IMF report on Pakistan: Indictment of Sharif government

The IMF staff level report on its new, short-term bailout loan of US$3 billion for Pakistan is a damning indictment of the Shehbaz Sharif government’s economic and financial policies that deepened the trust gap between Islamabad and the lender, and pushed the country towards the precipice in the last nine months, is the opening paragraph of DAWN editorial.

Policy missteps and breach of the previous Extended Fund Facility program had compelled the lender to halt the disbursement of funds, closing the door on other multilateral and bilateral financing.

The IMF document, released on Tuesday, also spells out the program’s goals, many of which, such as increased energy prices, will directly burden the people. It blames the Finance Ministry and State Bank for their frequent tinkering with the market-based exchange rate mechanism, leading to the growth of a large foreign exchange black market. It is also critical of the central bank for resisting a timely increase in interest rates.

That is not all. The report points out that the government balked at maintaining fiscal discipline, cutting non-essential spending, broadening the tax net, controlling the drivers of the power sector’s circular debt, and improving SOE governance.

In view of its experience with Pakistani authorities, the IMF has warned that continuation of the new program will depend on the implementation of fiscal discipline, a return to a market-determined exchange rate and proper functioning of the foreign exchange market, a tight monetary policy aimed at disinflation, and progress on structural reforms, particularly with regard to the energy sector, SOEs and climate resilience.

The report also cautions against the exceptionally high downside risks to the Stand-by Arrangement goals emanating from a tense political environment and potential deviation from agreed policies. Such risks could undermine the program’s implementation, and jeopardize macro-financial and external stability and debt sustainability, leading Pakistan to seek foreign debt restructuring.

Additionally, it says that external financing risks remain high, and delays in disbursement of external financing from IFIs and bilateral creditors would endanger the fragile external balance given limited buffers. Spillovers from Russia’s invasion of Ukraine through high food and fuel prices, and tighter global financial conditions continue to put pressure on the budget.

Highlighting Pakistan’s large gross financing needs of US$28.3 billion, including the US$6.4 billion current account deficit, during this fiscal year, it stresses that multilateral and bilateral support will remain critical for Pakistan beyond the upcoming elections and the SBA.

It is a foregone conclusion that the next government will need another, longer-term IMF program to resolve structural challenges and meet high external debt obligations over the next few years. For that to happen, the country has to achieve the SBA goals, come what may.

 

GCC and Central Asian states share common interests

The Gulf Cooperation Council (GCC) countries and the Central Asian Countries (C5) — Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan — all member countries of the Organization of Islamic Cooperation, have shared values and historical ties, and possess significant oil and gas resources that qualify them to play an influential role in global energy security.

Hosting of the GCC-Central Asia Summit by Saudi Arabia reflects its keenness to boost existing relations, in conjunction with the GCC. It also reflects the interest of Custodian of the Two Holy Mosques King Salman and Crown Prince Mohammed bin Salman in developing relations between the GCC and C5 and increasing coordination between them on issues of common interest.

The GCC-C5 Summit held in Saudi Arabia is testimony to the participating countries' appreciation of the status of the Kingdom at the Gulf, Islamic and international levels, and their commitment to establishing a strategic partnership based on a common action plan for political and security dialogue, and economic cooperation and investment.

The first-of-its-kind summit reflects the keenness of the GCC countries, mainly Saudi Arabia, to establish partnerships with the international community to enhance the global status of the GCC.

The GCC Secretary General held the first high-level meeting with the ministers of foreign affairs of C5 countries in the Kazakh capital, Astana, on October 12, 2021; Bahraini Minister of Foreign Affairs Dr. Abdullatif bin Rashid Al-Zayani participated in it. The meeting highlighted the importance of the C5 region for GCC countries and the desire to start a strategic dialogue with it.

Participants in the high-level ministerial meeting stressed the importance of relations of Gulf-Central Asian countries and their aspiration to boost cooperation and coordination in areas of common interest, bolster bridges of communication and work to seize opportunities and develop processes of coordination and cooperation.

The First Ministerial Meeting of the GCC-Central Asia Strategic Dialogue was held in Riyadh on September 07, 2022. Chaired by Saudi Foreign Minister Prince Faisal bin Farhan bin Abdullah, the goal was to develop relations with a view to achieving common interests.

