Saudi-British trade surpasses US$21 billion

Prime Minister Rishi Sunak revealed that bilateral trade between Britain and Saudi Arabia has exceeded 17 billion pounds or US$21 billion.

 “Today we are launching the next phase of the deep and growing partnership between Britain and Saudi Arabia. Over the next two days, we will hear from Saudi leaders and companies about how to make Vision 2030 a reality, and the tremendous opportunities it presents to all of us,” he said while addressing, through a video conference, the opening session of the GREAT Futures Initiative Conference, which kicked off at the King Abdullah Financial District in Riyadh on Tuesday.

The two-day conference is one of the initiatives of the Saudi-British Strategic Partnership Council, chaired by Saudi Crown Prince and Prime Minister Mohammed bin Salman and Rishi Sunak. 

“I know British businesses here will relish the opportunity to showcase the best our country has to offer,” the prime minister said.

Sunak revealed that nearly 25,000 Britons live in Saudi Arabia at present.

“Since the launch of the new electronic visa exemption regime in June 2022, Britain has welcomed more than 400,000 Saudis. The United Kingdom excels globally in the fields of technology and innovation, and thousands of Saudis have graduated from British universities in finance, fashion, luxury product sales, and others,” he told the conference participants.

British Deputy Prime Minister Oliver Dowden is among several British and Saudi ministers, as well as Saudi and international experts and specialists who are addressing the conference. As many as 800 participants from the public and private sectors of both countries are taking part in the event.

In his speech at the conference, Dowden said that the pace of change in Saudi Arabia in terms of the economic, social and cultural aspects is exceptional.

“We do not just want to support the Saudi Vision 2030, but we want to be part of it.” Referring to the conference, he said the Kingdom’s hosting of such an event is a wonderful example and shows British talent to the world: “We participate in leading the economic and social elements of our relations as a means of work, execution and transformation.”

Dowden said that this would significantly increase mutual prosperity and demonstrate that a modern, forward-looking partnership can meet the challenges of the 21st century.

Dowden noted that he was accompanied by a giant delegation to this event that included more than 450 people, which is the largest British trade mission in a decade and the largest ever from Britain to Saudi Arabia.

He pointed out that the talented lawyers, consultants, financial experts, architects and designers in Britain can help turn this vision into a reality, and highlighted that their work are meant to strengthen the presence of British companies in the Kingdom, and to accelerate the vital trade ties that make the mutual relations between the two countries of great value.

According to the British deputy prime minister, Saudi Arabia, through its mega projects and cities, is paving the way for how societies can harness innovative technologies to achieve amazing change.

“The partnership between the two kingdoms is a two-way street, as the two countries open their markets to each other. So that investments, tourism exports, and cooperation can flow in both directions,” he added.

The conference is aimed to enhance economic relations between the two countries in various promising sectors as well as to develop mutual trade and investment. The conference will feature 47 sessions and workshops with 127 speakers from both public and private sectors, covering 13 promising economic sectors, including tourism, culture, education, health, sports, investment, trade, and financial services, in addition to signing six agreements in the fields of education and training, tourism, and real estate development.

Earlier, Dowden said that the conference is an important opportunity to build partnerships between the business sectors of both countries, keeping pace with the future, innovation, and creativity. It also allows British companies to familiarize themselves with relevant business regulations, incentives, and advantages for conducting business in Saudi Arabia.

On his part, Minister of Commerce Dr. Majed Al-Qasabi stressed that the conference is an opportunity to enhance cooperation and economic partnership in 13 vital and promising sectors. He also highlighted that it paves the way for extensive partnerships focusing on innovation and creativity in sectors of mutual interest.

Iran to launch sea passenger lines to Dubai and Oman

The secretary of Iran’s Supreme Council of Free Industrial-Trade and Special Economic Zones said sea passenger lines are planned to be launched from Qeshm and Kish islands to the Sultanate of Oman and Dubai in the United Arab Emirates (UAE).

Hojatollah Abdolmaleki pointed to the development of sea tourism and transportation of sea passengers in the free zones of the country and said that in addition to developing the domestic sea lines, there are plans to launch recreational and passenger lines from Kish and Qeshm islands to the destinations of Dubai and Oman.

