Pakistan: Dilemma of Policy Planners

I am obliged to share with my readers one of my blogs posted as back as on July 09, 2013, its title was “Pakistan: Dilemma of Policy Planners”. It appears that the situation has not improved in nearly a decade and the country continues to suffer from the same contentious issue and apathy of the ruling junta.

With every passing day the conviction seems to be getting stronger that PML-N government headed by Mian Nawaz Sharif hardly has any sense of priority. Many of its announced plans lack coherence and at the best can be termed wishful thinking and worst of all complacency is based on perceptions rather than ground realities.

The country is suffering from severe balance of payment crisis, which demands following multi pronged strategy, negotiations with International Monetary Fund (IMF) being the top priority. It seems the government has hardly done any homework prior to commencing negotiations with the lender of last resort.

Those at the helm of affairs suffer from the illusion that the United States needs Pakistan rather than realizing the harsh reality that India is being promoted as regional super power and also being assigned an important role in Afghanistan after the pullout of US-led Nato forces.

The entire focus of Senator Ishaq Dar seems to be on mobilizing additional taxes and withdrawing subsidies.  PML-N government has been talking about resolution of circular debt issue by borrowing more but completely ignoring the urgent need to overcome the two most contentious issues: rampant pilferage and poor recovery. Injection of billion of rupees may reduce the debt for the time being but it will reappear soon.

Some of the analysts are of the view that Mian Sahib is surrounded by people having vested interest, seeking funds on concessional terms for establishing power generation facilities. These analysts also believe that another ‘power scam’ is in the making.

To substantiate their argument they say that the country has installed capacity of over 28,000MW but actual utilization hovers at less than half. Therefore, the top priority should be running of power powers at optimum capacity utilization rather than adding new capacities.

Some of the cynics say that Since Dar is an accountant by profession his entire focus is on profit and loss statement and balance sheet rather than achieving synergy, economy of scale and off course there is no focus on restoring confidence of investors.

At present Pakistan is suffering from ‘confidence deficit’ which is even worse than budget deficit and trade deficit put together. Local investors are shy because of looming energy crisis and deteriorating law and order situation.

Mobilizing additional tax without putting the economy on track is ‘hoping against hopes’. Since bulk of Pakistan’s revenue collection comes from indirect taxes, people must have ample purchasing power. Bleak outlook for the economy, eroding purchasing power and shrinking job opportunities forces people not to spend. On top of all failure of the government to contain price hike adds to the woes of masses.

There is an old saying ‘action talks louder than words’ but in case of PML-N there is hardly any action but big talk, mostly blame game. Both Pervez Musharraf and Asif Ali Zardari are being held responsible for the poor state of economy.

People listened to this during the election campaign but now want action to remove some of the malice. PML-N had sought 100 days to put the economy on track but its real challenge will be getting the budget endorsed by the IMF to enter into an agreement with the Fund.

Ironically most of the members of National Assembly can’t comprehend impact of budget proposals and impact of these on masses. They consider clapping their sole duty during the speeches of Prime Minister and Finance Minister and saying ‘I second’ their sole responsibility. In return members are given huge development funds which are mostly spent on development of their home town rather than those areas which need the funds most.

Though, it was expected that collectively ANP, MQM, PPP and PTI will emerge as strong combined opposition, not much has been delivered as yet. Many analysts fear that the present opposition will also be the ‘friendly opposition’ only. Since some of the leading parties have formed government at province, these are effectively part of ruling junta and not the opposition.

 

Saudi king invites Iranian President to visit Riyadh

Saudi King Salman bin Abdulaziz has sent an invitation letter to Iranian President Ebrahim Raisi asking him to pay a visit to Riyadh.

“We will also send a similar invitation to the King of Saudi Arabia,” Amir Abdollahian told Al Jazeera.

Tehran and Riyadh reached an agreement in early March to resume diplomatic relations after years of hostility. The talks were brokered by China.

According to the National, Chinese President Xi Jinping said on Tuesday that his country is ready to support a follow-up process between Saudi Arabia and Iran to restore diplomatic relations.

Xi’s comments came in a phone call with Saudi Crown Prince Mohammed bin Salman, state media CCTV reported.

The crown prince told Xi of the importance of the strategic relations between the two countries and that he appreciated Chinese efforts to develop relations between Saudi Arabia and Iran, said the kingdom’s official state media SPA.

“During the call, they reviewed aspects of partnership between the kingdom and China, and joint coordination efforts to enhance cooperation between the two countries in various fields,” SPA said.

The Chinese leader said his country and Saudi Arabia will make more contributions to promote peace, stability and development in the Middle East, state media said.

Tehran and Riyadh reached an agreement in early March to resume diplomatic relations after years of hostility.