The ministers affirmed their commitment to establishing a strong and ambitious partnership among their countries, based on common values and interests, deep historical ties between the peoples, and the existing cooperation at bilateral and multilateral levels.

They also reaffirmed commitment to previously agreed-upon cooperation to support global economic recovery efforts and address the COVID-19 repercussions, help supply chains recover, support transportation and communication, food, energy and water security, develop green energy sources and technologies, address environmental challenges and climate change, education, and exchange of best practices and expertise in various fields, create business opportunities and support investments through appropriate business and investment mechanisms.

Moreover, the ministers underlined the relevance of the principles, goals and priorities stated in the context of Central Asian countries interaction, adopted by the heads of Central Asia states on July 21, 2022, in Cholpon Ata, Kyrgyzstan, and the GCC decision to establish cooperation with Central Asian countries.

To achieve their goals, the ministers endorsed the Joint Action Plan for Strategic Dialogue and Cooperation between Central Asian countries and the GCC States for the period 2023-27, including political and security dialogue, economic and investment cooperation, enhancing people-to-people contacts, and developing effective partnerships between business sectors in the GCC and Central Asia. The ministers also pledged to take the measures necessary for the proper implementation of the plan at bilateral and multilateral levels.

The value of trade between the GCC and Central Asia countries amounted to US$3.1 billion in 2021, about 0.27% of the total value of the GCC merchandise trade.

The value of GCC exports to Central Asia amounted to US$2.06 billion in 2021, while imports amounted to US$1.03 billion.

The maximum exports from the GCC to Central Asia reached 0.37% in 2020, while the maximum imports by the GCC reached 0.21% in 2021.

Electrical machinery and appliances constituted the major goods exported to Central Asia, at a value of US$0.98 billion, about 47.6% of the total volume of goods exported by the GCC to Central Asia, which amounted to US$2.06 billion.

Copper and its by-products constituted the major commodity imported from Central Asia, at a value of US$0.45 billion in 2021, or about 43.7% of the total commodity imports from Central Asia, followed by gold, precious metals and stones, and iron and steel, at about 24.3% each.

Russia strikes Ukraine grain storage facility

According to Western media, Russian missile attacks on Ukraine’s Black Sea coast have destroyed 60,000 tons of grain and damaged storage infrastructure. Agriculture Minister Mykola Solskyi said a considerable amount of export infrastructure was out of operation.

Lately, Russia pulled out of an international grain deal in place since last summer, guaranteeing safe passage for exports across the Black Sea. The Kremlin argued its demands for Russian exports had not been honored.

Within hours of its withdrawal from the grain deal on Monday, Russia struck the southern port cities of Odesa and Mykolaiv in the early hours of Tuesday. It was followed by more strikes overnight into Wednesday, targeting grain terminals and port infrastructure in Odesa and further down the Black Sea coast in Chornomorsk, two of the three ports that were included in the export deal.

Odesa military spokesman Serhiy Bratchuk called it a “truly massive attack”.

Ukrainian President Volodymyr Zelensky said each missile strike was a blow not just to Ukraine but to “everyone in the world striving for a normal and safe life”.

Ukraine’s reconstruction ministry published a series of photos showing damage to silos and other grain facilities.

Russian war commentators said the damage proved that Kyiv was unable to shoot down the majority of Russian missiles and drones.

Officials said the coordinated attack involved Kalibr cruise missiles, Onyx supersonic and Kh-22 anti-ship missiles as well as kamikaze drones, fired from the Black Sea, Crimea and southern Russia.

Although 37 Russian missiles and drones were shot down, a number did penetrate Ukrainian defenses, they said.

Russia had called its initial attack on Odesa a mass revenge strike for an attack on the Russian-built bridge over the Kerch strait linking occupied Crimea to Russia. Seaborne drones were blamed for Monday’s bridge strike that knocked out a section of bridge and killed a Russian couple.

Russian-installed officials also shut a 12km (7.5 mile) section of the Tavrida motorway that links the cities of Simferopol and Sevastopol in southern Crimea to the bridge over the Kerch strait. Construction of the road by Russia’s occupation authorities began in 2017.

 

Is bidding farewell to fossil oil possible?

