Pakistan: IMF country report

International Monetary Fund (IMF) has released its Country Report on Pakistan after the Executive Board completed seventh and eight reviews of the Extended Fund Facility (EFF).

According to the IMF report, program implementation deteriorated after the completion of sixth review in February 2022. Amid a tense political landscape, programmed fiscal adjustment was undone and several key EFF commitments were reversed like imposition of Petroleum Levy (PDL) and grant of subsidies on petroleum products.

In June 2022, two Performance Criteria (PC) on net international reserves and the primary budget deficit requirements were not met, as well as three continuous PCs were missed.

Moreover, seven structural benchmarks were also not met. Analysts believe that fiscal deficit target of 4.6% of GDP was ambitious.

Recent floods in various parts of the country have caused major losses to human lives, infrastructure, and crops. According to Dr. Aisha Pasha, State Minister for Finance the initial estimates indicate that the losses caused by floods were close to Rs2 trillion (2% of GDP).

Considering this view, it is likely that Pakistan’s fiscal deficit will likely clock in between 6-7% of GDP for FY23.

It is also expected that IMF will consider the potential impact of floods and provide some relaxations especially if Pakistan continue to remain steadfast in implementation of reform agenda agreed with IMF.   

As per the IMF country report, Pakistan Government has recently taken major steps including the completion of prior actions that led to revival of the IMF program.

It is believed that the current political setup has taken unpopular steps recently in spite of increasing political noise. This helped Pakistan got two waivers on PCs and also brought IMF program back on track.

IMF also approved Pakistan’s request to increase the size of program by US$1 billion and extend the program till June 2023 instead of September 2022.

Waivers on PCs & extension in program tenure will provide the much needed support to the Pakistan economy.       

IMF has recommended Pakistan authorities to restore fiscal and debt sustainability, safeguarding monetary and financial stability and maintaining a market driven exchange rate.

IMF has projected GDP growth of 3.5% in FY23 with Current Account Deficit (CAD) of 2.5% of GDP (US$9 billion) and CPI inflation of 19.9%.

It is anticipated that GDP growth will be in the range 2.5% to 3.5% in FY23. Current Account Deficit is likely to remain less than 3% of GDP. 

Though, it is early to estimate the potential impact of floods on current account but risk to upward revision in current account estimate remain (close to around US$1 billion) depending upon the crop damage and the demand to meet required demand through imports.

It is also believed that pressures on current account due to crop damage could also be somewhat compensated through: 1) economic slowdown and lower demand for imports, 2) higher remittances due to flood support from expats, and 3) increased aid and financial assistance from international community.

As per IMF, gross external financing requirement for FY23 is estimated at US$31 billion and available financing is projected at US$33 billion for FY23 as against SBP’s target of US$37 billion for FY23.

Analysts believe any additional financing requirement due to higher current account could be compensated through increased foreign aid and financial flows to the country.

On the monetary front, keeping in view the recent inflationary trend (CPI Inflation of 27.3% in August 2022) and the outlook on food prices post floods, it is likely that average inflation will also cross IMF estimate of 20%.

CPI inflation is likely to remain below 24%, keeping in view the extent of damage from recent floods and potential economic slowdown.

Analysts do not expect any further hike in interest rates in 2022. In fact, it is expected to start falling from 4QFY23.

Faltering Russian Wheat Shipments

Shipments from Russia in July and August, the first two months of the new season, fell 22% to 6.3 million tons from a year earlier, according to ship lineup data from Logistic OS. 

Last month, Ukraine restarted shipments, exporting 1.5 million tons of food through the grain corridors established under a deal brokered by the United Nations and Turkey.

While the cargoes from Ukraine’s Black Sea ports are little more than a quarter of pre-war volumes, the government hopes shipments will pick up in the coming months.

The slow pace of Russian wheat exports is adding pressure to global supplies as harvests elsewhere are hit by drought. Food was exempted from western sanctions, but bankers and insurers are cautious about doing business with Russia and shipping lines are wary of sending their vessels into a war zone.

 “We have reputational risk or informal sanctions,” Dmitry Rylko, General Director of Moscow-based institute IKAR, said in an interview. “They cause problems with finding vessels for Russia Black Sea, and we see some banks don’t want to open letters of credit for wheat of Russian origin.”

Since the start of the new season, Russian shipments are no longer constrained by an export quota that was in place for the second half of the previous season to protect domestic supplies. Now the government is complaining about restrictions on trade, even after the European Union and United States stressed that food is not targeted by sanctions.