The development of maritime tourism and transportation of sea passengers in the free zones of the country have been put on the agenda of the council, Abdolmaleki emphasized.

He stressed that Qeshm and Kish islands have high capacities for launching maritime lines to Persian Gulf littoral states.

Given the keenness of investors in the private sector, the country would witness the commissioning of these international maritime lines which will boost maritime tourism in the region, he underscored.

Abdolmaleki said more than 100 investment packages, valued at €1.0 billion, have been presented to the investors of the private sector.

Emphasizing that the free zones have become a safe place for preventing capital flight from the country, the adviser to the Iranian president stated that the presence of both domestic and foreign tourists in the free zones has contributed to the economic development of the country.

 

State of Pakistan Economy

Pakistan’s macroeconomic conditions improved, according to the State of Pakistan’s Economy Report for the H1FY24 released today by the State Bank of Pakistan (SBP). The Report contains the analysis prepared on data outturns for the July-December FY24. According to the Report, the real economic activities moderately recovered against the contraction last year, while Stand-By Arrangement (SBA) with the IMF helped reduce stress on external account.

Meanwhile, current account deficit narrowed considerably, amid continued contractionary monetary and fiscal policies, better agriculture produce and ease in global commodity prices. On fiscal side, primary balance posted a higher surplus during H1FY24 compared to H1FY23 on account of strong growth in both tax and non-tax revenues that outpaced increase in non-interest expenditure. Despite restrained domestic demand, inflationary pressures remained persistent at elevated levels, the Report noted.

The real GDP, driven by agriculture sector, grew by 1.7 percent in H1FY24. The recovery in agriculture sector also supported some of the agro-based industries. In addition, withdrawal of import prioritization measures improved availability of raw materials for industry, the report said. The approval of the IMF’s SBA eased external borrowing constraints, leading to an increase in financial inflows during H1FY24. In addition, lower scheduled external loan repayments compared to H1-FY23 and significant reduction in current account deficit, on account of decline in imports as well as upsurge in exports supported the build-up in SBP’s FX reserves.

Despite subdued domestic demand and decline in global commodity prices, states the Report, a combination of lingering structural issues, PKR depreciation compared to H1-FY23, increase in government spending, and supply shocks kept the National CPI (NCPI) inflation at elevated levels. A number of factors including higher input costs, increase in indirect taxes, and implementation of upward revision in minimum wage announced in the FY24 budget, alongside the second-round effects of administered prices of food and energy items, were responsible for the persistence in the core inflation during H1-FY24.

The Report highlights that despite some improvement in macroeconomic indicators, economy continues to grapple with the structural bottlenecks. The major issues include limited savings, low investments in physical and human capital, weak productivity, stagnant exports, narrow tax base, and inefficiencies in PSEs. Additionally, political uncertainty exacerbates the situation through inconsistency in economic policies, weak governance and public administration, hindering investment and thus economic development. These underscore the need for policy reforms to ensure sustainable development over the medium to long-term.

The Report includes a Special Chapter that analyzes long-term trends in inflation and its determinants in Pakistan. The chapter also sheds light on policy and structural factors influencing inflation including monetary policy framework, fiscal and debt policy, trade openness, agricultural efficiency, productivity and demographic trends. The chapter concludes that reducing political and policy uncertainties and more fiscal consolidation can help bring inflation down at a faster pace in the short run. The chapter also emphasizes on addressing longstanding structural issues to achieve low and stable inflation over the medium term, without overburdening monetary policy and the consequent high economic costs.

The Report expects continuation of modest economic recovery in the second half of FY24. In the backdrop of improvements in business confidence, high frequency demand indicators since November 2023, and prospects for a good wheat production during FY24, the SBP projects real GDP growth in the range of 2 – 3 percent for FY24. The NCPI inflation, on the other hand, is expected to remain downward trajectory despite uncertainties persisting in both domestic economy and international commodity market.

Keeping these developments in view, the SBP projects the average NCPI inflation in the range of 23 – 25 percent for FY24, lower than 29.2 percent in FY23, and is expected to come down to 5 – 7 percent range by September 2025. On external account, the CAD is projected to remain lower than earlier estimates, amid slightly improved global outlook and domestic growth prospects to boost foreign exchange earnings from exports and remittances.

