India attains status of fifth largest economy

India has overtaken the Britain in becoming the world's fifth largest economy, according to a report by Bloomberg. India pushed Britain to the sixth spot in the last three months of 2021, as the latter grapples with a shrinking economy and a change of leadership following Boris Johnson's resignation.

The calculations are in terms of US dollars and according to the GDP figures from the International Monetary Fund (IMF), India extended its lead in the first quarter.

Finance Minister Nirmala Sitharaman took to Twitter to say, "The IMF’s own forecasts show India overtaking Britain in $ terms on an annual basis this year, putting the Asian powerhouse behind just the US, China, Japan and Germany. A decade ago, India ranked 11th among the largest economies, while the UK was 5th."

Addressing the media, Bharatiya Janata Party (BJP) spokesperson Sambit Patra said that India is now ahead of the ones who ruled us.

"India has taken over Britain and become the fifth largest economy in the world. Once who ruled us are now behind us in the economy. However, Congress is unable to shed its colonial mindset," he said.

Union Health Minister Dr Mansukh Mandaviya took to Twitter to say that India is writing new pages of success.

"With the mantra of reform, perform and transform, New India is writing new pages of success and marching rapidly towards becoming an economic superpower," he said.

Business Tycoon Anand Mahindra also took to Twitter to laud the development.

"The law of Karma works. News that would have filled the hearts of every Indian that fought hard and sacrificed much for freedom. And a silent but strong reply to those who thought India would descend into chaos. A time for silent reflection, gratitude," he said.

Indian economy is estimated to grow more than 7% this year, as Indian stocks have seen a massive rise to the second position in the MSCI Emerging Markets Index this quarter, falling behind China at the first position.

Considering the dollar exchange rate on the last day of the relevant quarter, Indian economy in the quarter through March stood at US$854.7 billion while UK stood at US$816 billion. These calculations were made using historic exchange rates on the Bloomberg terminal and the IMF database.

Britain’s GDP grew by paltry 1% in cash terms in the second quarter and shrank 0.1% after adjusting for inflation.

Britain is currently facing the fastest inflation in 40 years along with rising risks of a recession that may last till 2024, says the Bank of England.

In this bleak economic backdrop, Britain is set to elect a new prime minister on Monday, September 05, 2022. Conservative party members will be choosing Boris Johnson's successor with Foreign Secretary Liz Truss expected to beat former Chancellor of the Exchequer Rishi Sunak in the polls.

 

Iran ready to release millions of barrels of oil

Iran has considerable volumes of oil in floating storage that it could quickly release should a deal with the United States be finalized.

In an update earlier this month, OilX claimed that Iran has some 40 million barrels, the bulk of which is probably condensate.

Vortexa estimates Iranian crude in floating storage at 60 million to 70 million barrels, while Kpler has estimated these at 93 million barrels, Bloomberg reported lately.

The volumes would not be released immediately, however, as issues such as insurance and shipping would need to be dealt with first.

“Iran has built up a sizable flotilla of cargoes that could hit the market fairly soon,” John Driscoll from JTD Energy Services told Bloomberg.

Currently, Iran and the United States are both considering the final version of an agreement proposed by the European Union, which is acting as an intermediary in the negotiations.

According to recent reports, some of the problems have been straightened out but others still remain and need to get resolved before a deal is finalized.

Israel’s Haaretz reported that it had seen a copy of the draft proposal, which involves the release of prisoners from Iran and, in exchange, the release of Iranian funds from international bank accounts.

Iran will be free to keep the uranium it had enriched so far but banned from violating the nuclear deal, the Israeli daily wrote.

A nuclear deal would mean the return of Iranian crude to international markets, at a rate of some 1.3 million bpd, according to a recent Financial Times report. This would substantially lower oil prices, at least for a while.

Iran is eager to boost its exports of crude but it has signaled it would not rush into a deal until its last remaining demands are made. Chief among them is a guarantee that the deal would survive during future US administrations.

One may recall, Managing Director of National Iranian Oil Company (NIOC) has said the country’s oil production capacity is going to increase by 200,000 barrels per day (bpd) to 4.038 million by the end of the current Iranian calendar year (March 20, 2023). The official put the Islamic Republic’s current oil production capacity at 3.838 million bpd.

“With the measures taken, Iran's oil production capacity will increase to 4.038 million barrels per day by the end of this year,” Mohsen Khojasteh-Mehr had told IRNA.

Pointing to the increase in the country’s oil exports over the past 12 months since the 13th government has taken office, the Deputy Oil Minister said: “Considering the increase in oil production capacity, it is possible to increase our exports if demand in global markets increases.”

Khojasteh-Mehr noted that the above-mentioned figure is the country’s optimal capacity and whenever the international conditions are more open, Iran will be ready to significantly increase exports and return to the world markets with maximum power.

In early April, Oil Minister Javad Oji had said that the country’s crude oil production has reached the pre-sanction level.

Saying that the current capacity of Iran’s oil production has reached more than 3.8 million bpd, the minister said, “We hope that through the efforts of all those active in this sector, we will reach higher figures in the exports of crude oil, gas condensate, oil products, and petrochemicals in the current Iranian calendar year.

“By taking effective measures in onshore and offshore oil fields, drilling new wells, repairing wells, rebuilding and modernizing facilities, and oil collection centers, the current oil production capacity has reached before the sanctions, and we have no problem in performance and this amount of production”, Oji added.

 

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.