The western mantra to get rid of fossil oil is getting louder. There are suggestions that countries have to take extra measures to contain carbon emission. In this race the developed countries, particularly United States and its allies are promoting clean energy i.e. solar, wind and gas. In the mean time the pressure is mounting on the less developed countries, currently using fossil oil and coal.

The International Energy Agency (EIA) expects US$2.8 trillion of investment in energy this year, with roughly 60% of that going toward clean energy. In the past two years, clean energy investment has risen 24% as compared to 15% for fossil fuels.

Producers of fossil fuels reaped huge profits in 2022, but less than half their cash flow is going towards new supply. Unsurprisingly, Middle Eastern producers lead in terms of spending on new supply.

A question arises, why the sudden surge in clean energy investment? The main explanations include volatility in fossil fuel markets, renewed interest in energy security, rising appreciation of the disruption created by climate events and greater societal interest in slowing climate change.

The largest increases in spending on clean energy by far have come from China, the European Union and the United States. Despite high interest in clean energy, the transition faces many challenges, chief among them the complexity and cost of developing and growing new energy supply chains.

The ongoing energy disruptions in the wake of the hostilities in the Ukraine have had a dramatic impact on export of LNG from the United States.

In the newly released edition of the Natural Gas Monthly, published by the Energy Information Agency (EIA), part of the US Department of Energy, the changing dynamics of the US export trades are described in detail.

In the publication, the EIA notes, “During the first four months of 2022, the United States exported 74% of its liquefied natural gas (LNG) to Europe, as compared to an average of 34% a year ago.”  It adds, “In 2020 and 2021, Asia had been the main destination for US LNG exports, accounting for almost half of the total exports.” Overall, US LNG exports saw an 18% increase as compared to 2021.

Exports have averaged 11.5 billion cubic feet per day (Bcf/d) during the first four months of 2022, aided by the opening of new export facilities. The increase in US LNG exports was driven by additional export capacity at Sabine Pass (Train 6) and at nearby Calcasieu Pass, with a facility that came online in early March. The Sabine Pass terminal loaded nearly 110 LNG cargoes during Q1 2022. Venture Global’s Calcasieu terminal, Louisiana began exporting in March, when five cargoes were loaded - four to Europe and one to Japan.  

The move towards European destinations had already begun before the late February invasion of Ukraine, with the huge inventory draw downs underway in advance of the winter season. The EIA said, “The United States became the largest LNG supplier to the European Union and the United Kingdom in 2021. They said that LNG imports from the United States to the EU and the UK more than tripled during January to April, 2022, as compared to 2021, averaging 7.3 Bcf/d.”

The EIA pointed out, “During the first four months of 2022, US LNG exports to Asia declined by 51% to 2.3 Bcf/d as compared to 4.6 Bcf/d in 2021.”

Its analysts also alluded to a drop-off in moves to China due to the extremely high Asian LNG prices and pandemic-related lockdowns. China received only six LNG cargoes from the United States in January–April 2022 or just 0.2 Bcf/d as compared to 1.2 Bcf/d in 2021. Japan and South Korea also saw declines.

Millions of US military emails sent to Mali

Millions of US military emails have been mistakenly sent to Mali, a Russian ally, because of a minor typing error. Emails intended for the US military's ".mil" domain have, for years, been sent to the West African country which ends with the ".ml" suffix.

Some of the emails reportedly contained sensitive information such as passwords, medical records and the itineraries of top officers.

According to the Financial Times, which first reported the story, Dutch internet entrepreneur Johannes Zuurbier identified the problem more than 10 years ago.

Since 2013, he has had a contract to manage Mali's country domain and, in recent months, has reportedly collected tens of thousands of misdirected emails.

None were marked as classified, but, according to the newspaper, they included medical data, maps of US military facilities, financial records and the planning documents for official trips as well as some diplomatic messages.

Zuurbier wrote a letter to US officials this month to raise the alarm. He said that his contract with the Mali government was due to finish soon, meaning "the risk is real and could be exploited by adversaries of the US".

Mali's military government was due to take control of the domain on Monday.

US military communications that are marked "classified" and "top secret" are transmitted through separate IT systems that make it unlikely they will be accidently compromised, according to current and former US officials.

But Steven Stransky, a lawyer who previously served as senior counsel to the Department of Homeland Security's Intelligence Law Division, said that even seemingly harmless information could prove useful to US adversaries, particularly if it included details of individual personnel.

