Pakistan an important neighbor of Iran

Iranian Vice President for Strategic Affairs Mohammad Javad Zarif held a cordial meeting with Pakistan’s ambassador in Tehran, Muhammad Mudassir Tipu.

The two officials discussed the expansion of ties in various fields, including economy, security, and military domains. Cultural exchanges and the need to further increase them was another focus of discussions. 

“Pakistan is an important neighbor of Iran. This means that we should do our best to further enhance our ties,” Zarif said to the envoy.

The Iranian official who served as the country’s foreign minister for 8 years in the 2010s, traveled to Pakistan multiple times during his long tenure as a diplomat. 

For his part, Tipu briefed Zarif on the current state of bilateral ties, and reciprocated sentiments about the importance of enhanced cooperation between the two historically friendly countries. 

Iran and Pakistan have taken multiple steps to increase cooperation in recent years. Notably, a massive border market was inaugurated in 2023 by the leaders of the two countries.

Security collaboration has also become extremely significant, with the two nations facing similar threats posed by terrorists and smugglers.

 

Germany: Fragmented Political Landscape

Germans vote in a national election on Sunday which is expected to see Friedrich Merz's conservatives regain power and the far-right Alternative for Germany (AfD) score its best ever result as Europe's ailing economic powerhouse lurches rightwards, reports Reuters.

Merz's CDU/CSU bloc has consistently led polls but is unlikely to win a majority given Germany's fragmented political landscape, forcing it to sound out coalition partners.

Those negotiations are expected to be tricky after a campaign which exposed sharp divisions over migration and how to deal with the AfD in a country where far-right politics carries a particularly strong stigma due to its Nazi past.

That could leave unpopular Chancellor Olaf Scholz in a caretaker role for months, delaying urgently needed policies to revive Europe's largest economy after two consecutive years of contraction and as companies struggle against global rivals.

It would also create a leadership vacuum in the heart of Europe as it deals with a host of challenges, including US President Donald Trump's threats of a trade war and attempts to fast-track a ceasefire deal for Ukraine without European involvement.

Germany, which has an export-oriented economy and long relied on the US for its security, is particularly vulnerable.

Germans are more pessimistic about their living standards now than at any time since the financial crisis in 2008.

EU allies are cautiously hopeful the elections might deliver a more coherent government able to help drive forward policy at home and in the bloc.

Some also hope Merz will reform the "debt brake," a constitutional mechanism to limit government borrowing that critics say has strangled new investment.

The most likely outcome of this election, say analysts, is a tie-up of Merz's conservative bloc of Christian Democrats (CDU) and Christian Social Union (CSU) with the SPD, which is polling in third place in another uneasy "grand coalition".

"A lot of my friends are likely going to vote for the conservatives because this government didn't work so well and Merz's international standing is quite good," said Mike Zeller, 26, a civil servant.

"I just hope enough parties agree to a government so they can leave the AfD out."

 

 

 

Iran: Zolfaqar 1403 Joint Military Exercise

Iran commenced the large-scale Zolfaqar 1403 Joint Military Exercise on Saturday, spanning the Makran coasts, the Sea of Oman, and the northern Indian Ocean up to the 10-degree latitude.

Rear Admiral Habibollah Sayyari, overseeing the maneuvers, stated the exercise aims to bolster Iran's defensive capabilities and deterrent power against potential threats.

Speaking at a press conference on Friday, Rear Admiral Sayyari said, "As part of the annual military exercises of the Islamic Republic of Iran, the main phase of the Zolfaqar 1403 joint exercise will commence tomorrow..."

The exercise, operating under the slogan "Sustainable Security and Power," will involve elements from the Ground Forces, Air Defense Forces, Air Force, and the Strategic Navy of the Islamic Republic of Iran, along with the Joint Air Defense Headquarters of Khatam al-Anbiya.

Rear Admiral Sayyari emphasized the deterrent nature of the drill, stating, "The purpose of conducting this exercise is to enhance the defensive capabilities and deterrent power of the sacred Islamic Republic of Iran against any land, air, or sea threats. Any enemy that thinks it can harm our territorial integrity or our interests on land, in the air, or at sea will certainly know that it will suffer significant consequences."