The SBP projects the current account deficit in the range of 0.5 – 1.5 percent of GDP for FY24. This macroeconomic outlook remains susceptible to escalating geopolitical tensions, unfavorable weather conditions, adverse movements in global oil prices, and subsequent external account pressures. Further adjustments in energy prices and fiscal consolidation -warranted for slowing the pace of debt accumulation - may also weigh on economic activities and inflation.

Renewable diesel glut hits US refiners

A rush by US fuel makers to recalibrate their plants to produce renewable diesel has created a supply glut for low-emissions biofuels, hammering profit margins for refiners and threatening to impede a young industry.

Turmoil in the biomass-based diesel sector, an umbrella term for renewable diesel and biodiesel, could become a roadblock to future investments in biofuels, the US Energy Information Administration (EIA) said this year. That could potentially stall the transition away from traditional fossil fuels.

Some producers of these biofuels have already shuttered plants this year, and industry participants say more are set to go out of business before the year's end.

US renewable diesel production capacity nearly quadrupled following the coronavirus pandemic from just 791 million gallons a year in 2021 to 3 billion gallons by 2023, as refiners sought ways to survive the transition away from their petroleum-based products.

Combined with biodiesel, total US output capacity for biomass-based diesel surpassed 5 billion gallons by 2023.

Renewable diesel is a complete substitute for diesel, whereas biodiesel can only be used as a blend, making the former more attractive for producers.

Both compete for the same feedstock - biomass, such as used cooking oil and vegetable oils - and are more expensive to produce than petroleum-based diesel, so their demand relies almost entirely on governmental blending mandates and tax credits.

But blending targets for biomass-based diesel, set under the US Environmental Protection Agency's Renewable Fuel Standards (RFS) program, generate combined demand of just up to 4.5 billion gallons a year through 2025, according to Scott Irwin, a professor at the University of Illinois.

That is already below existing domestic production, before factoring in imports. By 2025, Irwin estimates US renewable diesel and biodiesel output capacity will top 7 billion gallons.

"The crux of the matter is that market participants convinced themselves that 'if we build it, the EPA will mandate it'. That didn't happen," Irwin said.

The oversupply has cut prices of Renewable Identification Numbers (RINs) - the credits refiners earn under RFS for producing or importing biofuels - to the lowest in five years. D4 RINs tied to biodiesel and renewable diesel fell below 40 cents a gallon in February for the first time since 2019.

Negotiations with IMF: No room for complacency

The IMF Staff report, following the second and final review of the SBA program, broadly commends Pakistan’s’ efforts to stabilize the economy.

Pakistan completed the nine-month program in April 2024 having met all key objectives and structural benchmarks of the program.

The IMF welcomed the authorities trying to engage the Fund for another program. Nonetheless, the Fund has cautioned that there are ‘exceptionally high’ risks to the current macro stability – emanating from volatile geopolitics, delayed reforms, still high inflation and high government debt.

The IMF considers SBP’s stance of holding the policy rate as appropriate, until there are greater signs of disinflation and risks of upside from PKR weakness and external shocks have been minimized – through buildup of greater foreign exchange reserves. Reserves held by SBP stood at US$9.1 billion by May 03, 2024, equivalent to about two months’ imports.

Future Energy sector reforms include: 1) rebasing of power tariff (likely by July 2024), 2) implementing WACOG in the gas chain (for better recovery as it spreads out the cost of expensive imported LNG to all gas consumers) and 3) re-negotiation of power tariffs with IPPs that came online after 2015.

The first two measures are inflationary, but the third measure might be the hardest to deliver for the authorities.

Many of the remaining IPPs which have not had a tariff revision are CPEC plants and will entail negotiations with the Chinese government, who has not been flexible on this front since the time of the PTI government.

The IMF has also stressed on discontinuing gas supply to industries for captive power, so that they move to the national grid for their power needs; this will ensure recovery of capacity payments from a larger pool of consumers, in turn reducing the weighted average power tariff.

Pakistan is expected to increase FBR’s tax revenues by 18% in FY25 to PKR11 trillion from estimated PKR9.4 trillion in FY24 (estimated nominal GDP growth of 13% for FY25). The growth in collection is expected to come mostly from direct taxes (expected to rise 15%YoY which include income tax) and sales taxes (up 21%YoY).

