Pakistan a victim of tug of war among super powers

This year Pakistan is celebrating Independence Day, when the clouds of imminent default are getting thicker. While the people have complete faith in the economic resilience of the country, a lot needs to be done on war footings. 

To carve out its future strategy, a dispassionate review of nearly three-quarters of a century has to be done, find out the mistakes and develop a conviction that Pakistan is a sovereign state and not a colony of any global or regional super power.

It is an undeniable fact that since independence Pakistan has remained the focus of global and regional super powers. The country is termed a natural corridor for trade, gateway to Central Asia and landlocked Afghanistan.

The perception is getting credence often regimes are installed and toppled in Pakistan by the super powers to achieve their vested interest. This is evident from Pakistan fighting US-proxy war is Afghanistan for more than four decades and love and hate relationship with India.

At present Pakistan faces extremely volatile situation, which has become a threat for its own existence. Fighting a US proxy in Afghanistan has completely destroyed the economic and social fabric of the country. Pakistan is suffering from the influx of foreign militant groups getting funds and arms from different global operators.

Analysts say over the years Pakistan has been towing US foreign policy and military agenda, which has often offended Russia, China, India and Iran. To improve internal security Pakistan must revisit its foreign policy, particularly relationship with Afghanistan, India and Iran, enjoying common borders with the country. It may not be wrong to say that at present Pakistan doesn’t enjoy cordial relation with none of these countries.

Many Pakistanis believe that when Britain decided to take an exit from the subcontinent in 1947 it left a thorn, Kashmir. Since independence India and Pakistan have been living in constant state of war, spending billions of dollars annually on the purchase of conventional as well as non-conventional arms and have also attained the status of atomic powers. However, both the countries suffer from extreme poverty.

There seems no probability of reconciliation between the two countries because of presence of hawks on both the sides. Even the trade relations could not be normalized due to the lingering Kashmir dispute as Hindus are not ready for another division of Hindustan on the basis of religion.

Iran has been persistently enduring economic sanctions for more than four decades. Pakistan suffers from severe energy crisis but it is not allowed to construct Iran-Pakistan gas pipeline or even buy Iranian crude oil under food for oil program. Iran has often complaint that certain outfits, most notorious being Jundullah, having its base in Baluchistan province of Pakistan, are involved in cross border terrorism.

Pakistan offers the shortest and most cost effective route to landlocked Afghanistan, leading to Central Asian countries. Gwadar deep seaport has been constructed in Baluchistan province with the financial and technical assistance of China. India often raises its concerns on Chinese presence along Pakistan’s coastal belt. However, it is on record that India played a key role in the construction of Chabahar port in Iran as well as road and rail links up to Central Asia via Afghanistan.

Pakistanis completely fail to understand the duality of US policy. India was asked to withdraw itself from Iran-Pakistan-India gas pipeline project and also rewarded nuclear technology in return. However, it was not stopped from building port and supporting infrastructure in Iran.

 

 

 

Astarachay Bridge to enhance Iran Azerbaijan economic cooperation

Readers of this blog site may recall that the signing ceremony of memorandum of understanding (MOU) for cooperation in the construction of this bridge was covered on January 28 this year. Today an update is being presented, an evidence of the commitment and hard work of the people of both the countries.

Iranian Ambassador to Baku, Abbas Mousavi has said that completing the bridge over the Astarachay border river is going to diversify the modes of transportation between Iran and Azerbaijan and improve economic cooperation between the two countries.

“The completion of the bridge between Iran and Azerbaijan will boost business in both countries and result in diverse transportation (both railway and automobile) between the two sides,” Mousavi said on Wednesday on the sidelines of a visit to the bridge construction site.

Having a length of 89 meters and a width of 30 meters, this bridge aims to connect the international transit highways of the two countries (Baku-Rasht-Qazvin highways), the official explained.

