Challenges facing Tayyip Erdogan

Turkish President Recep Tayyip Erdogan has been sworn in as head of state after winning an historic run-off election to extend his two-decade rule for another five years.

The 69 year old leader has to select a Cabinet, which will be tasked with handling an economic crisis that has witnessed runaway inflation and the collapse of the lira.

“I, as president, swear upon my honor and integrity before the great Turkish nation and history to safeguard the existence and independence of the state,” Erdogan said in a ceremony at the parliament in Ankara, broadcast live on television.

Erdogan, took the oath of office on Saturday, ushering in his third presidential term that followed three stints as prime minister.

President Erdogan was sworn in during a session in parliament before an inauguration ceremony at his sprawling palace complex. Supporters waited outside parliament despite the heavy rain, covering his car with red carnations as he arrived.

Erdogan defeated opposition challenger Kemal Kilicdaroglu in a runoff vote held on May 28, after he narrowly failed to secure an outright victory in a first round of voting on May 14.

Kilicdaroglu had promised to put Turkey on a more democratic path and improve relations with the West. International observers deemed the elections to be free but not fair.

Saturday’s inauguration was followed by a lavish ceremony at the presidential palace in the capital attended by dozens of world leaders. Turkey’s longest-serving leader faces considerable diplomatic challenges amid tensions with the West.

78 members of the international community attended the oath-taking ceremony. Some of the guests include Venezuelan President Nicolas Maduro, Hungarian Prime Minister Viktor Orban, and Armenian Prime Minister Nikol Pashinyan, according to the state-run Anadolu news agency.

Addressing the country’s economic troubles will be Erdogan’s priority with inflation running at 43.7%, partly because of his unorthodox policy of cutting interest rates to stimulate growth.

Analysts have warned if current policies continue, the economy is heading for greater turmoil given depleted foreign reserves, an expanding state-backed protected deposits scheme, and unchecked inflation expectations.

The lira has undergone a series of crashes in recent years and hit new all-time lows in the days after the vote.

Turkey’s new members of parliament started being sworn in on Friday in their first session after the May 14 election, also attended by Erdogan. His alliance holds a majority in the 600-seat parliament.

Meanwhile, NATO allies are anxiously waiting for Ankara to green light Sweden’s attempt to join the United States-led defense alliance before a summit in July.

Erdogan has been dragging his feet on approving the application, accusing Stockholm of sheltering terrorists of the outlawed Kurdistan Workers’ Party (PKK), which is listed as a terror group by Ankara and its Western allies.

NATO chief Jens Stoltenberg attended Erdogan’s inauguration and scheduled to hold talks with him.

Sweden’s Foreign Minister Tobias Billstrom said on Twitter a clear message emerged at a NATO meeting in Oslo for Turkey and Hungary to start the ratification process.

His Turkish counterpart, Mevlut Cavusoglu, responded, “A crystal clear message to our Swedish Friends! Fulfill your commitments arising from Trilateral Memorandum and take concrete steps in the fight against terrorism.”

Erdogan was sworn in amid a host of domestic challenges ahead, including a battered economy, pressure for the repatriation of millions of Syrian refugees and the need to rebuild after a devastating earthquake in February that killed 50,000 and levelled entire cities in the south of the country.

Turkey is also grappling with a cost-of-living crisis fueled by inflation that peaked at a staggering 85% in October 2022 before easing to 44% last month. The Turkish currency has lost more than 10% of its value against the US dollar since the start of the year.

Unconfirmed media reports say Erdogan plans to reappoint Mehmet Simsek, a respected former finance minister and deputy prime minister, to the helm of the economy.

The move would signify a return by the country — which is the world’s 19th largest economy according to the World Bank — to more orthodox economic policies

Iran, Saudi Arabia to form naval coalition in northern Indian Ocean

Iranian Navy Commander Shahram Irani announced on Saturday that a naval coalition will be formed in the northern Indian Ocean with the involvement of Iran, Saudi Arabia, the UAE, Bahrain, Iraq, Pakistan, India, and other countries in the region.