 

Pakistan: Ruling junta finds it difficult to contain Imran Khan

The ruling junta in Pakistan seems to be having great trouble asserting itself while remaining within the limits of the law. With the interior minister making it clear that he is willing to go to any lengths — democratic or undemocratic; principled or unprincipled — to counter the PTI, he has just confirmed the worst fears of political analysts and observers who have been warning about Pakistan’s gradual slide towards totalitarianism.

There are no laws and no rules binding the government any longer, to paraphrase Rana Sanaullah. In other words, the PDM government will abuse state power if it needs to in order to neutralize the once again resurgent PTI. “It is us or them,” as the interior minister quite candidly explained in a recent interview during which he made these remarks. This hardly bodes well for national stability.

However, one may interpret Rana Sanaullah’s statement; the PML-N is clearly struggling to counter the PTI politically. It may not acknowledge this, but the large rally in Lahore’s Greater Iqbal Park late Saturday was a clear enough message that using state-sanctioned violence to cut the party down to size does not appear to be working.

The rally was, by most independent accounts, quite well-attended despite the Punjab administration’s efforts. The arrest and disappearance, respectively, of two prominent young faces in the PTI — lawyer Hassaan Niazi and head of the PTI’s social media team, Azhar Mashwani — reports of the detention of lower-level party organizers and their family members; police raids at supporters and sympathizers’ homes; and the willy-nilly blocking of Lahore’s roads with containers and other impediments on the day of the rally all failed to have a chilling effect on the PTI’s supporters. No wonder the interior minister feels frustrated.

Brute force only looks like an answer where politics fails. We saw this when PML-N activists were rounded up in July 2018 to sabotage the PML-N’s electoral chances, and we see it happening to a different set of actors today. In both cases, the forces behind the campaigns of abduction and harassment appear to be the same.

In both cases, the shameful acquiescence of civilian leaders — clearly hoping to derive political benefits from the violent repression of their opponents — allowed rogue actors to expand their influence in the political domain. Rana Sanaullah — himself a victim of the state’s excesses — should have known better.

The enforced disappearance of Mashwani and other workers, regulatory bans on the media’s coverage of the PTI, frivolous arrests of political workers and unleashing the police on the citizenry will not win the PML-N any free and fair elections.

Instead, they will worsen the anarchy that the interior minister himself concedes is prevailing in the country. Perhaps Rana Sanaullah should consider setting better precedents rather than repeating the mistakes of the past.

Courtesy: Dawn

 

 

US currency on the losing spree

The safe-haven US currency remained on the back foot on Wednesday following two days of losses as global financial markets regained a measure of stability on hopes a full-blown banking crisis can be averted.

The dollar index, which tracks the currency against six major peers, was flat in early Asian trading, following drops of about 0.3% in each of the past two sessions.

The weakness comes despite a rise in US Treasury yields, which is also the result of weakening demand for the safest assets.

The US currency has lost ground as investors took solace in First Citizens BancShares' agreement to buy all of failed lender Silicon Valley Bank's deposits and loans, as well as overnight comments by Michael Barr, the Federal Reserve's vice chairman for supervision that SVB's problems were due to terrible risk management, suggesting it could be an isolated case.

Still, traders remain very sensitive to signs of any further cracks in the banking system.

"Issues in US banks will remain the dominant influence on the US currency in the near term," Joseph Capurso, a strategist at Commonwealth Bank of Australia, wrote in a client note, pointing to the importance of weekly data on money market flows due later in the day, which will likely highlight the shift of deposits out of small US banks into large banks.

"Another large increase in inflows to money market funds is therefore a downside risk to the US currency over the next twenty four hours," Capurso said.

 

 

French strikes keep record crude oil on water

French strike action has led to record amounts of crude and condensate sitting idly offshore while the country's crude stocks have plummeted, analysts said on Tuesday.

Around 17 cargoes carrying crude oil, oil products or chemical products have been floating in French waters for the past week, according to Kpler crude analyst Johannes Rauball.

"Seven of these cargoes are carrying around 7 million barrels of crude and condensate, which marks the highest level on record and represents double what we observed at the peak in October of last year," Rauball said.

Industrial action over the past three weeks has impacted every French refinery.

The walkouts differ from the strikes that took place in October, 2022 in that they are coordinated on a national level, also affecting ports and depots, said Koen Wessels, oil products analyst at Energy Aspects.

France's crude oil stocks have fallen to 40.3 million barrels in March, according to consultancy OilX, the lowest since the firm's records began in January, 2010.

France's refinery intake has fallen to its lowest level since October 2022 at 764,000 barrels per day (bpd), data from consultancy OilX show.

