Thursday, 14 July 2022

US-Israel joint declaration against Iran

Israeli Prime Minister Yair Lapid and US President Joe Biden signed a joint declaration on Thursday reaffirming the two nations' partnership and cooperation when it comes to Iran, among other topics that they have joint interests in.

The declaration reiterated the US commitment to ensuring that Iran never gets a nuclear weapon and that it is "prepared to use all elements of its national power to ensure that outcome."

The US also pledged to continue to work with partner nations to stop Iran's attempts to destabilize the region both directly and through proxies like Hezbollah, Hamas and the Palestinian Islamic Jihad.

Memorandum of Understanding

The declaration also referred to the US$38 billion MoU on security assistance supplied to Israel by the US that has been signed over the last few decades by consecutive American administrations.

The declaration expressed America's conviction to add a follow-up MoU to "address emerging threats and new realities."

Jerusalem expressed its appreciation of Washington's assistance, and the two countries expressed enthusiasm for moving forward with a close defense partnership.

Abraham Accords

Israel thanked the US for its support regarding the Abraham Accords, and the two allies reiterated the importance of the Negev Forum that met last month in Bahrain. 

The declaration expressed the commitment of the US to the effort of expanding the accords with Saudi Arabia in Biden's upcoming visit over the weekend as well as including further Arab and Muslim countries.

Anti-Israel and antisemitic attacks

The two nations reaffirmed their dedication to fighting against efforts to boycott and delegitimize Israel as well as efforts to unfairly single it out in organizations such as the United Nations and the International Criminal Court.

The declaration also committed to fighting against antisemitism, with the US reiterating its pride of standing "with the Jewish and democratic State of Israel."

Israeli-Palestinian Relations

Regarding the tensions between Israel and the Palestinians, both nations condemned the series of terror attacks in recent months and affirmed "the need to confront radical forces... seeking to inflame tension and instigate violence and terrorism."

Biden reaffirmed his support for a two-state solution and expressed America's readiness to work with Israel and the Palestinian Authority to make a peaceful solution to the tensions possible. 



 

Wednesday, 13 July 2022

Pakistan: Staff level agreement reached with the IMF

Pakistan has finally reached staff level agreement with International Monetary Fund (IMF) on policies to complete the 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). 

The agreement is subject to IMF board approval, likely in August, which will pave way for the release of US$1.17 billion bringing total disbursement to US$4.2 billion under EFF.

Additionally, in order to support program implementation and meet the higher financing needs in FY23, the IMF Board will consider an extension of the EFF till June 2023 instead of September 2022. The Board will also consider increasing the size of the EFF program to US$7 billion, up from initially proposed US$6 billion.

This support will provide some help as delays in IMF program and policy actions had led to increased economic uncertainty and a continuous decline in foreign exchange reserves.

To recall, 7th and 8th reviews of Pakistan EFF program was initially scheduled in March 2022 and June 2022 but Pakistan was not able to reach Staff level agreement with IMF due to delay in proposed policy actions like removal of petroleum subsidies, imposition of Petroleum Levy (PDL), energy tariff rationalization and increased tax measures.

It is believed that the implementation of key policy actions like increase in energy tariffs (gas and power rates) and other structural benchmarks like gradual increase in taxes on oil and implementation of anti-corruption law will remain key and will lead to IMF’s executive board approval and release of funds. 

IMF in its press release highlighted 5 key policy priorities to stabilize economy and bring policy actions in line with IMF-supported program which includes 1) Steadfast implementation of FY23 budget, 2) catch-up in power sector reforms, 3) proactive monetary policy to guide inflation to more moderate levels, 4) reducing poverty and strengthen social safety, and 5) strengthen governance.

The recently passed budget aims to reduce government’s large borrowing needs by targeting an underlying primary surplus of 0.4% of GDP by restricting expenditures and broad revenue mobilization measures.

Relating to power sector reforms, IMF noted that due to weak implementation of the previously agreed plan, the power sector circular debt flow is expected to grow significantly to about Rs850 billion in FY22.

Furthermore, adjustment in monetary policy and linkages of EFF and LTFF rates with policy rate remain the key given rising inflationary pressures. Government is also establishing a robust electronic asset declaration system and plan to undertake a comprehensive review of the anticorruption institutions (including the National Accountability Bureau).