“In line with this purpose new coalitions are being formed in the region and beyond,” the admiral added.

“Today regional countries have reached the conclusion that if there is going to be security in the region, definitely it can be done through convergence and cooperation with each other,” Shahram Irani said in a televised interview.

Earlier, the website of the Emirati foreign ministry said Abu Dhabi had withdrawn from the Joint Maritime Forces that operate in the Red Sea and the Persian Gulf.

Analysts say Abu Dhabi has made the decision in line with its ambition to diversify its security relationships.

A Qatari news website reported on Friday that Iran, Saudi Arabia, the United Arab Emirates (UAE), and Oman are to form a joint naval force under China's support in line with increasing maritime security in the Persian Gulf.

Al-Jadid said China had already begun mediating negotiations among Tehran, Riyadh, and Abu Dhabi aimed at reinforcing navigation's safety in the strategic body of water.

Back in March, China successfully helped broker a deal between Tehran and Riyadh according to which Iran and Saudi Arabia agreed to reestablish diplomatic ties after seven years of estrangement.

According to analysts, the consent of the Persian Gulf states to Beijing's mediation in such sensitive matters shows China's growing influence in the region as opposed to Washington's declining influence.

 

 

UN agency for Palestine refugees on verge of financial collapse

The United Nations has appealed for sustainable funding for its agency that supports Palestine refugees, UNRWA, which is on the brink of financial collapse.

Chronic underfunding over the past decade, and resultant severe austerity measures, mean UNRWA is already operating with a US$75 million shortfall, putting its lifesaving programs across the Middle East at risk.

“As I address you today, I do not have the funds to keep our schools, health centers and other services running as of September,” Commissioner-General Philippe Lazzarini told a pledging conference at UN Headquarters in New York.

UNRWA was established in 1949 as a temporary agency to provide aid to Palestinians following mass displacement from land that became Israel, making it one of the first UN humanitarian operations.

Today, nearly six million people in the West Bank and the Gaza Strip, and in Syria, Lebanon and Jordan, depend on its services, which are almost entirely funded by voluntary contributions. Nearly a third of registered Palestine refugees live in camps.

UNRWA is seeking US$1.6 billion for its operations this year. Lazzararini said an additional US$75 million is urgently needed to provide food for over a million people in Gaza. Another US$30 million is required to maintain cash and food assistance to 600,000 people in Syria, Lebanon and Jordan.

UN Secretary-General António Guterres has urged the international community to ensure the agency is fully funded.

Despite its essential role, “we allow UNRWA to remain trapped in financial limbo,” he said in remarks delivered by his Chef de Cabinet, Courtenay Rattray.

The UN chief was also deeply concerned that some of the largest and most reliable donors have indicated that they might be reducing their support.

“Let’s be clear: UNRWA is on the verge of financial collapse. The consequences of further budget cuts would be catastrophic,” he warned.

More than a half a million young Palestinians are enrolled in UNRWA schools, two of whom made impassioned pleas at the pledging conference.

Ahmad Abu Daqqa attends a boys’ school in the Gaza Strip, where a blockade has been in place for more than 15 years.

“We, the students of the Gaza Strip, seek hope amidst despair,” he said, conveying a message from his peers.

“We only find it in education and learning, despite the numerous difficulties and obstacles we face, like living in a conflict and war zone.”

UNRWA students are proud of their education, heritage and culture, added Leen Sharqawi, 15, who attends a girls’ school in Jordan. They also have big dreams.

“We are not just Palestine refugees,” she said. “We are children who dream of becoming global citizens and who want to help the world become a better place. Good education is what will allow us to do this.” 

Pakistan: Likely facets of Federal Budget FY24

Most challenging times to present the Federal Budget for next year (FY24) amid stagflation and lots of uncertainties related to upcoming elections and how Pakistan will bridge its external account funding gap.