Pakistan’s gross external debt payments for FY25 are projected at US$21.0 billion, compared to US$22.6 billion for FY24 and an earlier projection for FY25 of US$22.2 billion.

As per the SBP, Pakistan has improved its external debt maturity profile during FY24, reducing the stock of ST borrowings (from foreign commercial banks).

 

India to operate a terminal at Chabahar Port

Iran and India signed a long-term agreement on Monday based on which India Ports Global Limited (IPGL) will operate a terminal at the strategic Chabahar port as it seeks to expand trade in Central Asia.

The agreement was signed in a ceremony attended by Iranian Transport and Urban Development Minister Mehrdad Bazrpash and India’s Ports, Shipping, and Waterways Minister Sarbananda Sonowal in Tehran.

The signing of this agreement is considered a turning point in bilateral and regional commercial and economic cooperation, as well as facilitating strategic cooperation between Iran and India.

According to Sonowal, the agreement, which had been under discussion for some time, is going to clear the pathway for bigger investments to be made in the port., without a long-term agreement, it’s very difficult to invest in a port.

India expects the project will improve its connection with an international north-south transport corridor being developed with Iran and Russia and also improve trade links with Central Asia, Jaishankar said.

“We will see more connectivity linkages coming out of that port,” the Indian minister told local media earlier this week.

The Chabahar port serves as a gateway for Indian goods to reach markets in Afghanistan and Central Asia while bypassing India’s rival and neighbor Pakistan. India sent 20,000 tons of wheat aid to Afghanistan through the Chabahar port last year.

The cooperation between Iran and India on the strategic port dates back to 2003, when New Delhi agreed to develop the port as well as accompanying infrastructure links during the visit by then-President Muhammad Khatami to India. The project has suffered several delays since then and was weighed down by sanctions on Iran.

As Iran's only oceanic port on the Gulf of Oman, Chabahar Port holds great significance for the country both politically and economically. The country has taken serious measures to develop this port in order to improve the country’s maritime trade.

The port consists of Shahid Kalantari and Shahid Beheshti terminals, each of which has five berth facilities. The port is located in Iran’s Sistan-Baluchestan Province and is about 120 kilometers southwest of Pakistan’s Baluchistan Province, where the China-funded Gwadar port is situated.

Where does US spend most of foreign aid?

Debates over US aid to Israel and Ukraine have dominated Washington this year, raising questions about its economic and military support to various allies and whether the nation spends too much support abroad.

Opposition within the GOP to foreign aid has been building, with Republicans arguing the US needs to spend more on border security. The debate is likely to color this year’s presidential race, and the reelection of former President Trump and his America First campaign could raise questions about funding for some partners. 

All figures come from State Department spending in fiscal 2023, with the addition of foreign aid appropriations for Israel and Ukraine last month.

Ukraine

Congress allocated US$61 billion for Ukraine in a foreign aid package signed late last month, following months of political fighting over whether to continue backing the country against a Russian invasion.

The funding nearly doubles what the US has invested in Ukraine since its war began in early 2022, bringing the spending total on the conflict to about US$137 billion between military and economic aid, according to the Kiel Institute.

Nearly all the military spending in the new aid package will be spent on domestic arms manufacturers, resupplying stockpiles sent to Ukraine to fight Russia. It also includes about US$8 billion for economic development and recovery in the country.

The spending deal has split the GOP House majority and nearly led to the ouster of Speaker Mike Johnson, after Rep. Marjorie Taylor Greene and two other GOP members cited the aid package as the last straw in filing a motion to vacate the Speakership. Johnson survived the vote with the support of Democrats.

The Russia-Ukraine war has dragged on for months, with Ukrainian leaders complaining of dwindling supplies as American arms shipments from a December 2022 aid package ran out.

“For months, while MAGA Republicans were blocking aid, Ukraine’s been running out of artillery shells and ammunition,” Biden said when he signed the new aid package last month. “Meanwhile, Putin’s friends are keeping him well supplied.”

The new US$61 billion expenditure is on top of about US$17 billion allocated in 2022 that was spent last year.