The exercise will serve as a testing ground for new military tactics and weaponry, including the evaluation of "new, smart, precise, and guided munitions, as well as various types of missiles."

The Zolfaqar 1403 exercise follows almost two months of nationwide military drills involving various units of the Armed Forces. The Islamic Revolution Guard Corps (IRGC) Ground Force recently concluded the second round of its own maneuvers in Iran’s southwestern regions, where forces practiced fending off a potential attack in the Persian Gulf, while also unveiling various new drones, missiles, and defense systems.

 

 

PSX records modestly positive activities

Pakistan Stock Exchange (PSX) witnessed a modestly positive week, with the benchmark KSE-100 index gaining 716 points or 0.64%WoW, to close at 112,801 points on Friday, February 21, 2025. Market activity was largely driven by ongoing announcements of corporate results, particularly better than expected earnings by the cement companies.

The authorities' stance against imposing new taxes ahead of the upcoming IMF review boosted investor confidence, with expectations of smooth review process, expected next month.

On the macro front, foreign direct investment (FDI) surged by 56%YoY to US$1.5 billion in 7MFY25, primarily due to higher inflows from China into the power sector, especially Hydel projects.

Current account posted a deficit of US$420 million in January 2025 after three months of surplus, driven by 17%YoY increase in imports. However, the 7MFY25 balance remained in surplus at US$682 million.

Yields in the latest auction rose by 3 to 17bps, with 3-month yield on T-bills climbing to 11.82%.

Large-Scale Manufacturing (LSM) index declined by 1.87%YoY in 1HFY25, primarily due to a slowdown in construction-related sectors.

Market participation also improved, with average daily traded volume increasing by 14%WoW to 590 million shares, from 519 million shares a week ago.

Foreign exchange reserves held by State Bank of Pakistan (SBP) increased by US$35 million to US$11.20 billion as of February 14, 2025.

Other major news flow during the week included: 1) IMF and Pakistan to discuss US$1bn climate finance talks next week, 2) overseas investors repatriate US$1.3 billion during first seven months of the current financial years, 3) IFC announces to invest US$2 billion annually in Pakistan’s infrastructure, 4) textile exports increased by 11%YoY in seven months, and 5) GoP decides to deregulate fuel prices and auction offshore blocks.

Glass ceramics, Jute, and textile spinning were amongst the top performing sectors, while Transport, Pharmaceuticals, and Close-end mutual funds reported were the laggards.

Major selling was recorded by Mutual Funds and Foreigners with a net sell of US$8.6 million and US$5.1 million, respectively. Insurance companies, Individuals, and Companies absorbed most of the selling with an aggregate buy of US$14 million.

Top performing scrips of the week were: BOP, FCCL, KTML, TGL, and DGKC, while laggards included: SAZEW, MEHT, SEARL, TRG, and ABOT.

According to AKD Securities market outlook remains positive, with the KSE-100 expected to be influenced by corporate earnings announcements, which could set the tone for sector-specific movements.

Any developments regarding the upcoming IMF review or the US$1.0 billion climate financing by IMF could further trigger positive momentum. Over the medium term, the KSE-100 is anticipated to sustain its upward trajectory, primarily driven by strong earnings in fertilizers, sustained ROEs in banks, and improving cash flows of E&Ps and OMCs, benefiting from falling interest rates and economic stability.

 

Pakistan posts current account deficit in January

Pakistan has posted current account (CA) deficit of US$420 million in January 2025 as against a surplus of US$474 million in December 2024.

This was the first CA deficit since September 2024, shrinking the CA surplus during first seven months of the current financial year to US$682 million (which still compares well with a deficit of US$1.8 billion during 7MFY24).

A key reason for the deficit was the increase in goods imports (up by US$560 million MoM), about half of which was due to higher petroleum imports. This showed flat imports, which makes the negative CA balance less concerning. 

Goods trade deficit expanded to US$2.5 billion in January 2025 from US$1.8 billion a month ago, largely due to higher imports (up 11% MoM to US$5.4 billion) while exports fell 4% to US$2.9 billion.

Petroleum imports rose 25%MoM to US$1.6 billion, as compared to an average US$1.2 billion over the previous six months – despite January being an off-peak month for petroleum consumption (lower mobility during winter).