IMF stressed that “Steadfast implementation of the outlined policies, underpinning the SLA for the combined seventh and eighth reviews, will help create the conditions for sustainable and more inclusive growth”.

It is believed that Pakistan economic situation will remain challenging due to uncertain global economic and financial market conditions along with local political situation.

Pakistan need to arrange funding up to US$35 billion during FY23 which is big task considering rising interest rates and risk averse attitude around the world.

There are expectations that few friendly countries like China, Saudi Arabia will continue financial support to Pakistan after IMF deal.

Furthermore, Pakistan is also expected to receive financing from other Bi-lateral and Multi-lateral donor agencies that could provide some support to reserves of the country.    

Moreover, after ousting of the previous Khan government through a no confidence motion, the PML-N led coalition government will be going into elections next year whereby it will be difficult to take all much needed reforms.

Though, the recently announced measured by the new government in Pakistan will help stabilize the economy and reduce fiscal and current account deficit, the overall investor confidence will remain below average.

Pakistan Eurobond yields are now at 20%-32%, local lending rate is at 20 year high of 15.87% while Pakistan stocks are down 6% (US$ down 21%) in 2022 to date.

This new IMF deal may help in some recovery of Pakistan dollar bond prices but considering the overall global interest rate environment and Pakistan rising debt a strong recovery may not come.

Similarly, Pakistan stocks may react slightly positively to this news but given Pakistan’s high lending and policy rates & other challenges like high inflation could continue to impact stock market sentiments.

Recently in its monetary policy statement SBP also highlighted key risks like high global commodity prices, rising inflation and increasing external account concerns that remain critical for Pakistan economic outlook.   

Analysts expect FY23 GDP growth of maximum 4% against government target of 5% and estimate CPI inflation around of 19% in FY23.

Global energy prices also remain the key for Pakistan. In FY22, oil and LNG imports are estimated at US$22 billion which was 27% of total import bill. A sustainable fall in oil, coal and LNG prices can provide some support to Pakistan external account.

 

Bangladesh: IMF team arriving on Thursday

A delegation from the International Monetary Fund (IMF) is scheduled to reach Dhaka on Thursday on a nine-day trip to discuss the government’s request for a US$4.5 billion support program.

Rahul Anand, Division Chief in the IMF’s Asia and Pacific Department, will lead the team during talks with the senior officials of the Finance Ministry, the central bank, the National Board of Revenue and the Economic Relations Division.

If everything proceeds smoothly, the loan deal could be finalized by October this year, said an official of the Finance Ministry yesterday.

The request for IMF support comes to shore up the precarious foreign currency reserves, which slipped to US$39.8 billion — the lowest since October 14, 2020. This is enough to cover about five months’ import bills.

Typically, the World Bank and the IMF prescribe an import cover of three months, but in times of economic uncertainty, they advise keeping sufficient reserves to meet 8-9 months’ imports.

Going forward, even though imports are slowly contracting, the elevated inflation levels around the world mean the odds of a slowdown in both remittance inflows and export orders, two sources of foreign currency for Bangladesh.

The IMF officials will look into the impacts of the Russia-Ukraine war and escalated global commodity prices on the Bangladesh economy, the status of recovery from the global coronavirus pandemic and the government’s large subsidy program.

They will see whether the subsidy spending is justified and compare it with the other countries. If it is deemed excessive, the IMF mission may suggest ways to trim it.

Subsidy spending in the just-concluded fiscal year is Tk 66,825 crore, 24.1% more than the original allocation thanks to the spiral in fuel and fertilizer prices in the global market.

In this fiscal year’s budget, Tk 82,745 crore has been earmarked for subsidy.

But considering the price trend of oil, gas, and fertilizer in the international market, the estimated spending can be 15-20% higher than the initial estimates, said Finance Minister AHM Mustafa Kamal in his budget speech in June.

The conditions could include measures to increase revenue, lower subsidy expenditure, market-based exchange rate and lending rate, and reforms in the banking sector and tax administration, the Finance Ministry official said.

