projects in third countries, unless they are fully consistent with an ambitious, clearly defined pathway towards climate neutrality.

Data proves performance of Imran Khan Government was outstanding

Today the financial wizkids of PDM government, headed by Shehbaz Sharif Sharif, presented Economic Survey of Pakistan. This annual document is released one day before the announcement of Federal Budget. The details for first nine months of FY22 show that the performance was far above the targets.

GDP growth rate was 5.97% against a target of 4.8%. This overall growth came on the back of 4.40% growth in Agriculture, 7.19% growth in Industries and 6.19% growth in Services — all three major sectors surpassed their targets of 3.5%, 6.5% and4.7% respectively.

I am amazed at the wit of Finance Minister Miftah Ismail. He said "achieving growth was not an issue for Pakistan; the real issue is achieving sustainable growth". "This year GDP growth is 5.97% ... but as usual the current account deficit has once again shown that we have a balance of payments issue," Ismail said.

He said, the country's growth story — having rebounded from the pandemic and maintaining a V-Shaped recovery by posting real GDP growth of 5.97% was dampened in the face of glaring macroeconomic imbalances, suggesting that this growth is unsustainable.

"Despite the encouraging export performance, the country’s imports have also risen significantly. The broad-based surge in global commodity prices, Covid-19 vaccine imports and demand-side pressures, all contributed to the rising imports," said the minister.

Resultantly, trade deficit grew by 55.5% and amounted to US$32.9 billion or 8.6pc of the GDP, which is "historically high".

Despite export receipts and workers’ remittances both reaching record-high levels, import payments registered a sizable, broad-based increase. As a result, the current account deficit widened considerably over last year.

These payment pressures manifested on the interbank PKR-US$ exchange rate, which depreciated by over 14% during Jul-Mar FY2022. Foreign exchange reserves held by Pakistan’s central bank also came under pressure, dropping US$5.9 billion to US$11.4 billion by end March 2022.

"The widening of the current account deficit together with a build-up in inflationary pressures in the backdrop of the geopolitical situation, especially the Russia-Ukraine conflict, created significant challenges for sustainable economic growth.

Russia still enjoys control over global food and fertilizer supplies

Economists and policymakers say Russia still enjoys hidden leverage on Ukraine and the global food supply. They worry that self-imposed export restrictions on fertilizer by Russia, the top global provider of the product, could further drive up the cost of food and damage global harvests in 2023 and beyond.

Russia’s invasion of Ukraine has been a factor in the 30% surge in international food prices and 10% rise in the US food prices over the last year, as supply chains continue to sputter in the wake of the coronavirus pandemic.

The price pressures exerted on agricultural markets by Ukrainian exports like wheat and sunflower oil have been so far mostly caused by issues with their transportation, with cargo ships stuck in blockaded ports that Russian authorities say need to be cleared of mines.

A shift in Russian fertilizer policy could go a step further, leading to problems with food production in addition to distribution.

“If the fertilizers don’t flow, then the world will produce less,” United Nations Food and Agriculture Organization (FAO) Chief Economist Máximo Torero said in an interview. “That’s why we’re saying that next year we could have a problem of food availability, and also of food access like what we have today.” Lower use of fertilizer results in lower crop yields regardless of supply chain issues, Torero said.   

“That’s what will create the problem of food availability, in addition to food access. That’s what worries us, that’s for us the most dramatic scenario. And that’s what we need to avoid,” he added.

Even without an export restriction, international companies have been hesitant to purchase fertilizers from heavily sanctioned Russia, which is the world’s top exporter of soil additives containing nitrogen, as well as those with phosphorus and potassium — all byproducts of the vast Russian energy industry.  

In 2019, Russia exported 5.5 billion kilograms of these fertilizers, more than double the amount of the second biggest exporter, the European Union, and nearly four times as much as third biggest exporter, Belgium, according to figures from the World Bank.

This commercial hesitancy caused the US to offer “comfort letters” last week to companies considering purchasing Russian grain and fertilizer. These notices assure buyers that they won’t face penalties for using unsanctioned products.

