Pakistan plunging deeper into economic malice

Pakistan’s GDP growth has been provisionally estimated at 0.29%YoY for FY23, as against the revised growth of 6.1%YoY for FY22.

Agricultural sector’s growth is estimated at 1.55% for FY23, as compared to 4.3% in the earlier year, with crop output posting a negative growth of 2.49%YoY, offset by Livestock (3.78%), Forestry (3.93%) and Fisheries (1.44%YoY) growth.

The drop in crop production was largely anticipated in the aftermath of the floods in August 2022 that ravaged close to a third of the country’s land mass. Cotton crop was severely damaged during the period, as a result of which cotton arrivals at ginners remained lackluster, down by 34%YoY in 9MFY23.

Industrial output has been estimated to post negative growth in FY22 as against 6.83%YoY in the earlier year.

Within the Industrial Activities, Mining & Quarrying has posted a drop of 4.4%YoY, whereas growth in Manufacturing, Electricity (-3.91%YoY), Water and Gas supply (-6.03%YoY), and Construction (-5.53%YoY) have been estimated

To note, oil and gas production, as per the PPIS data, has dropped by 5.3% and 3.6%YoY, respectively in 9MFY23.

Moreover, OMC offtakes have dropped by 24%YoY in 10MFY23.

Furthermore, owing to restrictions on opening L/Cs, production activities across the country have been hampered.

For instance, data from PAMA indicates that production of automobiles in the country (excluding two- and three-wheelers) has dropped by 49%YoY in 10MFY23.

With the aforementioned backdrop and the figures furnished, GDP growth is likely to come in lower than the estimated figure, with a real possibility of Pakistan posting negative GDP growth in FY23.

Continuation of the FX crisis and the related import restrictions, along with the possibility of continuing climate-related disasters, is likely to keep GDP growth in check next year.

Heightened inflation expected for 1HFY24 (expected to taper off in 2HFY24) is likely to keep services sector growth in check as well.

With the delays in the IMF program and mounting external financing requirements (US$28 billion), further depreciation of the PKR against the greenback is likely.

 

US narrative on the removal of Ali Shamkhani

After a decade surviving Iran’s fractious politics, Ali Shamkhani was removed as secretary of the Supreme National Security Council (SNSC), the highest body in charge of foreign policy and national security, on May 22, 2023.

The former rear admiral, a young hero during the eight-year Iran-Iraq war who rose to become minister of defense in the 1990s, had served three presidents from rival factions as head of the SNSC. He was pushed aside in favor of Rear Admiral Ali Akbar Ahmadian, a senior Revolutionary Guards officer.

The reshuffling, which followed the execution in January of a former Shamkhani aide charged with treason, could significantly impact deliberations at the SNSC, which has only 12 permanent members.

“Shamkhani is considered a balancing factor in the decision-making process in Tehran,” Danny Citrinowicz, a fellow at the Institute for National Security Studies in Tel Aviv, told The Iran Primer.

Shamkhani was widely regarded to be pragmatic on contested issues, such as negotiations with the United States over Iran’s nuclear program. He was a moderate voice who called for discussions and dialogue, Alicia Kearns, British House of Commons Foreign Affairs Committee chair, told the BBC in January 2023.

Shamkhani has long been the most senior ethnic Arab in Iran’s government, largely dominated by Persians and other groups. He earned the trust of officials ranging from Supreme Leader Ayatollah Ali Khamenei, a hardliner, to President Mohammad Khatami (1997-2005), a reformist, due to his years of distinguished service in both the IRGC and the conventional military.

Shamkhani’s nearly 10-year term as SNSC secretary, from 2013 to 2023, was second only to Hassan Rouhani, who served in the position from 1989 to 2005. Shamkhani has been a survivor in a regime that has increasingly purged reformists, centrists and even some conservatives.  

Shamkhani has political enemies. For years, critics have charged him and members of his family, including his sons and son-in-law, of corruption and amassed wealth through shipping and construction companies.

In November 2022, Shamkhani reportedly faced criticism from hardliners for failing to quash the nationwide protests that erupted in September 2022.

In January 2023, Iran executed Alireza Akbari, who served as Shamkhani’s deputy from 2000 to 2004. Akbari was convicted of spying for Britain and corruption on earth. The execution triggered media speculation about Shamkhani's fate. IRGC-linked media reported that he might step down, but a news agency linked to the SNSC denied the reports.

Shamkhani’s last major accomplishment was helping to broker Iran’s rapprochement with regional rival Saudi Arabia. In March 2023, he led a delegation to Beijing for talks with the Sunni kingdom. The two countries agreed to restore diplomatic ties seven years after severing relations.