Bangladesh has unveiled a relatively smaller budget for the current fiscal year, put on hold low-priority projects, suspended foreign tours of government officials, adjusted the prices of gas and diesel to some extent, and loosened the exchange rate policy.

The government has also signalled that it may raise the price of fuel oil and has proposed to the Bangladesh Energy Regulatory Commission to increase the electricity tariff to cut the subsidy burden.

Surjit Bhalla, Executive Director of the IMF for India, Bangladesh, Bhutan and Sri Lanka, who represented Bangladesh on the board of the Washington-based lender, is also set to visit Bangladesh separately.

 

Israel to push Biden on trade corridor connecting Israel and Gulf

“Corridors for Economic Integration”

A new highway and railway system throughout Israel, Jordan and Saudi Arabia could facilitate tens of billions of dollars in trade, according to a special paper prepared by the Finance Ministry ahead of US President Joe Biden’s visit to Israel.

The paper was drafted by Shira Greenberg, the ministry’s chief economist, under the direction of Finance Minister Avigdor Liberman. Government officials said that Liberman met in recent days with Prime Minister Yair Lapid to ensure that its main points would be brought up in talks with Biden during his visit to Israel, which begins on Wednesday and will end on Friday.

The paper – obtained by The Jerusalem Post and prepared in English so it could be shared with the Biden administration – pushes for a new plan called “Corridors for Economic Integration” that would create a regional transportation network including railways and highways linking Israel with Jordan, Saudi Arabia and the Gulf.

“By creating a direct connection between the Gulf and the Mediterranean, the network will allow for dramatically shorter shipment times between East and West,” the paper claims. “The project thus has the potential to facilitate trade on both a regional and global level, in addition to enhancing regional economic cooperation.”

Some sections of the network are already in stages of development, according to the paper. In Israel, a railway runs from the port of Haifa to Beit She’an, which is only 10 km. from the border with Jordan.

In Saudi Arabia, the North-South Railway links the east and center of the country with the north, all the way up to the border with Jordan.

In the Gulf, a railway under development there is being planned to connect those of all Gulf countries, in particular railways in Saudi Arabia, the United Arab Emirates and Bahrain.

“By creating a direct connection between the Gulf and the Mediterranean, the network will allow for dramatically shorter shipment times between East and West.”

The distance, the paper said, of the “missing link” – between the Saudi-Jordanian border and the crossing between Israel and Jordan where the railway almost reaches – is just 200 kilometers.

The network, the paper claims, could facilitate trade between the Gulf, Europe, North Africa and the east coast of the Americas. “The existence of numerous relevant and significant trade flows is expected to provide the project with robust demand – as traders in all relevant countries will seek to take advantage of reduced shipment times and direct access to regional markets,” it says.

In the paper, the Finance Ministry calls on the Biden administration to take the reins of the initiative and to bring all of the relevant stakeholders together to facilitate its success.

“While preliminary analyses have shown the project’s potential, a full cost-benefit analysis carried out on behalf of all involved parties by an experienced international partner could also help the sides decide on the next steps,” it says. “We believe that the current positive atmosphere of regional cooperation will allow us the opportunity to move forward in these regards.”

 

 

 

Saturday, 9 July 2022

Biden visit to Middle East: What is more important Israel or Saudi Arabia?

Forty-nine years since making his first trip to Israel, US President Joe Biden is scheduled to arrive in the country on Wednesday on the first leg of his first presidential visit to the Middle East.

For years he has regaled Jewish and Israeli audiences with an account of a meeting he had during that trip with then-prime minister Golda Meir, who told him that Israel’s secret weapon in dealing with Arab hostility was, “We have no place else to go.”

He later termed the meeting one of the most “consequential” of his life.

At that meeting, however, he complained to Meir about the Labor Party’s platform which he said was leading to “creeping annexation” of the territories. He also relayed to Meir that in Egypt he heard how the Egyptian officials believed in “Israel military superiority.” He concluded, as a result, that Israel should initiate the first step toward peace by unilateral withdrawals from nonstrategic areas.

A half-century breeds enormous changes. The US has changed dramatically, as has its position in the Mideast. Israel, too, has changed dramatically, as has its position in the world. But two things from that meeting remain constant, Biden is still opposed to Israel’s policies in the territories, and Israel’s sense that it has no place else to go infuses much of its strategic thinking – including Iran.

