Pakistan: Prior action needed to reach Staff Level Agreement

After recent visit by IMF delegation to Pakistan, the much awaited Staff Level Agreement (SLA) with the visiting IMF team was not executed.

The IMF statement was encouraging as it stated that virtual discussions will continue and hinted towards certain prior actions. The statement also said considerable progress was made during the mission on policy measures to address domestic and external imbalances.

These developments came after a long 9-day visit that was unusually longer than past IMF review team interactions. As a precursor to the visit, the government of Pakistan had let go of the dollar peg late last month where the Pak Rupee devalued by around 14% since Jan 26, 2023 till date.

The Finance Minister in a press conference early Friday morning indicated that Rs170 billion of additional taxes will now be imposed. Circular debt accumulation will also need to be stopped and the finance minister hinted towards energy sector reforms.

As per news reports, the government has decided to implement tax and non-tax measures as demanded by IMF as a prior action through a Presidential Ordinance.

Even though the exact timeline of events may move, it is believed that the SLA will be signed in next couple of weeks or so. In a month's time after that, the IMF Board approval will likely come though paving the way for the disbursement of the US$1 billion tranche by next month. This will be followed by disbursements from World Bank, ADB and friendly nations.

Funding from friendly countries is very critical this time around for the resumption of the IMF program, and could be one of the IMF demand. Disbursement from Saudi Arabia, UAE, Qatar and China may be to the tune of US$5 billion (other than already committed or expected rollovers).

The IMF may also seek assurances of exact amounts of funding from these countries before its Board approval.

The time period from now to the disbursement of the IMF tranche could pose risks in terms of shortages of goods in the country as the country’s focus will be ensure debt repayments and maintain only critical imports. There is already hint of petrol rationing in some parts of the country coupled with selected capital controls and slow processing of non essential imports.

It will be interesting to evaluate the Pakistan Country Report issued by IMF after the IMF board approval. Especially condition related to reach foreign exchange reserves of US$16 billion by June 2023 as per the news reports.

There is also a need to see IMF condition on Pakistan L/Cs payment. According to news reports, IMF has insisted on immediate removal of restrictions on imports for which US$4 billion will be needed to open L/Cs.

 

Russia: Outlook painted by IMF looks too rosy

The International Monetary Fund delivered some uplifting economic news to Vladimir Putin. The Russian president should now make the case to his own government, which doesn’t share the IMF’s optimism.

The international body recently estimated that Russia will avoid a recession in 2023 and expand at 0.3% after shrinking by 2.2% in 2022 that amounts to a quasi-stagnation, but still looks too positive.

At first glance, the Fund’s latest forecast is a reason for hope for an economy battered by the cost of its invasion of Ukraine and associated sanctions. Even though the global economic prospects do not look as dire as they did a few months ago, the Russian revision is significant. In October 2022, the IMF was seeing the country’s GDP contracting by 2.3% in 2023.

The IMF hasn’t detailed the assumptions underpinning its upbeat Russian outlook. Russian economists, polled this month by the country’s central bank, are still expecting GDP to fall by 1.5% this year.

The economy ministry still predicts that output will contract by 0.8%, according to Russian independent publication The Bell.

The key to the IMF’s optimism may be its assumptions about oil prices and the effect of the recent bans and price caps by the European Union and the G7 group of industrialized countries. The measures will not significantly affect Russia’s oil exports, the Fund says.

That is a matter of intense debate among economists since oil prices remain below the cap set by the G7.

Much will depend on the evolution of oil prices this year. Oil and gas exports amounted to about 15% of Russia’s GDP in 2021, and related taxes finance more than 40% of the government’s budget.

Urals , the Russian crude, trades at around $56 a barrel. The discount to benchmark Brent is now at 33%, against 7% before the war. That is a sign that sanctions have had some impact. It also throws further doubt on the IMF’s optimism.

In October 022, Russian central bank predicted that the domestic economy would contract by between 1.5% and 4% this year. That assumed a US$70 a barrel price for Urals – the same number the government used for its budgetary planning.

Four months later, the world economy has brighter prospects and Russia may be more resilient than expected. But only a serious oil price rally, improbable in the context of the global economy’s subpar growth - to quote the IMF - could justify looking at Russia through rosy glasses.