“Despite the statements made by Washington and Brussels that anti-Russian sanctions do not apply to food and fertilizers, the blocking obstacles to bank settlements, insurance and transportation of goods that have arisen as a result of their introduction still remain,” Russia’s Foreign Ministry said last week.

Russian farmers are also reluctant to sell wheat as a strong ruble and high export tax make it less attractive, while IKAR said some European customers weighted their orders to earlier in the year.

Russia and Ukraine signed a deal in July to release millions of tons stuck in Black Sea ports. The first cargoes were carried by vessels trapped in Odesa and two other Black Sea ports, while another 1.15 million tons of grain was shipped by rail in the first 23 days of August, according to Ukragroconsult.

Still, it remains to be seen whether shipments can be accelerated further as Ukrainian forces mount a counter-offensive in the south of the country. Before the war, 5 to 6 million tons of grains were typically dispatched monthly via its Black Sea ports.

The United Nations, which brokered the deal to end the logjam at Ukrainian ports, has emphasized the importance of Russian fertilizers and agricultural commodities making it to customers.

Russian exports are starting to speed up slightly, something that’s essential to the global wheat market, according to Agritel. IKAR expects shipments to rise to 4 million tons in September, though that would still be behind the 4.7 million tons exported a year earlier.

“The wheat production of the five major exporters outside the Black Sea is barely progressing compared to last year,” Agritel analyst Nathan Cordier said at a briefing. “It will not allow them to cover a failure of Ukraine or Russia.”

Putin denies Gorbachev a state funeral

Russian President Vladimir Putin is likely to miss the funeral of the last Soviet leader, Mikhail Gorbachev, the man who failed to prevent the collapse of the Soviet empire.

Gorbachev, idolized in the West for allowing eastern Europe to escape Soviet communist control but unloved at home for the chaos that his perestroika reforms unleashed, will be buried on Saturday after a public ceremony in Moscow's Hall of Columns.

The grand hall, within sight of the Kremlin, hosted the funerals of Soviet leaders Vladimir Lenin, Josef Stalin and Leonid Brezhnev. Gorbachev will be given a military guard of honour - but his funeral will not be a state one.

State television on Thursday showed Putin solemnly placing red roses beside Gorbachev's coffin - left open as is traditional in Russia - in Moscow's Central Clinical Hospital, where he died on Tuesday aged 91.

Putin made a sign of the cross in Russian Orthodox fashion before briefly touching the edge of the coffin.

"Unfortunately, the president's work schedule will not allow him to do this on September 03, so he decided to do it today," Kremlin spokesman Dmitry Peskov told reporters.

He said Gorbachev's ceremony would have elements of a state funeral, and that the state was helping to organize it.

Nevertheless, it will be a marked contrast to the funeral of Yeltsin, who was instrumental in sidelining Gorbachev as the Soviet Union fell apart and hand-picked Putin, a career KGB intelligence officer, as the man most suited to succeed him.

When Yeltsin died in 2007, Putin declared a national day of mourning and, alongside world leaders, attended a grand state funeral in Moscow's Cathedral of Christ the Saviour.

Russia's intervention in Ukraine appears aimed at reversing at least in part the collapse of the Soviet Union that Gorbachev failed to prevent in 1991.

Gorbachev's decision to let the countries of the post-war Soviet communist bloc go their own way, and East and West Germany to reunify, helped to trigger nationalist movements within the 15 Soviet republics that he was powerless to quell.

Five years after taking power in 2000, Putin called the breakup of the Soviet Union the greatest geopolitical catastrophe of the 20th century.

Pakistan: What exactly are we celebrating?

Pakistan’s Finance Minister, Miftah Ismail, has been extremely jubilant on the release of US$1.1 billion by the International Monetary Fund (IMF), but PDM government led by Shehbaz Sharif, has insulted the overseas Pakistanis the most, who remit around US$2.5 billion every month, by refusing to give them voting rights.

Dr. Akbar Zaidi* in his article published in Dawn has said rightly, “Such agreements might temporarily rescue governments and their economies, but these are always anti-people with deep and deleterious long-term consequences”.

He has also identified, “Perhaps the government of Pakistan chose not to read carefully beyond the headline as it highlighted numerous uncomfortable truths”.

He continues with, “On top of this, the IMF insists that the governments need to increase electricity prices and taxes on petroleum products even further, as well as keeping interest rates high.

Countries generally facing balance of payment crisis go to the IMF, known as ‘lender of last resort’. The revival of Pakistan’s agreement with the IMF was ‘sure’, after the story of Army Chief General Bajwa contacting the US Administration hit the newspapers headlines.

One tends to disagree with Dr. Zaidi’s when he says, “It was quite irrelevant since the agreement between the Government of Pakistan and the IMF was already well in place and even the request from the COAS had little value to add at this late stage”.