"Those sorts of communications would mean that a foreign actor can start building dossiers on our own military personnel, for espionage purposes, or could try to get them to disclose information in exchange for financial benefit," Stransky said. "It's certainly information that a foreign government can use."

Lee McKnight, a professor of information studies at Syracuse University, said he believed the US military was fortunate that the issue was brought to its attention and the emails were going to a domain used by Mali's government, rather than to cyber criminals.

He added that "typo-squatting" -- a type of cyber-crime that targets users who incorrectly misspell an internet domain -- is common. "They're hoping that a person will make a mistake, and that they can lure you in and do stupid things," he said.

When contacted by the BBC, a spokesperson said the defence department was aware of the issue and it was being taken seriously.

They said the department had taken steps to ensure that ".mil" emails are not sent to incorrect domains, including blocking them before they leave and notifying senders that they must validate intended recipients.

Both McKnight and Stransky said human errors were prime concerns for IT specialists working in government and the private sector alike.

"Human error is by far the most significant security concern on a day-to-day basis," Stransky said. "We just can't control every single human, every single time".

Black Sea Grain Initiative ends, what next?

The handymax bulk carrier, TQ Samsun, left Odessa on Sunday morning. It was the last ship – at least for the moment – to carry Ukraine grain exports across the Baltic Sea, through the Bosphorus, and then onto heavily reliant world markets.

The 43,775 dwt bulk carrier, built in 1996 and flying the Turkish flag, is carrying the last cargo in the Black Sea Grain Initiative which expired on Sunday. The deal was brokered by the United Nations (UN) and Turkey and signed in July 2022, enabling essential grain cargoes to be exported by Ukraine to world markets.  

Following Russia’s invasion of Ukraine in February last year, a large number of ships were trapped and an estimated 20 million tons grain exports were blocked. However, after the deal was struck in July, more than 30 million tons of grain were estimated to have been exported, a lifeline for many countries – including some of the world’s poorest nations – which rely heavily on grain for basic foodstuffs.

The Initiative allowed grain ships to transit the Black Sea via a corridor three nautical miles wide and 310 miles long to the Bosphorus. Ukraine was allowed to export grain from the ports of Odessa, Chornomorsk, and Yuzhny/Pivdeeyi.

Without a resumption of the deal, millions of people will be hit by a food crisis. Many face outright famine. Grain is a staple food in many African and Middle Eastern countries where, as in most regions, people are already facing the impact of record global food price inflation. The UN has estimated that 44 million people in 38 countries face emergency levels of hunger.

President Putin has held off renewing the Black Sea arrangement, which is supposed to be extended for 120 days at a time. However, in March and May, Russia agreed only to 60-day extensions and it is the May deal that has now ended. Putin wants Western sanctions to be eased so that the country can resume its own exports of grain and fertilizers.

Although there are no specific sanctions on Russia’s agricultural exports, Western sanctions effectively limit Russia’s access to international finance, shipping capacity, and insurance, thereby limiting the country’s exports indirectly. 

US lust for carnage and destruction

The decision by the United States to provide Ukraine with the M864 DPICM round is driven by one thing and one thing only lust for carnage and destruction. 

 Totaling around US$800 million, it will also feature Bradley and Stryker fighting vehicles, air defense missiles, and anti-mine equipment—and hundreds of thousands of 155mm artillery dual-purpose improved conventional munitions (DPICM) rounds, the M864.

The decision by the Biden administration to supply Ukraine with the M864 round is simply a callous continuation of a policy designed to prolong a conflict Ukraine cannot win, and which causes Ukraine to lose hundreds of men killed every day. It does nothing to alter the current trajectory of the Russian-Ukrainian conflict, which as things currently stands points to a decisive Russian victory, an outcome the Biden administration is loath to accept.

The United States has, prior to the recent announcement, refused to provide cluster munitions to Ukraine for one simple reason—much of the world, including many of America’s NATO allies—views cluster munitions as representing an unacceptable risk to civilian life due to the high occurrence of dud munitions (i.e., munitions that fail to detonate on impact). As a result, cluster munitions continue to kill long after the battle where they were employed has ended. The victims tend to be civilians who stumble upon these munitions and inadvertently set them off.