On Biden’s upcoming visit, both in Israel and in Saudi Arabia, Iran issue is going to take up much more room than the occupied territories.

Another issue, which came to the fore only a few months after Biden’s initial visit, will also feature prominently, oil. His visit in the late summer of 1973 came just before the Arab countries discovered oil as a strategic weapon, and began to use it.

Biden is the seventh sitting US president to visit Israel. It took 26 years before the first presidential visit to Israel, with Richard Nixon taking that leap in 1974. Since then, there have been 10 other presidential visits, including a one-day visit by Barack Obama in 2016 to attend Shimon Peres’s funeral. Nixon, Jimmy Carter and Donald Trump all visited once, George W. Bush and Obama visited twice, and Bill Clinton came here four times.

This will not be the first time a US president comes during an election campaign. Clinton came here in March 1996 – after organizing a “Summit of Peacemakers’’ in Sharm e-Sheikh – and made clear his preference for Peres, rather than the Likud leader running against him at the time, Benjamin Netanyahu.

Clinton’s support didn’t help, as Netanyahu eked out a razor-thin victory over Peres in elections held two months later. This should be a cautionary tale for Prime Minister Yair Lapid, who is hoping that Biden’s visit will give him a boost.

Historically, nods from US Presidents – though the optics are often powerful – have not necessarily translated into huge bonuses at the polls. Ask Netanyahu how much he was helped by the hug then-president Donald Trump gave him before the two elections in 2019, and the one in 2020. Trump was all-in for Netanyahu, yet Netanyahu didn’t get the votes he needed to form a coalition.

What Biden’s visit will do for Lapid is make him look prime ministerial. Photos of Lapid meeting and greeting Biden, and even audio of Biden praising the new acting prime minister, may help remove lingering doubt among those who believe that the onetime television journalist is not yet ready for the political prime time.

It is not, however, going to move voters from the pro-Netanyahu camp to the anti-Netanyahu camp headed by Lapid.

What is the goal? Beyond Lapid, what does Israel want from the Biden visit?

First of all, it just wants the visit itself. Presidential visits are still important for Israel because they reinforce the impression – an important one for Jerusalem in projecting power throughout the region and beyond – that its alliance with the US is steadfast and solid, and that it continues to enjoy a close and special relationship with Washington.

This not only deters those who might want to harm Israel, realizing that the US stands firmly behind it, but also encourages those who might want to get closer to Israel, because of Israel’s closeness to America. Presidential visits demonstrate that closeness.

Such a demonstration is especially important now, amid a constant drumbeat of stories about how Israel’s support in the US is on the decline, especially among Biden’s own Democratic Party, and especially among young voters in that party.

Secondly, Israel wants coordination on the Iranian dossier to come from this visit. It wants to coordinate with Biden regarding policy toward the Islamic Republic if there is no new nuclear agreement, and it wants to know what type of security architecture the US plans for the Mideast in that eventuality. Israel doesn’t only want to listen; it wants to give its input. Furthermore, Israel also wants to hear from Biden what the US plans to do if an agreement is signed, and Iran violates it.

Biden is scheduled to arrive Wednesday afternoon and will be leaving for Saudi Arabia on Friday. He will also be spending a few hours in the Palestinian Authority with PA President Mahmoud Abbas.

There, too, there will be meetings with interlocutors who want something. The Palestinians will want to hear Biden talk about a two-state solution, and provide concrete steps toward working toward a “diplomatic horizon.” They will want commitments regarding opening a consulate in east Jerusalem, reopening the Palestinian Liberation Organization’s office in Washington, and pledges of more financial support for the PA.

They are likely to be disappointed, as – unlike other presidents on trips to Israel and the Mideast – the Palestinian issue, resolving this issue, is nowhere near the top of the president’s agenda for this trip.

When discussions about a possible presidential visit became public a few months ago, Naftali Bennett was prime minister – the government was shaky, but still held. Even though the government has since fallen, a new prime minister is in office, and elections are four months away, the Americans proved very determined to go ahead with the visit.