According to the official, the transport ministers of the two countries are going to meet soon to discuss such joint projects and ways of expending transportation and transit cooperation.

“Also, a tripartite meeting between Iran, Azerbaijan and Russia will be held in the near future to review issues related to transit, customs, and the development of the North-South corridor,” Mousavi added.

Iran and Azerbaijan signed a memorandum of understanding (MOU) in late January for cooperation in constructing the bridge over the Astarachay border river.

The MOU was signed by Iranian Deputy Transport and Urban Development Minister Kheirollah Khademi and Azerbaijan’s Deputy Minister of Digital Development and Transport Rahman Hummatov in Baku on January 26.

The two neighbors had earlier announced the total investment made in the project to be 4.7 million euros.

Speaking in the signing ceremony of the mentioned MOU, Azeri Deputy Prime Minister Shahin Mustafayev said the construction of the bridge is scheduled to be completed by the end of 2022.

"The president and the government of the Republic of Azerbaijan attach special importance to the development of relations with the Islamic Republic of Iran, and the presidents of Iran and Azerbaijan expressed interest in further developing relations between the two countries in a cordial meeting in Ashgabat," the official said.

Noting that Azerbaijan and Iran have established deep relations in various areas including trade, economy, energy, customs, and investment, he said: "There are good opportunities between the two countries to implement joint projects in these fields."

Iranian Transport Minister Rostam Qasemi for his part called Azerbaijan the closest neighbor to Iran and said: "We hope that after the meeting of the presidents of the two countries, relations between the two nations will develop as much as possible."

 

 

Five Chinese state-owned companies opt to delist from New York Stock Exchange

According to a Reuters report, five Chinese state-owned companies, oil giant Sinopec and China Life Insurance said on Friday they would delist from the New York Stock Exchange, amid economic and diplomatic tensions with the United States.

Three other companies to follow are Aluminium Corporation of China, PetroChina and Sinopec Shanghai Petrochemical Co seeking delisting of their American Depository Shares this month.

These five, in May were flagged by the US securities regulator as failing to meet its auditing standards, will keep their listings in Hong Kong and mainland Chinese markets.

Beijing and Washington are in talks to resolve a long-running audit dispute that could see Chinese companies banned from US exchanges if they do not comply with US rules. Washington has long demanded complete access to the books of US-listed Chinese companies, but Beijing bars foreign inspection of audit documents from local accounting firms, citing national security concerns.

There was no mention of the auditing dispute in separate statements by the Chinese companies outlining their moves, which come amid heightened tensions after last week's visit to Taiwan by US House of Representatives Speaker Nancy Pelosi.

"These companies have strictly complied with the rules and regulatory requirements of the US capital market since their listing and made the delisting choice for their own business considerations," the China Securities Regulatory Commission (CSRC) said in a statement. The agency added that it would keep "communication open with relevant overseas regulatory agencies."

The oversight row, which has been simmering for more than a decade, came to a head in December when the Securities and Exchange Commission (SEC) finalized rules to potentially prohibit trading in Chinese companies under the Holding Foreign Companies Accountable Act. It said 273 companies were at risk.

Some of China's largest companies including Alibaba Group Holdings, JD Com and Baidu are among them. Alibaba said last week it would convert its Hong Kong secondary listing into a dual primary listing which analysts said could ease the way for the Chinese ecommerce giant to switch primary listing venues in the future.

In premarket trading Friday, US-listed shares of China Life Insurance and oil giant Sinopec fell 5.7% and 4.3% respectively. Aluminium Corporation of China dropped 1.7%, while PetroChina shed 4.3%. Sinopec Shanghai Petrochemical Co shed 4.1%.

A spokesperson for NYSE declined to comment. A spokesperson for the Public Company Accounting Oversight Board, the audit watchdog overseen by the SEC, did not immediately provide comment.

Market-watchers were split over what the delistings might mean for the audit deal, with some saying it was a bad sign.