Shamkhani appeared to foreshadow the end of his term with a cryptic tweet on May 21. He quoted a 16th-century poem that Iranian media took as a sign of his imminent removal.

On May 22, President Raisi appointed Ali Akbar Ahmadian, an IRGC commander, to replace Shamkhani. Supreme Leader Khamenei then selected Ahmadian as his representative on the SNSC, which indicated his approval.

“I would like to thank and appreciate Ali Shamkhani's responsible, persistent presence and his efforts as the leader’s representative during these years,” Khamenei wrote in a decree.

Khamenei named Shamkhani his political advisor. “In light of the closeness between the two and the degree of Khamenei's trust in Shamkhani, he will likely continue to play a significant role in the decision-making process in Tehran,” according to Citrinowicz, who headed the Iran branch of Israel Defense Intelligence’s Research and Analysis Division. “Shamkhani has a great deal of knowledge and experience, with an emphasis on the nuclear issue.”

Khamenei also appointed Shamkhani as member of the Expediency Council, a body that resolves constitutional disputes between the Parliament and the Guardian Council. The body, which includes some three dozen members, has often included officials who have fallen out of favor. So the role could be largely ceremonial.

 

Viterra in talks to merge with Bunge

Global grain trader Viterra is in talks to merge with US rival Bunge in a potential mega deal that would reshape the top tier of global grains merchants.

There is no certainty that Viterra, part-owned by Switzerland-based mining and trading giant Glencore, will be able to reach an agreement on the terms. The deal structure is being discussed by both parties.

Any deal would be closely scrutinized by regulators as trade in staples such as wheat, corn and soybeans is already concentrated among Bunge and three other large players, raising global concerns about food security.

Bunge last year was the largest corn and soy exporter from Brazil, the world's top source of the staple crops for making animal feed and biofuels, according to data from shipping agent Cargonave. Viterra was the third largest corn exporter and seventh soybean shipper.

A merger with Viterra would also lift Bunge, with 2022 revenues of US$67.2 billion, closer to its nearest publicly traded agribusiness rival Archer-Daniels-Midland Co, which registered sales of nearly US$102 billion last year.

Shares of Bunge closed at a three-week high of US$93.61 on Thursday, valuing the company at about US$14 billion. Glencore shares fell 0.7%.

Global commodities merchants have built up cash reserves after turning in hefty profits over the past year as Russia's invasion of Ukraine disrupted shipments and crop prices soaring.

The agribusinesses make money buying, selling, storing and processing crops, often capitalizing on supply disruptions caused by crises like drought or war.

A merger with Bunge would put Viterra among the top tier of global grains merchants, with access to export terminals in the United States, one of largest grain producers and suppliers.

Viterra bought US-based Gavilon from Japan's Marubeni last year for US$1.1 billion, giving it significantly more physical grain handling assets in the US and making it the third-largest exporter of soybeans in Brazil, where Bunge already has a strong presence.

Viterra, formerly known as Glencore Agriculture, made the headlines in 2017 for a failed takeover approach to Bunge, one of the giant names of global grain trading, then valued at US$11 billion.

In May 2017, Bunge rebuffed Glencore after the latter made an informal approach to discuss a possible consensual business combination.

Glencore had publicly said it was reviewing options for its interest in Viterra, looking to unlock more value.

 

 

Lloyd’s Register drops ships of top Indian carrier of Russian oil

Lloyd's Register has told India's Gatik Ship Management, a major carrier of Russian oil since the Ukraine war that it will withdraw certification of 21 of its vessels by June 03, 2023.

It is the latest setback for Gatik, which was also been forced to find new flags for 36 of its ships after they were deflagged by the St. Kitts & Nevis International Ship Registry.

"Lloyd's Register is committed to facilitating compliance with sanctions regulations on the trading of Russian oil," it said in an email to Reuters. "Where supported by evidence, we withdraw class and services from any vessels found by the relevant authorities to be breaching international sanctions."

Classification societies such as Lloyd's Register in London provide services including seaworthiness checks, certification that is vital for securing insurance and entry to ports.

Lloyd's Register said, 11 of the Gatik vessels it was declassifying were also certified by the Indian Register of Shipping (IRClass).

Gatik, which is based in the Indian city of Mumbai according to shipping databases, did not respond to emailed requests for comment.

A major US insurer, the American Club, also told Reuters it was no longer providing cover for Gatik ships, while Russian insurer Ingosstrakh said it would not work with Gatik in future.

Neither the insurers, Lloyd's Register nor the flag registry spelled out exactly why they have dropped business with Gatik.