 

Saudi Arabia-United States: Cracks have developed in the marriage of convenience

For decades United States has kept Saudi Arabia subservient to its ‘Foreign Policy Agenda’. However, it was only a cover up the real objective was to keep the largest oil producer under its thumb.

The story began with the discovery of oil in the Kingdom by a US oil giant leading to an agreement that the first customer of its oil will be United States and in exchange the super power will be responsible for the security of the kingdom, precisely the rulers.

When King Faisal, used oil as weapon, the immediate result was his assassination. To keep the rulers constantly under the fear, US coined a mantra after the Islamic Revolution in Iran, “Iran is a bigger threat for Saudi Arabia as compared to Israel”; the prime objective was to sell arms to the Kingdom.

One may recall that Iraq was pampered to attack Iran and the war continued for a decade. There are indications that Saudi Arabia was the biggest financer of war.

The attack on Iran was aimed at stopping its oil export and keep oil prices high to ensure higher revenue for Saudi Arabia, but most of it was extorted by selling arms. The war was followed by imposition of economic sanction on Iran, which are there for more than four decades.

Having Iran pushed out of oil trade, the next target was Iraq. One may recall that the reason for the economic sanctions on Iran was its alleged involvement in the production of atomic bomb. Using the same strategy United States raised a hoax call “Iraq is producing weapons of mass destruction (WMD)” and attacked Iraq. The war is still going on in Iraq and its oil export has remained negligible.

In the meantime to achieve self sufficiency in oil production, United States kept on implementing its “Shale Oil and Gas plan”. During this time oil prices were kept high to achieve two objectives: 1) sell more arms to the Kingdom and 2) lure Saudis to invest in the development of shale technology in the United States.

While United States, may have achieved both the target, Russia emerged as a “Game Spoiler”. It attained the status of one of the biggest oil producers. Russian-Chinese alliance not only changed the composition of oil markets but also influenced the geopolitical landscape.

To tighten its grip on Saudi Arabia, United States implicated the Crown Prince, to be precise defecto King, in a murder case. Donald Trump went to the extent of saying, “If United States takes its hands off the Kingdom will not survive for more than a few weeks”.   

Around the same time United States decided to take an exit from Afghanistan. There was a loud and clear message that Middle East, particularly, Saudi Arabia are no longer area of interest for United States.

This message became louder with the inculcation of Russia-Ukraine conflict and supply of billions of dollars latest and most lethal arms to Ukraine and imposition of economic sanction on Russia.

All these events indicate that the foreign policy of United States is governed by the owners of oil companies (commonly known as seven sisters) and military complexes.

The world also knows the role played by United States in the creation of turmoil in Libya and Venezuela.

Please allow me to sum up my narrative at “United States is no longer considered a trust worthy friend; it installs and topples governments in countries to support its Foreign Policy Agenda”.

 

 

Turkish government thanks Saudi Arabia for humanitarian relief

The Turkish government has thanked the Saudi government and people for the relief and humanitarian efforts offered in the aftermath of the earthquake that struck Turkiye a few days ago.

In an official statement, the Turkish government said “We are thankful for the support and solidarity of the leadership of the Kingdom of Saudi Arabia and its brotherly people.

“Several planes carrying Saudi humanitarian, relief, and medical aid have arrived in various affected areas in Turkiye, and Saudi search and rescue teams are working side by side with their Turkish peers.

“Receiving support and solidarity from brotherly countries is extremely important at such a difficult time, and Saudi Arabia is one of the first countries to support us.”

According to the statement, Turkish President Recep Tayyip Erdoğan mentioned Saudi Arabia in particular among the countries that have provided and will continue to provide support to Turkiye at this difficult time.

King Salman Humanitarian Aid and Relief Center (KSrelief), in implementation of the directives of Custodian of the Two Holy Mosques King Salman and Crown Prince and Prime Minister Mohammed Bin Salman, has launched a national campaign through “Sahem” platform to help the earthquake victims in Syria and Turkiye, which has raised, so far, SR254,987,681, with the number of donors amounting to 731,005.

The Turkish authorities described the earthquake that hit Turkiye on February 06, 2023 as the Disaster of this century.