I am delighted with the admission of Dr, Zaidi, “The agreement which has been reached is not a new one, and is the revival, with additional, stricter, conditionalities”.

Dr. Zaidi’s statement should be an eye opener for the ruling elite, “Celebrating receipt of a mere US$1.1 billion is  a sign of how low our expectations and standards have fallen”.

While there was a possibility of a default, mostly on account of our own collective doing, the revival of the program allows only very short-lived breathing space. The deep-rooted, chronic, structural problems which affect the economy, have barely been articulated, let alone addressed.

Dr. Zaidi deserve a salute for saying, “All adjustments and actions taken in the last four months by the incumbent government were to ensure that they secure the loan. Now that they have, they have the opportunity to sit on their false laurels and easily avoid taking measures which are even more unpopular than the ones they have already taken”.

The preconditions end up raising taxes (usually regressive ones, such as indirect taxes), cutting expenditure (always development), increasing electricity and gas tariffs and other essentials, are meant to slow down aggregate demand and the economy.

With the damage caused by the floods to the economy estimated to be 10 times the amount received from the IMF, this latest rescue package is not going to rescue the people of Pakistan.

*Dr. Akbar Zaidi is a political economist and heads the IBA, Karachi.

Felixstowe: Eight day strike comes to end

An eight-day strike at the Britain’s main container port has come to an end, but the impact will continue to be felt in the coming months and further action could be on its way.

Supply chain risk company Everstream Analytics said carriers have avoided Felixstowe during the strike, with ship calls dropping by 82% from 29 in the week of August 15 to just five in the following strike week.

“The large-scale vessel diversions have led to higher congestion levels, especially at German ports that have battled labor actions on their own in the last few weeks,” said Everstream.

Waiting times at Hamburg hit a peak for the year of 42 hours last week and at Bremerhaven, 18 vessels per day waited at anchor to berth, another 2022 high and around 63% above the annual average.

The strike at Felixstowe has ended, but the underlying issue of pay is yet to be resolved. “The ball is now firmly back in Felixstowe’s court. The employer has the opportunity to make a greatly improved offer which will end this dispute. If the employer declines this opportunity, then further strike action is expected to be announced in the coming weeks,” said a spokesperson for Unite the union.

Unions have proposed September 19 as a potential date for more strike action, potentially with fellow dockworkers at the Port of Liverpool striking alongside workers at Felixstowe.

“Knock-on congestion and delays on other European ports are therefore likely to occur in the coming weeks as well as we head into the beginning of Q4 and the holiday season,” said Everstream.

Port owner Hutchison said it offered a “very fair” 7% pay rise to workers along with a one-off £500 bonus.

The threat of further industrial action comes at a time of widespread strikes in the Britain, including by rail workers, barristers, council workers, and postal workers. The most prominent reason for strikes is insufficient pay increases in the face of high inflation.

Unite, the union behind the Felixstowe strike, has had recent success in the Britain maritime sector. Workers at ferry operator Red Funnel voted to accept a two-year pay deal of between 13.4% and 18.3% covering members including ratings, shunters and customer service staff.

The strikes are the latest in a series of disruptions to the Britain’s supply chain, adding to complications from Brexit regulatory changes, pandemic impacts, and the loss of ferry capacity during the P&O Ferries debacle.

 

Afghanistan: One year of Taliban rule, but no recognition by international community

Taliban marked the first anniversary of their rule in Afghanistan on Wednesday. This reminds humiliating defeat of US-led forces who invaded Afghanistan following September 11, 2001, attacks on the United States. 

Two of the most regrettable points are: 1) United States has not allowed the world to recognize Taliban government and 2) to continue its tyranny United States has not released foreign reserves of Afghan central bank as yet.

"The experience of the past 20 years can be a good guide... Any kind of pressure and threats on Afghans in the last 20 years has failed and just increased the crisis," Taliban said in a statement.

The Islamic Emirate of Afghanistan - the name the Taliban give their government - is the "legitimate government of the country and the representative of the brave Afghan nation", the statement said.

No country has recognized Taliban, who took over Afghanistan with a speed and ease that took the world by surprise, following which President Ashraf Ghani fled the country and his government collapsed. The US led forces left two weeks later in chaos.

Taliban statement called on the international community to allow Afghans to have an independent Islamic government that has a positive interaction with the world.

The international community has pressed Taliban on human rights, particularly those of girls and women whose access to school and work has been limited. It has also urged Taliban to stopping harassing critics, activists and journalists.

The Taliban say they are discussing the matter of girls' education and deny cracking down on dissent.