Why visit Jerusalem at a time when the prime minister is not going to be able to make any significant promises, since in four months he may not be able to act on them. Why risk being seen as meddling in internal Israeli politics?

Israel is only a sidelight on this visit. Had Biden been coming only to Israel, he probably would have canceled and come next year, after the US midterm elections and when a new government would be in place in Jerusalem. But Israel is just the appetizer on this presidential voyage. Saudi Arabia is the main course.

Ironically, Biden is actually using the appetizer to explain to critics why he is moving on to the main course. He is using Israel to deflect criticism at home about visiting Saudi Arabia, despite that country’s human rights violations, despite its involvement in the killing of Saudi journalist Jamal Khashoggi, and despite Biden’s having said in the 2020 presidential campaign that it is a country that should be treated like a “pariah.”

One of the main purposes of this visit to the region, Biden said at a press conference in Spain last month, is to “deepen Israel’s integration in the region.”

“I think we’re going to be able to do that, which is good – good for peace and good for Israeli security,” he said. “That’s why Israeli leaders have come out so strongly for my going to Saudi Arabia.”

Biden is going to Saudi Arabia, where he will join a meeting of the Gulf Cooperation Council plus Iraq, Egypt and Jordan, and is expected to see Saudi Crown Prince Mohammed bin Salman, whom he has pointedly snubbed since becoming president. In Saudi Arabia, both Biden and the Saudis have their wants.

Biden wants, in fact he desperately needs, the Saudis to increase oil production to make up for shortfalls in supply caused by Russia’s invasion of Ukraine. This has led to skyrocketing prices in the US, with the average cost per gallon now standing at $4.79 a gallon (still well below the $8.96 Israelis pay per gallon at the pump).

The president is making his Mideast trip as the US economy is in the doldrums, sending his popularity numbers to new lows. Biden’s approval rating (39% on June 30) was almost 3 points lower than Trump’s at the same stage of his presidency. Low popularity isn’t because he has not put enough energy into the Mideast peace process, but, rather, primarily because of the economy – inflation and gas prices.

He hopes that in Saudi Arabia he can find a cure, at least, for gas prices, but this may be too high of an ask.

The Saudis, smarting from what they feel is the shabby way they were treated by Biden and this administration, are in no great rush to come to the president’s aid.

Lowering gas prices will help the Democrats – poised to get clobbered in five months in the US midterm election. But the Saudis aren’t interested in the Democrats doing well at the polls. If anything, they would prefer a Republican Congress and – in another two years – a Republican president.

Saudis also have their wants. They want the US to acknowledge that Riyadh has been a loyal strategic partner for 80 years; they want the US to acknowledge that the country has suffered from Houthi attacks; they want the Houthis reinstated on the American list of terrorist organizations; they want respect from Washington, and not to be viewed merely as America’s gas station.

In addition, they want assurances from Biden that they can count on the US in the future. The Saudis are looking for assurances that the US is not withdrawing from the region and is still willing to use its vast military power, and they want to hear how the US plans to protect them from Iran.

Biden will be flying into a region this week where a lot of different parties have a lot of different asks and expectations. Inevitably, some people are going to be disappointed, Biden himself may be among them. 

Iranian non-oil trade with neighbors up 18% during March-June 2022 quarter

The value of Iran’s non-oil trade with its neighboring countries increased 18% during the first three months of the current Iranian calendar year (March-June), as compared to the same period last year, the spokesman of Islamic Republic of Iran Customs Administration (IRICA) announced.

Ruhollah Latifi put Iran’s non-oil trade with its neighbors at 20.973 million tons worth US$12.363 billion in the three-month period.

He said trade with the neighbors accounted for 49% of the value and 59% of the weight of Iran’s non-oil trade during the period under review.

The country exported 16.05 million tons of non-oil goods worth US$6.736 billion to the neighboring countries in the three-month period of this year, indicating 20% rise in value, while 10% drop in weight, as compared to the same period last year, the official stated.

He named Iraq, Turkey, United Arab Emirates (UAE), Afghanistan, and Oman as the five top export destinations.

Latifi further announced that Iran imported 4.433 million tons of goods worth US$5.627 billion from its neighbors during this period, with 15% growth in value and one percent rise in weight YoY.