"China is sending a message that its patience is wearing thin in the audit talks," said Kai Zhan, senior counsel at Chinese law firm Yuanda, who specializes in US capital markets.

The companies said their US traded share volume was small compared with those on their other major listing venues.

PetroChina said it had never raised follow-on capital from its US listing and its Hong Kong and Shanghai bases "can satisfy the company’s fundraising requirements" as well as providing "better protection of the interests of the investors."

Global fund managers holding US-listed Chinese stocks are steadily shifting towards their Hong Kong-traded peers, even as they remain hopeful the audit dispute will eventually be resolved, Reuters reported this week.

"These companies are very thinly traded with very small US market cap so it is not a loss for US capital markets," Brendan Ahern, CIO of Krane Funds Advisors, which has a New York-listed fund focused on Chinese tech plays, wrote in an email.

He and analysts said the delistings could pave the way for China to comply with the US requirements, since the five companies concerned likely have sensitive information China would not want exposed in an audit review.

"We see this as a positive sign. This is consistent with our view China will decide what companies would be allowed to be US-listed and thus subject to SEC's audit investigations," Jefferies analysts wrote in a note.

China Life and Chalco said they would file for delisting on August 22, with it taking effect 10 days later. Sinopec, whose full name is China Petroleum & Chemical Corporation and PetroChina said their applications would be made on August 29.

China Telecom, China Mobile and China Unicom were delisted from the United States in 2021 after a Trump-era decision to restrict investment in Chinese technology firms. That ruling has been left unchanged by the Biden administration amid continuing tensions.

 

US exports over 100 million gallons of ethanol

The United States exported 101.48 million gallons of ethanol and 1.01 million metric tons of distillers’ grains in June, according to data released by the USDA Foreign Agricultural Service on August 04. Exports of both products were up as compared to June 2021.

Ethanol is an organic chemical compound. It is a simple alcohol with the chemical formula C₂H₆O. Its formula can be also written as CH ₃−CH ₂−OH or C ₂H ₅OH, and is often abbreviated as EtOH. Ethanol is a volatile, flammable, colorless liquid with a characteristic wine-like odor and pungent taste.

Ethanol is naturally produced by the fermentation of sugars by yeasts or via petrochemical processes such as ethylene hydration. It has medical applications as an antiseptic and disinfectant. It is used as a chemical solvent and in the synthesis of organic compounds, and as a fuel source. Ethanol also can be dehydrated to make ethylene, an important chemical feedstock.

The 101.48 million gallons of ethanol exported in June was down when compared to the 147.06 million gallons exported in May, which was a four-year high, but up from the 82.09 million gallons exported during the same month of last year.

The US exported ethanol to more than 30 countries in June. Canada was the top destination for US ethanol at 41.2 million gallons, followed by South Korea at 13.64 million gallons and the UK at 12.02 million gallons.

The value of US ethanol exports was at US$324.77 million in May, down from US$410.39 million a month ago, but up from US$187 million in June 2021.

Total US ethanol exports for the first half of 2022 reached 827.39 million gallons at a value of US$2.25 billion, compared to 662.62 million gallons exported during the same period of 2021 at a value of US$1.27 billion.

The 1.01 million metric tons of distillers’ grains exported in June was up from both 966,108 metric tons in May and 938,280 metric tons in June 2021.

The US exported distillers’ grains to approximately three dozen countries in June. Vietnam was the top destination at 197,192 metric tons, followed by Mexico at 158,501 metric tons and Turkey at 109,819 metric tons.

The value of US distillers’ grains exports was at US$311.08 million in June, down slightly from US$311.85 million the previous month but up from US$248.47 million in June of last year.

Total US distillers’ grains exports for the first six months of the year reached 5.67 million metric tons at a value of US$1.67 billion, compared to 5.4 million metric tons exported during the same period of last year at a value of US$1.42 billion.