The statement added “Two big earthquakes with the magnitudes of 7,7 and 7,6 centered in Kahramanmaraş province took place on February 06, 2023. This was followed by over 1,500 aftershocks. More than ten cities suffered damage and destruction.

“These series of earthquakes have impacted a vast area. The main difference that distinguishes this earthquake from the Great Erzincan Earthquake with a magnitude of 7.9, which was recorded as the most severe earthquake that occurred in Türkiye 84 years ago is the time difference.

“These earthquakes were independent and occurred with a 9-hour difference between them and that they, along with their aftershocks, were felt heavily throughout many regions of Türkiye and in other countries. In that sense, these earthquakes of February 06 could be well considered the “Disaster of this century”.”

According to the statement, a total of 18,991 people lost their lives in the earthquake in Türkiye and 75,523 people got injured and 6,444 buildings collapsed, adding that in the aftermath of the earthquakes, search and rescue teams were immediately dispatched to the earthquake-affected areas and that the Ministry of Interior, Ministry of Health, AFAD (Disaster and Emergency Management Presidency), governorships and all other institutions began taking necessary measures.

The Turkish president also confirmed that the Turkish government has taken the necessary measures with all its institutions since the moment of the earthquake, and all capabilities have been mobilized and harnessed, said the statement.

It added that following the earthquake, a Level-4 alert was declared, which includes international aid. So far, 97 countries have offered assistance and 61 of them are on the ground to join the search and rescue and other medical operations, said the statement. 

Iran celebrates 44th anniversary of Islamic Revolution

Millions of citizens in Iran took to the streets across the country on Saturday to celebrate the 44th anniversary of the Islamic Revolution that toppled the despotic Pahlavi regime.

The rallies in the capital Tehran began at 9:30 a.m. local time (06:00 GMT), with marchers from various social strata and different parts of the city marching toward the iconic Azadi (Freedom) Square.

People waved photos of the late founder of the Islamic Revolution Imam Khomeini, Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei, and legendary General Qassem Soleimani, who was assassinated in a 2020 US terrorist attack near the Iraqi capital Baghdad, as well as the martyrs of the Revolution.

The flight of colored balloons and iridescent papers from the Azadi Tower, the performance of professional parachutists of the Armed Forces and the mass recital of Iran’s national anthem were among the celebratory events held in the Azadi Square, Press TV reported.

On the eve of the 44th anniversary, fireworks displays were performed in Tehran and other cities, as people chanted Allahu Akbar (God is the Great) in an expression of support for the Islamic Revolution. 

The rallies were held in 1,400 Iranian cities and 38,000 villages.

The mass rallies on the 22nd of Bahman in the solar calendar, which corresponds with February 11, are held each year with tremendous patriotic fervor in the Islamic Republic of Iran.

The Iranian nation overthrew the despotic regime of Pahlavi, which was fully supported by the United States in the winter of 1979. The struggle against the shah regime reached full fruition on February 11, 1979.

By December 1978, millions of Iranians had taken to the streets in protest against the policies of the shah – Mohammad Reza Pahlavi – on a regular basis.

Imam Khomeini returned to Iran from exile on February 01, 1979. He was received by millions of people weeks after the departure of the shah in mid-January 1979.

The collapse of the Pahlavi regime became certain on February 11 when the military renounced its loyalty to the shah and joined the Revolution.

Delivering a speech at the Azadi Square, President Ebrahim Raisi lauded the 22nd of Bahman as the day of the triumph of “truth over falsity,” the day of the victory of “the oppressed over the arrogant,” and the realization of the “miracle of the century.”

Raisi said the epic day put an end to tyranny and dependence and marked the beginning of independence, freedom and the Islamic Republic, adding that the day brought about the crystallization of the will of the great nation of Iran.

Stressing that both the establishment and the continuation of the Pahlavi regime was against the nation’s will and accompanied with a coup d'état, the Iranian president said, “They committed crimes and treason during their rule, and they were unconcerned about Iranian people’s great capacities, and only cared for the pleasure of the global hegemony and the United States."

“Pahlavi's despotic rule only brought backwardness to this nation and country,” Raisi added, “They came to power against the principles of the Constitution and with a coup.”