Overall goods imports were nearly flat MoM and petroleum imports fell 12% MoM to US$1.3 billion. The higher imports were due to a temporary difference (SBP data is cash based; and the payment for deliveries of previous months came due in January).

Goods exports were broadly flat around US$2.9 billion, but Textile exports were up a notable 14% MoM to US$1.7 billion. Food exports were down 19%MoM (rice exports fell 11%MoM).

Remittances were reported at US$3.0 billion but are likely to rise in the coming months' with the commencement Ramadan falls in March. Remittances increased 32%YoY during 7MFY25, to US$20.8 billion.

A narrow spread between the interbank and kerb exchange rates and a big outflow of skilled workers in recent years (driven by the economic crisis of 2022-23) were the key drivers for the increase in remittances.

Foreign exchange reserves held by State Bank of Pakistan fell to US$11.4 billion by end January from US$11.7 billion at the start of the month, manlily due to debt repayments of about US$500 million and CA deficit.

Next IMF review is due in early March 2025, a favorable review should unlock the next US$1 billion tranche.

Pakistan is scheduled to launch a US$200 million panda bond auction in China by June 2025.

 

EU to consider lifting sanctions on Syria

Reportedly, the European Union (EU) will meet on 24 February to discuss lifting sanctions on Syria. Internal European politics and concerns raised by Greece and Cyprus over Turkey's growing influence in the region could slow the process.

Speaking to Argus on the sidelines of the Munich Security Conference, representative for foreign affairs Kaja KallasKallas said the prospect of lifting sanctions on Syria looked promising.

France on February 14 convened an international conference on Syria in Paris, bringing together representatives from G7 nations, the EU, the UN, the Arab League, and the Gulf Cooperation Council.

The participants issued a final statement calling for support of Syria's political transition, but the US did not join that statement.

The US sources told Argus that the issues raised in the statement are things Washington has not decided on, since US president Donald Trump's administration is still formulating its policy regarding Syria.

Another source with knowledge of ongoing European talks on Syria said Greece and Cyprus are more reluctant to lift sanctions on Syria. Any EU action will have to be agreed upon by all of the bloc's members.

Both countries are leery of ties between Turkey and the Syrian Islamist group Hayat Tahrir al-Sham (HTS), the dominant faction in the new Syrian government.

Greece and Cyprus are worried about an oversized Turkish influence in the eastern Mediterranean following the collapse of the regime of Bashar al-Assad in December.

Sanctions remain one of the biggest obstacles to Syria's recovery.

Damascus has been struggling to secure crude and refined oil products through public tenders largely because of those sanctions.

Shipowners remain cautious about sending vessels there over concerns tankers being sanctioned or stranded.

Last month the US waived sanctions prohibiting energy trade with Syria, but the country is still under EU and British sanctions, which may have narrowed the pool for bidding.

 

Iran key economic link in West Asia

Abdolnaser Hemmati, economy minister has stated that regional economic cooperation is incomplete without Iran’s participation, emphasizing the country's strategic role in linking the Persian Gulf to Central Asia.

Hemmati said that amid maximum pressure conditions, strengthening economic ties with neighboring and friendly countries could help Iran navigate current challenges.

He made these remarks at a conference organized by Saudi Arabia’s Ministry of Finance and the International Monetary Fund (IMF), which focused on economic resilience and the role of regional cooperation in overcoming economic pressures, risks, and shocks.

On the sidelines of the conference, Hemmati met with at least nine ministers, the head of a central bank, regional development bank leaders, and IMF officials, IRIB reported.

He highlighted two key takeaways from these discussions:

First, despite years of economic pressure, Iran has demonstrated resilience, a point that was acknowledged by its counterparts as a case study worth examining.

Second, regional economic collaboration is seen as incomplete without Iran, as the country serves as a bridge connecting the Persian Gulf to Central Asia.

Hemmati noted that Iran’s strategy under the president’s directives is to prioritize economic cooperation with regional and neighboring countries amid external pressures.

He stressed that the meetings confirmed this approach is feasible, with multiple ministers affirming their willingness to enhance economic ties with Iran.

In discussions with Saudi officials and other counterparts, Hemmati emphasized that sustainable political relations require robust economic cooperation.

He indicated that preliminary talks for expanding economic ties had taken place and that tangible outcomes would emerge in the future.