The absence of French buying interest has increased supplies elsewhere of crude grades from the North Sea, west Africa and blends from the Caspian pipeline, according to traders.

This has weighed on prices of these crude grades as market players are forced to look elsewhere for buyers.

"It's a pretty bad situation," one trader said.

French crude oil imports from Nigeria have averaged just 30,000 bpd so far this month, compared with an average 200,000 bpd in January and February, according to Kpler.

"A vast amount of Nigeria's April loadings schedule has gone unsold," Rauball said.

Meanwhile, the Ekofisk North Sea crude grade, produced at a field in Norway where TotalEnergies has equity, relies on France for two-thirds of its export stream.

No Ekofisk cargoes have been discharged in France this month, compared with an average of 85,000 bpd in January and February, Kpler data show.

 

 

Pakistan faces furnace oil glut of 632,000 tons

Pakistan faces furnace oil (FO) glut of 632,000 tons following refusal of power plants to stockpile the fuel and poor export feasibility due to its low price in the global market.

The FO stocks have been accumulating since the start of last winter when power demand shrunk. Power plants are still not lifting furnace oil as electricity generation is mainly coming from hydel and nuclear sources, which have cut the demand of fuel oil for power generation.

The attempts by refineries to export furnace oil did not prove lucrative because of low price. Refineries determined it was financially unviable to export FO, as it could eat up their profits if the fuel was exported in the international market at a low price.

According to the sources in the oil sector, total 632,000 FO stocks include 539,080 tons of useable stocks and 93,147 tons of dead stocks.

Pakistan’s oil marketing companies (OMCS) currently hold 203,879 tons of furnace oil stocks, which is 32% of total stocks. The country’s power sector holds 202,280 tons of the fuel oil stocks with it, which is 33%, while local refineries have 220,068 tons, which is 35% of the total stocks.

The breakup of FO with the local refineries shows that PARCO holds 116,004 tons, National Refinery Limited has 32,327 tons and Pakistan Refinery 44,455 tons, Attock Refinery 16,826 tons, and Cnergyico has 10,457 tons of FO stocks.

The present FO stock is huge and is making the operations of local refineries vulnerable because it has been interrupting their operational capacity. They said that if the FO stocks were not lifting, it could further lead towards a shutdown of refineries’ operations.

On exporting the FO, industry people said that PARCO exported 60,000 tons and PRL exported 25,000 tons but the export price was not lucrative. The price in the global market is on the lower side and it can cause financial issues for the refineries if the stocks are exported at this price.

The situation is not attractive for the local refineries as power generation from FO in the month of February slumped by 80% compared to the same month of last year and in the first eight months of the current fiscal. Electricity production from FO also decreased by 50% compared to the same period of the last financial year.

 

China spent US$240 billion bailing out ‘Belt & Road’ countries

According to a Reuters report, China spent US$240 billion bailing out 22 developing countries between 2008 and 2021, with the amount soaring in recent years as more have struggled to repay loans spent building "Belt & Road" infrastructure.

Almost 80% of the rescue lending was made between 2016 and 2021, mainly to middle-income countries including Argentina, Mongolia and Pakistan, according to the report by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy.

China has lent hundreds of billions of dollars to build infrastructure in developing countries, but lending has tailed off since 2016 as many projects have failed to pay the expected financial dividends.

"Beijing is ultimately trying to rescue its own banks. That's why it has gotten into the risky business of international bailout lending," said Carmen Reinhart, a former World Bank chief economist and one of the study's authors.

Chinese loans to countries in debt distress soared from less than 5% of its overseas lending portfolio in 2010 to 60% in 2022, the study found.

Argentina received the most, with US$111.8 billion, followed Pakistan on US$48.5 billion and Egypt with US$15.6 billion. Nine countries received less than US$1 billion.

People's Bank of China (PBOC) swap lines accounted for US$170 billion of the rescue financing, including in Suriname, Sri Lanka and Egypt.

Bridge loans or balance of payments support by Chinese state-owned banks was US$70 billion. Rollovers of both kinds of loan were US$140 billion.

The study was critical of some central banks potentially using the PBOC swap lines to artificially pump up their foreign exchange reserve figures.

China's rescue lending is "opaque and uncoordinated," said Brad Parks, one of the report's authors, and director of AidData, a research lab at William & Mary College in the United States.

The bailout loans are mainly concentrated in the middle income countries that make up four-fifths of its lending, due to the risk they pose to Chinese banks' balance sheets, whereas low income countries are offered grace periods and maturity extensions, the report said.

China is negotiating debt restructurings with countries including Zambia, Ghana and Sri Lanka and has been criticized for holding up the processes.

In response, it has called on the World Bank and International Monetary Fund to also offer debt relief.