 

 

 

Pakistan Stock Exchange benchmark index up 3.14%WoW

Week ended on February 10, 2023 started on a positive note as talks with IMF continued with the delegation that has been in Pakistan since January 31, 2023. Investors remained hopeful regarding outcome of the meetings with the IMF team. Market witnessed bullish sentiments during the first four days of the week with the benchmark index gaining 1,995 points. Come Friday, market nosedived over the inconclusive talks with the IMF team, plunging the market by 725 points on the last trading session of the week. Despite all odds, benchmark index was up 1,271 points to close at 41,742, depicting a 3.14%WoW increase.

Reportedly, Pakistan received MEFP on Thursday at the conclusion of the IMF talks in Islamabad; after the GoP committed to impose additional taxation of PKR170 billion and cut in untargeted subsidies.

Participation in the market witnessed significant improvement with average daily trading volume rising above 284 million shares, from 130.78 million shares in the earlier week, up 117.2%WoW.

Alarmingly foreign exchange reserves by State Bank of Pakistan (SBP) plunged to meager US$2.9 billion, import cover of less than 3 weeks. As a result exchange parity came under pressure to close at PKR268.28/US$ on Friday, recording a fall of 2.6%WoW.

Other major news flows during the week included: 1) Prime Minister approved imposition of additional PKR180 billion taxes, hike in electricity and gas tariffs and on top of all GST rate, 2) delay in opening L/Cs for POL products is likely to lead to petrol crisis in another two weeks, 3) fiscal deficit swelled to 2% of GDP, 4) GoP also hinted at withdrawal of power subsidy for exporters, and 5) GoP sucked in PKR464 billion liquidity from the market via MTBs’ sale.

Textile Weaving, Oil & Gas Exploration Companies and Pharmaceuticals sectors were amongst the top performers. Leasing Companies, Synthetic & Rayon and Property were amongst the worst performers.

Major net selling was recorded by Insurance Companies (US$6.5 million). Individuals absorbed most of the selling with a net buy of US$5.9 million.

Top performing scrips during the week were: OGDC, TGL, MUGHAL, ABOT, and SCBPL, while laggards included: PGLC, EFUG, IBFL, HUBC, and JVDC.

All eyes are on the IMF staff-level agreement, with the positive news from IMF subsequently unlocking foreign inflows.

Improvement in the reserves will be a big relief as restrictions on opening L/Cs are expected to ease off. Even though there may be respite in the short term on the back of IMF’s EFF rollback. Investors are advised to remain cautious as the inflation levels may skyrocket to 30% in the coming months.

United States: Gas prices plunge to the lowest levels in 30 years

Gas prices in the United States plunged to the lowest levels in 30 years signaling to dial back new well drilling and maximize combustion by power producers.

Front-month futures closed at US$2.45 per million British thermal units on February 09, 2023 in only the second percentile for all months since 1990, after allowing for the increase in core consumer prices.

Working inventories in underground storage were 17 billion cubic feet, above the prior ten-year average on February 03.

But that was a massive turnaround from a deficit of 427 billion cubic feet recorded as recently as September 09, 2022.

Mild weather has played a relatively small role in erasing the earlier deficit and transforming it into a large incipient surplus.

The number of heating degree days across the Lower 48 states so far this winter has been only 5% below the long-term average.

More important has been loss of exports following the explosion at Freeport LNG’s terminal and reduced consumption stemming from high prices through much of 2022.

Freeport’s eventual reopening should provide an outlet for some excess inventory, but with stocks in Europe also very full, exporters will have to compete for price-sensitive customers in Asia.

Slumping futures prices will discourage drilling and incentivize electricity generators to run their gas-fired units for more hours at the expense of coal.

The number of rigs drilling for gas has been essentially unchanged since the start of September - after increasing by more than 50% in the first eight months of 2022.

Discounted futures prices will also boost combustion from the power sector, helping limit the accumulation of inventories this summer.

The summer-winter calendar spread between July 2023 and January 2024 has slumped into a contango of more than US$1.10 per million British thermal units from a backwardation of more than 50 cents in August 2022.

Gas prices are now trading below the cost of coal, once the superior efficiency of gas-fired units is taken into account, which will encourage maximum gas burn this summer.