This uncertainty on financing US dollar funding gap is creating nervousness in currency, bond and stock markets as Pakistan faces very high probability of default.

Moreover, on the political front with Imran Khan's PTI being sidelined, it is possible that a weak coalition government may come to power in elections. It will be interesting to see how aggressive and competent the new setup will be to deal with this economic crisis.

To create good optics, it is possible that the government may set an unrealistic revenue target to create space for spending in the budget.

The present Government is scheduled to announce Federal Budget FY24 on June 09, 2023. It seems highly unlikely that the government headed by Shehbaz Sharif will be able to complete the current IMF program on time.

The general perception is that regardless of the status of the current IMF program, Pakistan will have to enter another and a bigger IMF program.

The incumbent government is under immense pressure due to an Economic slowdown and high inflation and could take steps to appease the public in the upcoming budget through some sort of expansionary policies including direct cash subsidies for the underprivileged and increase in minimum wages. Any excessive spending would be ill-advised without substantial tax collection measures.

The Budget outlay for FY24 is estimated up to PKR15 trillion as against PKR9.6 trillion proposed for FY23 assuming record high mark up cost due to high interest rate.

The Government is likely to set tax revenue collection target at above PKR9 trillion for FY24 or 8.6% of GDP, as against a target of PKR7.5 trillion for FY23 and 29% higher than expected tax collection for FY23.

The Revenue targets in the past have also varied on an average by 8% in last 5 years from actual and analysts expect the same to happen in FY24 amid economic slowdown.

The Non-tax revenue target for FY24 is estimated at PKR2.5 trillion or 2.4% of GDP as against PKR1.6 trillion or 2% of GDP estimated for FY23. This seems achievable given higher SBP profit share and significant jump in PDL.

The Federal Public Sector Development Program (PSDP) is estimated at PKR0.9 trillion for FY24. However, analysts fear major cuts in this due to fiscal constraints. Consolidated PSDP (Federal and Provincial) is anticipated at PKR2.6 trillion or 2.5% of GDP for FY24.

Some of the taxation measures under consideration include: 1) Tax on undistributed reserves, 2) Continuation of Supertax, 3) Shift from Final Tax Regime to Minimum Tax Regime, 4) Asset Tax/Wealth Tax, 5) Higher tax on Non filers, 6) Tax on rental income, and 7) Additional Tax on Banks, Tobacco and Beverage sectors.

Budget is anticipated to be Neutral to Positive for Stock Market as analysts don’t expect major steps in budget that can affect the market and key listed sectors.

Courtesy: Topline Securities

 

 

Saudi Arabia largest trading partner of BRICS

Saudi Foreign Minister Prince Faisal bin Farhan said the Kingdom is the largest trading partner of the BRICS group in the Middle East.

He made the remarks during a ministerial meeting of the BRICS Friends in Cape Town. “Trade relations with the BRICS countries have witnessed continued growth, reflecting the excellent and developed relations among the countries of the group. The total bilateral trade with the countries of the group increased from US$81 billion in 2017 to US$128 billion in 2021 and US$160 in 2022.

Prince Faisal affirmed that Saudi Arabia is keen to develop future cooperation with the BRICS group by benefiting from the Kingdom’s capabilities to meet common interests and achieve prosperity for all.

He explained that the Kingdom shares basic values with the BRICS countries, namely the belief that relations between countries are based on the principles of respect for sovereignty, non-interference, adherence to international law, the existence of multilateral frameworks and collective action as reference points to face common challenges.

“The Kingdom also shares with other countries its belief in the importance of peace, security and stability in order to refocus efforts toward national development and common prosperity,” he said.

The Saudi minister added that the Kingdom continues to be committed to working with international partners to achieve the goals of sustainable development by 2030, and to intensify global efforts to enhance food and energy security amid recurring crises and supply chain issues.

He mentioned that the Kingdom is a leading country in the field of humanitarian and development aid in all fields worldwide as it is among the top 10 donors to low- and middle-income countries.