“Fertilizer has, as you know, has become a huge problem, and Russia is a large fertilizer exporter. They just need to open up their own markets and end this war, end the blockade that they are responsible for and allow food to flow,” US Ambassador to the UN Linda Thomas-Greenfield told the BBC last month.  

At a meeting of the UN Security Council in May on food security, Secretary of State Anthony Blinken stressed that “the sanctions imposed by the United States and many other countries deliberately include carveouts for food, for fertilizer, and seeds from Russia, and we’re working with countries every day to ensure that they understand that sanctions do not prevent the flow of these items.”  

Countries most reliant on nitrogen-based fertilizer exports from Russia and Russian-allied Belarus include Singapore, Mongolia and Panama, with the US receiving more than 20% of its imported fertilizers from the two countries, according to German market research firm Statista.  

Russia, for its part, sees a contradiction in the Western position of levying aggressive sanctions against the country while at the same time demanding commercial access to its agricultural commodities and energy byproducts.  

“The EU openly declared an all-out economic and trade war against our country — in full oblivion to Russia’s standing as a key global supplier of basic agricultural products (wheat, barley, sunflowers, mineral fertilizers and fodder crops), including to low-income countries, that are subject to risks of food shortages,” the Russian Foreign Ministry said in a statement. “Instead of making groundless allegations European leaders should rather turn their attention to redressing the systemic miscalculations in their own macroeconomic, monetary, trade, energy and agro-industrial policies.”  

“We are deeply concerned about a possible food crisis and are well aware of the importance of supplies of socially important commodities,” the foreign ministry added. “Russia expects to have a good wheat harvest this year, which will allow our country to offer 25 million tons of grain for export from August 01, 2022. Our capacity for exporting fertilizers from June to December 2022 will amount to at least 22 million tons (20% of global consumption over this period).”  

US lawmakers are less than keen to rely on Russian reassurances.  

Rep. Josh Harder  introduced legislation last month that would extend a government relief program for farmers dealing with rising input costs. 

The Department of Agriculture funding arrangement, known as the environmental quality incentives program, “provides agricultural producers and non-industrial forest managers with financial resources and one-on-one help to plan and implement improvements” that can lead to “healthier soil and better wildlife habitat, all while improving agricultural operations.”  

Harder’s bill would institute a temporary cost-sharing agreement of up to 100 percent between farmers who take up the program and the Agriculture Department.  

Farmers in the program who work “to develop and implement a nutrient management plan for their operation will be getting access to these payments,” Harder told the House Agriculture Committee in May.   

 “This is more critical than ever as we’ve seen the cost of everything go up around us, and we know how much it’s hurt our producers, especially when they’re trying to buy input like fertilizer,” he said. “So as fertilizer prices surge, folks need alternatives, and this is going to help address this. It’s also going to further conservation practices. It’s going to reduce fertilizer use, lower costs.”  

While Russia has denied that its invasion has contributed to a food crisis, the FAO blames the conflict in no uncertain terms.   

“It is clear that the war has resulted in a massive, and deteriorating, food security challenge,” the agency said in a March assessment. “It has already significantly disrupted livelihoods during the agricultural growing season, through physical access constraints and damage to homes, productive assets, agricultural land, roads and other civilian infrastructure.”

Israel upgrades Air Force to attack Iran

Taking refuge behind Iran’s continued development of nuclear capabilities; Israeli Air Force (IAF) has upgraded its F-35 stealth fighter jets to fly from Israel to the Islamic Republic without requiring mid-air refueling. 

The development is a boost to IAF capabilities and comes as the Israeli military has upped its preparations for a future strike against Iran’s nuclear capabilities. 

In addition, the IAF recently integrated a new one-ton bomb into the arsenal of weapons used by the F-35 (known in the IAF as the Adir) that can be carried inside the plane’s internal weapons compartment without jeopardizing its stealth radar signature.

The bomb – made by Rafael Advanced Weapons Systems - is said to be autonomous and protected against jamming and electronic warfare systems. The bomb was recently used in a series of IAF tests, the results of which were presented to Defense Minister Benny Gantz.