Lots of gas but no ships to carry

As the world’s energy crunch worsens, a shortage of shipping capacity will limit the role of Liquefied natural gas (LNG) to plug the gap.

This was the warning from Lloyd’s Register (LR) gas guru, Panos Mitrou, who said that LNG shipbuilders are full until well into the second half of the decade, this was reported by Seatrade Maritime News.

Recent contracts have closed at prices around US$250 million, up by about US$60 million on last deals done at the start of the year. Clarkson figures reveal that more LNG carriers were ordered over the first half of the year than in any full year to date.

In an opinion piece on the LR website, Mitrou cites estimates by the classification society that the half dozen specialist builders in South Korea and China have an annual production capacity of 70-80 ships. But liquefaction and transport demand over the second half of the decade could require twice this number of new vessels.

Mitrou notes that the four long-established LNG construction yards – Daewoo, Hyundai and Samsung in South Korea, and Hudong in China – have recently been joined by newcomers, Dalian and Jiangnan, also in China. A seventh yard, Yangzijiang, is also set to join the group.

But some LNG producers, who are ramping up exports, have been caught out by constraints on ship supply. Mitrou believes that the world will lack the LNG shipping capacity to meet transport demand by 2025, possibly before.

Meanwhile, floating gas plants can provide a relatively quick way of boosting energy imports in some power-hungry countries. But conversions of existing ships would take more tonnage out of the transport system, Mitrou noted.

To make matters worse, he cited estimates by the classification society that about 400 existing LNG carriers in the 640-ship fleet are likely to fall into categories ‘D’ or ‘E’ of the IMO’s carbon intensity indicator, therefore requiring remedial action. This is partly because of relatively fuel-inefficient steam turbine and early diesel propulsion, but also a lack of effective boil-off management systems.

Mitrou concludes by warning that a perfect storm is brewing. LNG is the cleanest hydrocarbon energy by far, he declares, and offers significant potential as a transitional source of energy. But we cannot have an energy transition without energy security and there is very little of that in many import-reliant countries right now. 

Get ready for another interest rate hike

Today Reuters has released the news saying that slowing US inflation may have opened the door for the Federal Reserve to temper the pace of interest rate hikes, but policymakers have no doubt that the central banks will continue to tighten monetary policy until price pressures are fully broken. 

If rates are raised around the world, Pakistan can’t remain an exception.

A US Labor Department report on Wednesday indicated that consumer prices didn't rise at all in July as compared to June. The policymakers believe it would be a long process, with a red-hot job market and suddenly buoyant equity prices suggesting the economy needs more of the cooling that would come from higher borrowing costs.

The Fed is far, far away from declaring victory on inflation, Minneapolis Federal Reserve Bank President Neel Kashkari said at the Aspen Ideas Conference, despite the "welcome" news in the CPI report.

Kashkari said he hasn't "seen anything that changes the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. The rate is currently hovering between 2.25% to 2.5% range.

To be sure, Kashkari is the Fed's most hawkish member; most of his 18 colleagues believe a little less policy tightening may be enough to do the trick to bring prices under better control.

San Francisco Fed President Mary Daly, in an interview with the Financial Times, also warned it is far too early for the US central bank to declare victory in its fight against inflation.

However, Daly said that a half-percentage point rate rise was her baseline but did not rule out a third consecutive 0.75% point rate rise at the central bank's next policy meeting in September, according to the report.

Calling inflation unacceptably high, Chicago Fed President Charles Evans said he believes the Fed will likely need to lift its policy rate to 3.25% to 3.5% this year and to 3.75% to 4% by the end of next year, in line with what Fed Chair Jerome Powell signaled after the Fed's latest meeting in July.

Still, he said, the CPI report marks the first positive reading on inflation since the Fed began raising interest rates in March in increasing increments ‑ a quarter of a percentage point to start, then a half a point, and then three quarters of a percentage point in both June and July.