Iran’s annual trade with ECO members reaches US$20.5 billion

According to Islamic Republic of Iran Customs Administration (IRICA), country’s trade with the members of the Economic Cooperation Organization (ECO) reached U$20.5 billion in the calendar year 1401.

According to Mohammad Rezvani-Far, Iran exported US$13 billion worth of commodities to the member nations, while the imports from these were reported at US$7.5 billion.

Referring to the trade potentials of ECO member countries in various fields, such as rail and land transport, common borders, as well as territorial and population size, Rezvani-Far said the volume of commercial exchanges with ECO members should be more than this figure.

“IRICA is fully prepared to take the necessary measures for increasing the volume of trade and transit exchanges with ECO members in order to achieve the organization’s goals set according to the ECO agreement,” he said.

The official underlined the development of transit ties with ECO members as a way of boosting trade exchanges with the mentioned countries.

“Iran has many customs agreements and memorandums with ECO member countries, and in order for these agreements to be operational in line with the provisions of the ECO agreement, it is suggested that the ECO secretariat announces the necessary measures needed to be taken with the cooperation of the members,” he noted.

Iran and ECO members traded more than 23.723 million tons of goods worth US$11.71 billion during the Iranian calendar year 1400, of which the share of exports was 18.419 million tons of goods worth US$6.890 billion and the share of imports from these countries was 5.312 million tons worth US$4.819 billion.

Petroleum products, dairy products, foodstuff, fresh and dried fruits, juices and citrus fruits, carpets, saffron, fish, caviar, ornamental aquatic products, various stones, construction equipment, clothing, industrial equipment, bags and shoes, medicine, and health supplies, as well as plastic products, were Iran’s main exported items to ECO members last year, while basic goods, industrial machinery, raw materials for production, and medical supplies and medicine, were the top imported goods from ECO member states.

The Economic Cooperation Organization or ECO is an Asian political and economic intergovernmental organization that was founded in 1985 in Tehran by the leaders of Iran, Pakistan, and Turkey.

 

Asia security summit kicks off amid US-China tensions

Asia's top security meeting opened on Friday, with intensifying competition between the United States and China expected to dominate a weekend of high-level speeches, backroom military dealings and delicate diplomacy.

The Shangri-La Dialogue, which attracts senior military officers, diplomats, weapons makers and security analysts from around the globe, is taking place June 02-04 in Singapore.

Australian Prime Minister Anthony Albanese will deliver the keynote address on Friday evening, before US Defence Secretary Lloyd Austin and China's new Defence Minister Li Shangfu are expected to trade barbs in speeches over the weekend.

The relationship between the US and China is at its lowest point in decades, as the two superpowers remain deeply divided over everything from the sovereignty of Taiwan to cyber espionage and territorial disputes in the South China Sea.

Hopes that the summit in Singapore could be a chance to mend ties between Washington and Beijing were dealt a blow last week when Li declined an offer to meet with Austin.

Li, who was named China's new defence minister in March, was sanctioned by the US in 2018 over weapons purchases from Russia.

Albanese's speech comes as Australia tries to strike a delicate balance between its strong ties to the US and its often tense relationship with China, which buys the bulk of its valuable iron ore and is its biggest trading partner.

A deal announced in March to buy US nuclear-powered submarines threatens to strain Australia's fragile ties with Beijing, which has been critical of the plan.

Australia is due to spend US$250 billion over three decades on the submarine program, part of a broader security pact with the US and Britain known as AUKUS.

Australia is also part of the Five Eyes intelligence collection and sharing network, along with the US, Britain, Canada and New Zealand – a grouping that Chinese officials say is part of the West’s lingering cold war mentality and an attempt to contain its rise.

Since being elected in May 2022, the Albanese Labor government has sought closer ties with ASEAN countries. Australia’s defence chief has said that as great power competition in the region persists, his country is focused on deterring conflict and deepening engagement with partners, including Pacific island and South East Asian nations.