Fireworks lit up Kabul sky on Tuesday night on the first anniversary of the withdrawal of foreign troops which Taliban are marking as "Freedom Day". 

Wednesday was also a public holiday, with small celebrations across Kabul including parades by Taliban forces.

Gorbachev winning Nobel Prize for ending Cold War dies

Mikhail Gorbachev, who ended the Cold War without bloodshed and also earned Nobel Prize but failed in preventing the collapse of the Soviet Union, died at the age of 91 in Moscow.

Gorbachev, the last Soviet president, forged arms reduction deals with the United States and partnerships with Western powers to remove the Iron Curtain that had divided Europe since World War II and bring about the reunification of Germany.

His internal reforms helped weaken the Soviet Union to the point where it fell apart, a moment that President Vladimir Putin has called the ‘greatest geopolitical catastrophe’ of the twentieth century.

Putin expressed his deepest condolences, Kremlin spokesman Dmitry Peskov told Interfax. "Tomorrow he will send a telegram of condolences to his family and friends," he said.

Putin said in 2018 he would reverse the Soviet Union's disintegration if he could, news agencies reported.

World leaders were quick to pay tribute. European Commission Chief Ursula von der Leyen said Gorbachev, who was awarded the Nobel Peace Prize in 1990, had opened the way for a free Europe.

British Prime Minister Boris Johnson, citing Putin's invasion of Ukraine, said Gorbachev's "tireless commitment to opening up Soviet society remains an example to us all".

There was no immediate reaction from the White House or the US State Department. Former US Secretary of State James Baker described Gorbachev as "a giant who steered his great nation towards democracy".

After decades of Cold War tension and confrontation, Gorbachev brought the Soviet Union closer to the West than at any point since World War Two.

"He gave freedom to hundreds of millions of people in Russia and around it, and also half of Europe," said former Russian liberal opposition leader Grigory Yavlinsky. "Few leaders in history have had such a decisive influence on their time."

But Gorbachev saw his legacy wrecked late in life, as the invasion of Ukraine brought Western sanctions crashing down on Moscow, and politicians in both Russia and the West began to speak of a new Cold War.

"Gorbachev died in a symbolic way when his life's work, freedom, was effectively destroyed by Putin," said Andrei Kolesnikov, senior fellow at the Carnegie Endowment for International Peace.

He will be buried in Moscow's Novodevichy Cemetery next to his wife Raisa, who died in 1999, said Tass, citing the foundation that the ex-Soviet leader set up once he left office.

"We are all orphans now. But not everyone realizes it," said Alexei Venediktov, head of a liberal media radio outlet that closed down after coming under pressure over its coverage of the Ukraine war.

When pro-democracy protests rocked Soviet bloc nations in communist Eastern Europe in 1989, Gorbachev refrained from using force - unlike previous Kremlin leaders who had sent tanks to crush uprisings in Hungary in 1956 and Czechoslovakia in 1968.

But the protests fuelled aspirations for autonomy in the 15 republics of the Soviet Union, which disintegrated over the next two years in chaotic fashion.

Gorbachev - who was briefly deposed in an August 1991 coup by party hardliners - struggled vainly to prevent that collapse.

"The era of Gorbachev is the era of perestroika, the era of hope, the era of our entry into a missile-free world ... but there was one miscalculation: we did not know our country well," said Vladimir Shevchenko, who headed Gorbachev's protocol office when he was Soviet leader.

"Our union fell apart, that was a tragedy and his tragedy," RIA news agency cited him as saying.

On becoming general secretary of the Soviet Communist Party in 1985, aged just 54, he had set out to revitalize the system by introducing limited political and economic freedoms, but his reforms spun out of control.

"He was a good man - he was a decent man. I think his tragedy is in a sense that he was too decent for the country he was leading," said Gorbachev biographer William Taubman, a professor emeritus at Amherst College in Massachusetts.

Gorbachev's policy of glasnost - free speech - allowed previously unthinkable criticism of the party and the state, but also emboldened nationalists who began to press for independence in the Baltic republics of Latvia, Lithuania, Estonia and elsewhere.

Many Russians never forgave Gorbachev for the turbulence that his reforms unleashed, considering the subsequent plunge in their living standards too high a price to pay for democracy.

Vladimir Rogov, a Russian-appointed official in a part of Ukraine now occupied by pro-Moscow forces, said Gorbachev had "deliberately led the (Soviet) Union to its demise" and called him a traitor.

"He gave us all freedom - but we don't know what to do with it," liberal economist Ruslan Grinberg told the armed forces news outlet Zvezda after visiting Gorbachev in hospital in June.