After Wednesday's CPI report, traders of futures tied to the Fed's benchmark interest rate pared bets on a third straight 75-basis-point hike at its September 20-21 policy meeting, and now see a half-point increase as the more likely option.

Equity markets took a similar cue on hopes for a less aggressive central bank, with the S&P 500 rising 2.1%.

Financial markets are currently pricing a top fed funds rate of 3.75% by year-end, with rate cuts to follow next year, presumably as policymakers move to counter economic weakness.

Kashkari called that scenario unrealistic, and said Fed policymakers are united in their determination to bring inflation down to the Fed's 2% target. The risk of recession will not deter me from advocating for what's needed to do so, he said.

The consumer price index rose 8.5% in July from a year earlier, the report showed. While that marked a drop from June's 9.1% rate, prices are still rising at levels not seen since the 1970s and early 1980s. Food prices in July were up 11% from the year before, devastating for lower income families in particular.

For the moment, analysts focus on the fact that after months in which accelerating price pressures pushed Fed policymakers to tighten credit conditions faster than at any time since the 1980s, inflation data finally surprised in the other direction.

"The Fed needs a lot more evidence (of slowing inflation)... but this is a good start," said Karim Basta, Chief Economist with III Capital Management.

Data on August consumer inflation will be released on September 13, the week before the Fed meets, and given recent trends in energy and some other prices the report "should also be friendly to the disinflation path and should make a 50 basis point hike the preferred option."

Still, the Fed's battle with high inflation is far from over.

The core consumer price index - which strips out volatile gas and food prices and is seen as a better predictor of future inflation - rose 0.3% from June and 5.9% from a year earlier. The Fed targets 2% inflation based on a different index that is rising at a lower, but still high, rate of more than 6%.

An alternative measure of consumer prices compiled by the Cleveland Fed, known as the Median Consumer Price Index and considered a good view of the breadth of prices pressures in the economy, rose 6.3% on an annual basis in July, compared to 6% in June.

"Overall, prices remain uncomfortably high," wrote High Frequency Economics' Rubeela Farooqi, who stuck with her call for a 75-basis point rate hike next month. "Coupled with strength in job growth and wages, the data support the case for another aggressive rate hike in September."

Central banks around the world raising interest rates to tame inflation

During the pandemic, central banks in both advanced and emerging market economies took unprecedented measures to ease financial conditions and support the economic recovery, including interest-rate cuts and asset purchases.

With inflation at multi-decade highs in many countries and pressures broadening beyond food and energy prices, policymakers have pivoted toward tighter policy. Central banks in many emerging markets proactively started to hike rates earlier last year, followed by their counterparts in advanced economies in the final months of 2021.

The monetary policy cycle is now increasingly synchronized around the world. Importantly, the pace of tightening is accelerating in several countries, particularly in advanced economies, in terms of both frequency and magnitude of rate hikes. Some central banks have begun to reduce the size of their balance sheets, moving further toward normalization of policy.

Stable prices are a crucial prerequisite for sustained economic growth. With risks to the inflation outlook tilted to the upside, central banks must continue normalizing to prevent inflationary pressures from becoming entrenched. They need to act resolutely to bring inflation back to their target, avoiding a de-anchoring of inflation expectations that would damage credibility built over the past decades.

Monetary policy can’t resolve remaining pandemic-related bottlenecks in global supply chains and disruptions in commodities markets due to the war in Ukraine. It can however slow overall demand to address demand-related inflationary pressures, so a tightening of financial conditions is the goal.

The high uncertainty clouding the economic and inflation outlook hampers the ability of central banks to provide simple guidance about the future path of policy. But clear communication by central banks about the need to further tighten policy and steps required to control inflation is crucial to preserve credibility.

Clear communication is also critical to avoid a sharp, disorderly tightening of financial conditions that could interact with, and amplify, existing financial vulnerabilities, putting economic growth and financial stability at risk down the road.