Israel

Israel has been the largest recipient of US foreign aid since World War II. The country has accepted more than US$300 billion since 1946, according to the Council on Foreign Relations, with more than US$220 billion of the figure in military aid.

Long considered the closest ally of United States in the Middle East, Congress has allocated between US$3 billion to US$4 billion per year to Israel consistently since the 1970s for its defense. Nearly the entire sum is provided through a State Department program allowing Israel to purchase US-manufactured arms and munitions for no cost.

That trend was bucked late last month, as the long-awaited foreign aid package included about US$15 billion in military aid for Israel amid its war with Hamas in Gaza. The package is the largest single-year allocation of aid for Israel in at least 50 years, according to the Council on Foreign Relations.

“We will always make sure that Israel has what it needs to defend itself against Iran and the terrorists it supports,” Biden said when he signed the aid package.

President Biden withheld an arms shipment to Israel last week, part of a pressure campaign urging Israel to not invade the city of Rafah in southern Gaza.

Biden said the US will halt future arms shipments if Israel enters the city, which Israeli leaders said Thursday it will likely do with or without US backing.

Jordan

Jordan is the third-largest recipient of US foreign aid, according to a State Department and USAID tracker of spending. About half of the funds allocated for the country in 2023 were for military aid.

That spending has already come in handy in the Israel-Hamas war, as Jordan joined the United States in defending Israel against a wave of Iranian drone and missile strikes last month. The unprecedented attack on Israel was completely shut down by the combined defenses of the three countries.

Jordan also assisted the US in airdrops of humanitarian aid into Gaza amid the conflict in March. 

Egypt

Foreign spending in Egypt has come under additional scrutiny in the last year after the indictment of Sen. Bob Menendez. Menendez, who stepped down as chair of the Foreign Relations Committee during the investigation, is accused of accepting hundreds of thousands in bribes from interests in Egypt.

After the indictment, Sen. Ben Cardin, who became foreign relations chair when Menendez stepped down, held back US$235 million bound for Egypt, criticizing the country’s dogged record on human rights and press freedom.

“Congress has been clear, through the law, that the government of Egypt’s record on a range of critical human rights issues, good governance, and the rule of law must improve if our bilateral relationship is to be sustained,” Cardin said in October last year.

Rep. Gregory Meeks the top Democrat on the equivalent House committee, made a similar request weeks earlier.

The controversy comes as Egypt plays a central role in the Israel-Hamas war. Egyptian diplomats have acted as intermediaries between Israel, the US and Hamas, and Cairo played host to cease-fire negotiations last week.

Ethiopia

Allocations to Ethiopia are nearly entirely humanitarian aid, as regions of the country struggle with a deep famine and civil unrest. The northern region of Tigray fell into an ethnic conflict in 2022, with rebel and government forces facing off as thousands starved.

USAID resumed food aid to the region in December, five months after it took the extraordinary step of halting its nationwide program over a massive corruption scheme by local officials.

The rare combination of droughts, conflict and other factors disrupting food supplies has made Ethiopia one of the largest recipients of US humanitarian aid. About one-sixth of Ethiopians received food aid before discovery of the food theft early last year.

Nigeria

Nigeria foreign aid spending is focused on health care and food access. The US spent about a quarter billion dollars on stemming the spread of HIV and AIDS in the country in 2023, according to USAID, as well as another US$130 million on other health needs.

The country also has areas where food is in critical need, sparking another quarter billion in spending for food access and other expenditures filed by the State Department under “emergency response.”

Most of the support is funneled through non-government organizations and charities operating in the country.

Somalia

Almost the entirety of funds allocated for Somalia is under emergency designation for food access as the country continues to struggle after decades of civil unrest.

About US$700 million of the expenditures are in partnership with the United Nations, which has had a constant presence in the country for decades amid a brewing civil war with breakaway Somaliland. Just more than US$100 million is set to fund UN peacekeeping missions in the country.

Kenya

In Kenya, US humanitarian assistance is spread between health, food access and economic development. The largest expenditure is in partnership with the World Food Program in the region, while the government also invested significant sums into fighting the spread of HIV and AIDS and supporting local agriculture.

 Courtesy: The Hill