 

De-dollarizing transactions among ACU members

Governor of the Central Bank of Iran (CBI) held talks with senior banking officials from various Asian countries on the sideline of the 51st Asian Clearing Union (ACU) summit in order to encourage getting new members and de-dollarize the economic transactions among ACU members.

As reported by the CBI portal, Mohammad-Reza Farzin met and held talks with Governor of the Central Bank of Russia Elvira Nabiullina, Governor of the State Bank of Pakistan Jameel Ahmed, Deputy Head of the Monetary Policy and Economic Analysis Directorate of the National Bank of the Republic of Belarus Sergey Kalechits on the sidelines of the summit held in Tehran on May 23-24.

In the meeting with Nabiullina, the two sides emphasized strengthening trade exchanges and using the national currencies of the two countries in bilateral trade.

During the talks with the Belarusian delegation, Farzin said strengthening relations through bilateral and multilateral monetary agreements is a model that can play an important role in the development of trade relations between two countries.

Referring to Belarus’ readiness to join the ACU, the CBI head said, “Belarus's membership with its good capacities in its economy can lead to the development of the activities of this union.”

In the meeting with Farzin, Ahmed, the governor of the State Bank of Pakistan, welcomed the development of the banking relations with Iran by creating a non-SWIFT platform for connecting the bank systems of the two countries and clearing trade under the framework of the Asian Clearing Union and said, “We are ready for the development of banking relations. By introducing representative banks and creating a joint working group, we will provide the grounds for deepening banking relations.”

According to Farzin, accepting new members with the aim of creating synergy and diversifying the currency basket of the union can encourage de-dollarization in trade exchanges among the ACU members. This is one of the major goals of this union in the future, he said.

 

Grounded bulker blocking Suez Canal successfully refloated

A Hong Kong-flagged bulker that grounded in the Suez Canal blocking the key waterway for several hours on Thursday morning has been successfully refloated.

Leth Agencies posted on Twitter that the bulk Xin Hai Tong 23 had grounded at the 159 km mark on the canal at 0400 hrs local time.

In a second tweet a few hours later the agency said that tugs from the Suez Canal Authority had been able to successfully refloat the vessel at 0740hrs.

It was reported that a convoy of four vessels was stuck behind the stricken bulker and an ordinary group was set to enter the canal at 0600 hrs. Leth Agencies said that following the refloating of the Xin Hai Tong 23 a northbound convoy was due to enter at 0930hrs.

The Xin Hai Tong 23 is a 2010-built, 56,708 dwt bulker and flagged with Hong Kong.

The vessel has grounded in a narrow section of the Suez Canal and MarineTraffic shows it stranded diagonally across the waterway in similar way to the containership Ever Given which closed the canal for six days when it grounded in March 2021.

The Ever Given grounding caused chaos to the global supply chain. However, the Xin Hai Tong 23 is a significantly smaller vessel than the 199,000 dwt mega-containership and far less complex to refloat.

 

UAE new hub of Russian gold

The United Arab Emirates has become a key trade hub for Russian gold since Western sanctions over Ukraine cut Russia's more traditional export routes.

The records, which contain details of nearly a thousand gold shipments in the year since the Ukraine war started, show the Gulf state imported 75.7 tons of Russian gold worth US$4.3 billion - up from just 1.3 tons during 2021.

China and Turkey were the next key destinations, importing about 20 tons each between February 24, 2022 and March 03, 2023. With the UAE, the three countries accounted for 99.8% of the Russian gold exports.

Ever since the Ukraine conflict started, many multinational banks, logistics providers and precious metal refiners stopped handling Russian gold, which had typically been shipped to London, a gold trading and storage hub.

The London Bullion Market Association banned Russian bars made from March 07, 2022, and by the end of August 2022, Britain, the European Union, Switzerland, the United States, Canada and Japan had all banned imports of Russian bullion.

The data shows Russian gold producers quickly found new markets in countries that had not imposed sanctions on Moscow, such as the UAE, Turkey and China.

Louis Marechal, a gold sourcing expert at the Organization for Economic Co-operation and Development said there was a risk Russian gold could be melted down and recast and then find its way back into US and European markets with its origin masked.

"If the Russian gold comes in, is recast by a local refiner, sourced by a local bank or trader and then sold on into the market, there you have a risk," he said. "This is why carrying out due diligence is instrumental to end buyers wishing to ensure they respect sanctions regimes."

The UAE government's Gold Bullion Committee said the state operated with clear and robust processes against illicit goods, money laundering and sanctioned entities.

"The UAE will continue to trade openly and honestly, with its international partners, in compliance with all current international norms as set down by the United Nations," it said.

In a bid to further isolate Russia, Washington has warned countries, including the UAE and Turkey, they could lose access to G7 markets if they do business with entities subject to US sanctions.