He named UAE, Turkey, Russia, Pakistan, and Oman as the five top sources of imports.

As previously announced by the IRICA head, the value of Iran’s non-oil trade with its neighbors during the previous Iranian calendar year 1400 was reported at US$51.875 billion, an increase of 43% YoY.

Alireza Moghadasi put the weight of non-oil trade with the neighboring countries at 100.131 million tons in the said year, stating that trade with the neighbors also increased by 23% in terms of weight.

The official put the annual non-oil exports to the mentioned countries at 75.445 million tons valued at US$26.29 billion, with a 29% rise in value and a 12% growth in weight.

Major export destinations of the Iranian non-oil goods were Iraq with US$8.9 billion, followed by Turkey (US$6.1 billion), United Arab Emirates (US$4.9 billion), Afghanistan US$1.8 billion) and Pakistan with (US$1.3 billion) in imports from the Islamic Republic, others countries included Oman, Russia, Azerbaijan, Turkmenistan, Armenia, Kazakhstan, Kuwait, Qatar, Bahrain, and Saudi Arabia, according to the official.

Moghadasi further stated that Iran imported 24.686 million tons of non-oil commodities worth over US$25.846 billion in the previous year, with a 60% growth in value and a 68%YoY increase in weight.

The United Arab Emirates was the top exporter to Iran during the period exporting US$16.5 billion worth of goods to the country, followed by Turkey, Russia, Iraq, and Oman, he stated.

Pakistan, Kazakhstan, Azerbaijan, Turkmenistan, Afghanistan, Armenia, Kuwait, Qatar, and Bahrain were other top neighboring countries that supplied goods to Iran in 1400, respectively.

Increasing non-oil exports to the neighboring countries is one of the major plans that the Iranian government has been pursuing in recent years.

Iran shares land or water borders with 15 countries namely UAE, Afghanistan, Armenia, Azerbaijan, Bahrain, Iraq, Kuwait, Kazakhstan, Oman, Pakistan, Qatar, Russia, Turkey, Turkmenistan, and Saudi Arabia.


Lift sanctions against Russia, urges Bangladesh Prime Minister

Sheikh Hasina, Prime Minister of Bangladesh has urged the Western countries to lift the sanctions on Russia, saying that millions of people across the world were suffering as the sanctions impacted global supply chains and increased prices food and other commodities.

Because of the US-led sanctions, food prices are skyrocketing and people are suffering everywhere.

“Punishing the people of the world, while trying to punish one country tantamount to human rights violation. This is why I think it is imperative that the US step away from this. I think everybody will want this,” she said while inaugurating a new building of the Ministry of Foreign Affairs in Dhaka.

The comments came at a time when people in Bangladesh are bearing the brunt of rising food, fuel and fertilizer prices and the government is being forced to take austerity measures that include limiting fuel use and electricity generation.

In late February, the Russia-Ukraine war started, bringing more miseries to the world still reeling from the pandemic.

The Western nations led by the United States have frozen about US$400 billion of Russian central bank’s assets and at least US$240 billion belonging to oligarchs. However, Moscow has roughly US$300 billion in foreign currency and gold reserves, and the ruble has now hit a seven-year high against the US dollar.

The UN has warned that Russia’s war in Ukraine could push up to 49 million people into famine or famine-like conditions because of its devastating impact on global food supply and prices.

According Europmonitor.com, global inflation may reach 7.9% in 2022. The average annual global inflation between 2001 and 2019 was 3.8%.

Hasina said the US-imposed sanctions have reduced the availability of goods, including those imported by Bangladesh, while the shipping costs have gone up. Not only in Bangladesh, but people in the US, Europe, UK and the rest of the world are also affected by the sanctions.

People in developing and developed countries are affected by the restrictions, and the US should understand this, she said, questioning if sanctions were effective at all in hurting a particular country.

“The developed countries should think about it.”

She said the Ukraine war and sanctions came just when Bangladesh was recovering from the shock of the pandemic. “This has become a great challenge for Bangladesh to overcome.”

The war should not affect shipping of goods from one country to another and international trade must be uninterrupted, she said.

Bangladesh is trying to increase food production. “But to boost food production, we need fertilizer, diesel and other related materials. We are not getting those.”