The IAF has held four large-scale drills simulating attacks against Iran over the last month. The first drill included confronting Iranian radar and detection systems, like those which protect its nuclear installations.

The second included simulating long-range combat flights – in this case to destinations in Europe. The other drills included defensive measures against cyber weapons and electronic warfare systems, means that could be used by Iran to undermine an Israeli military operation. 

News of the progress in military preparedness came just a day after Prime Minister Naftali Bennett told the Knesset Foreign Affairs and Defense Committee that Israel’s Iran strategy has changed in the last year, and it is acting against the head... and not just its arms, as we had in recent years.

During the recent military maneuvers, the IAF also drilled cooperation between fifth-generation fighter jets like the F-35 and fourth-generation jets like Israel’s older model F15 and F-16. The planes practiced sharing intelligence, missions and more.

“Iran’s surface-to-air missile systems and radars are crowded and they are not the only challenge,” a defense official said. “We need to be able to attack targets that are significant and the attack needs to be able to cause extensive damage. There are multiple targets in Iran at different ranges.”

 

 

Pakistan: Likely facets of Federal Budget FY23

Government of Pakistan (GoP) is scheduled to announce Federal Budget FY23 on June 10, 2022. Relations between International Monetary Fund (IMF) and Pakistan have not normalized despite change of Prime Minister. 

While it is anricipated that the upcoming budget will have measures that can ensure austerity and economic stability, the incumbent government is likely to opt for policies which can help the coalition remain in power over the next 18 months.

Budget outlay for FY23 is estimated at around Rs9.5 trillion as against budget of Rs8.5 trillion for FY22.

GoP is anticipated to set tax revenue collection target at Rs7.25 trillion for FY23, which will be 19% higher from the revised target of Rs6.1 trillion for FY22. It is likely to impose new taxation measures of about half a trillion in FY23 budget.

Current expenditure target is likely to be set at 12% of GDP for FY23 or Rs8 trillion which is around 11% YoY higher than what was budgeted for FY22.

Similarly, government is likely to set aside nearly Rs4 trillion for markup payment and Rs1.6 trillion for Defense expenditure.

Federal Public Sector Development (PSDP) is estimated at Rs800bn, as against Rs466 billion disbursed in 10MFY22 and revised budgeted of Rs603 billion for FY22.

Consolidated PSDP (Federal and Provincial) is anticipated at Rs1.4 trillion (1.8% of GDP) for FY23, as against Rs1.2 trillion for FY22.

A few taxation measures that are under consideration include: 1) increase in super tax for Banking sector and re-imposition of super tax on highly profitable companies, 2) increase in tax rate for individuals earning high salaries, 3) reduction in tax concessions and exemptions for various sectors, 4) increase in regulatory duties on luxury items, 5) luxury tax on immovable properties and vehicles,  and 6) increase in taxes for non-filers.

With the economic slowdown, tax revenue target of Rs7.25 trillion will be difficult to achieve for FY23. However, it will depend on the types and amounts of new taxes to be imposed in Budget FY23.

Upcoming budget is likely to be Neutral for Stock Market as we do not anticipate any change in Capital Gain Tax (CGT) rate of 12.5% and tax rate of 15% on dividend income. The budget is likely to be Neutral to Positive for sectors including Technology & Communication, Fertilizer, Insurance and Chemical Sectors. On other hand, it is likely to be Neutral to Negative for sectors including IPPs, Autos, Banks, Oil & Gas Exploration, Cement, Textile, OMCs, Tobacco, Steel and Pharmaceuticals.

Analysts believe that negatives relating to imposition of new taxes on listed companies are already priced in as valuations remain attractive. Market participants are keen to see the overall balance of payment situation and focus to remain on IMF and other foreign exchange inflows along with trend of international commodity prices. 

Pakistan market is currently trading at a discount. Analysts prefer sectors that offer high dividend yield, beneficiary of rising interest rates and currency depreciation.