While the US has refused to sign the Convention on Cluster Munitions (CCM), an international treaty that prohibits all use, transfer, production, and stockpiling of cluster munitions, it has recognized the need to develop cluster munitions with a designed dud rate of less than 1% to minimize the post-conflict risk to civilian populations. For this reason, the US military stopped using the M864 in 2016, replacing it with an improved DPICM round.

While the M864 round does not meet the 1% dud threshold set by the US Department of Defense for DPICM munitions, the Biden administration touts the fact that the M864 has a dud rate of less than 2%, which given the urgency of the need for artillery shells by Ukraine, is deemed to be an acceptable departure from the US norm.

However, like virtually every statement made by the United States regarding the conflict in Ukraine, the claim that the M864 DPICM rounds being sent to Ukraine are comprised only of batches certified as possessing a dud rate of less than 2% is a calculated lie.

The tests cited—five of them, conducted between 1998 and 2020—were carried out at the KOFA firing range, located within the US Army’s Yuma Proving Ground, in Arizona, using the Terminal Ballistics Evaluation Area, which possesses a prepared and instrumented impact area optimized for data collection.

This range employs a surface area consisting of hard-packed, flattened dirt designed to maximize point-detonating fuses such as those employed on the 24 M46 and 48 M42 dual-purpose anti-materiel/anti-personnel sub-munitions contained in each M864 round.

However, when employed in real-life situations, the dud rate of the sub-munitions will be much higher—often up to 20%. Rough terrain, mud, soft soil, trees, and bushes all conspire to prevent the sub-munitions from detonating. 

Moreover, given that the lifespan of a 155mm artillery shell is 20 years, and that production of the M864 round, which began in 1987, terminated in 1996, the vast majority of the M864 artillery shells being provided to Ukraine have reached or exceeded their expiation date, which means that there is an increased probability that many of these shells will not perform as designed.

Likewise, the US government knows that the dud rate is deriven from laboratory-like testing conditions, and not the real-world environment that exists in Ukraine. The fact is that the M864 DPICM round being delivered to Ukraine is neither reliable nor safe as the Biden administration contends.

The M864 is considered by the US military to be 5-15 times as lethal as conventional high-explosive 155mm artillery shells.

This calculation is derived from comparisons made regarding massed infantry and light armor vehicles deployed in the open—a situation which may have existed in 1991, during Operation Desert Storm, where some 25,000 M864 rounds were fired against Iraq.

However, the battlefield Ukraine faces today against Russia is a far cry from Iraq. The Russian defenses that Ukraine is seeking to breach are constructed on uneven terrain and integrate natural and man-made overhead cover. The reality of the actual battlefield conditions will result in a significant degradation of the lethal impact of the DPICM round, given it at best a three-fold advantage and in many cases making it inferior to a conventional high explosive round. In short, the M864 is not a “game changer.” The Ukrainian forces will achieve limited tactical advantage through its employment, and in many cases, see their probability of kill factors drop.

The US decision to provide Ukraine with the M864 DPICM round is driven by one thing and one thing only—the fact that Ukraine is running out of 155mm artillery shells, and the US has nothing left to give Ukraine except the M864.

The drawdown in Afghanistan led to the Department of Defense slashing its artillery acquisition budget in 2021, creating a deficit of production that is only now being addressed in the 2023-24 defense budget. Ukraine’s ambitious counteroffensive is predicated on planning factors built around anticipated availability of 155mm artillery shells.

As things stand, Ukraine will exhaust its supply of 155mm artillery shells prior to any of the objectives set for the counteroffensive having been met. The Biden administration has decided to provide the M864 DPICM round as an emergency stop-gap measure designed to allow Ukraine to sustain its planned rate of fire until which time US and European production of 155mm artillery can be expanded to meet Ukraine’s operational needs, something that isn’t anticipated to occur until mid-2024 at the earliest.

But the provision of artillery shells, whether conventional or DPICM, cannot alter the reality that the Ukrainian military lacks the capabilities necessary to successfully defeat the Russian defenses currently deployed against them. The M864 munition cannot offset Russia's ten-fold superiority in artillery fire, and unchallenged supremacy in the air, where Russian fixed-wing and helicopter assets operate without meaningful opposition while breaking up Ukrainian attacks with precision fire.