Aurelia Butler

Pakistan rushed through a recent slew of policy adjustments, including a revised budget sought by the IMF and an off-cycle hike in interest rates, hoping to secure the pending funds under the Extended Fund Facility programme (EFF) signed in 2019.With time running out, Finance Minister Ishaq Dar said on Tuesday the two sides were working on a “mechanism” to ensure that Pakistan got the entire amount and not just the close to $1.1 billion due under the current review.Dar did not elaborate on what the mechanism was. The ninth review is in order after recent adjustments but Pakistan is keen to receive the entire undisbursed amount, which is only possible in a new programme, the Express Tribune daily said, quoting highly-placed sources.It said Prime Minister Shehbaz Sharif discussed signing a new stand-by arrangement (SBA) worth $2.6 billion for a short term of six months with IMF Managing Director Kristalina Georgieva.The IMF’s resident representative Esther Perez and Dar did not respond to a Reuters request for comment. Pakistan’s Dawn newspaper also said an SBA was one option discussed to access pending funds after expiry of the EFF.The south Asian nation is in dire need of external financing and has allocated $2.5 billion in IMF support in its annual budget, which will also be key to unlock other avenues of funding.On Tuesday, Prime Minister Shehbaz Sharif said he expected an agreement in a day or two, with the lender saying it was holding talks with the aim of “quickly reaching an agreement on financial support from the IMF”. It did not say if the financing was part of the EFF or a new SBA.Pakistan’s international bonds rallied sharply for a third straight session amid rising hopes of IMF funding. The gains were most pronounced in shorter-dated issues, with the 2024 bond up more than 3 cents in the dollar to trade just above 60 cents – its highest level since early February and up more than 10 cents since the start of the week, Tradeweb data showed.Longer-dated maturities gained about 1.5 cent. More

ROME (Reuters) -Italian Prime Minister Giorgia Meloni on Wednesday criticised the European Central Bank over repeated interest rate hikes, saying it was following a “simplistic” policy approach that could do more harm than good.The ECB raised euro zone interest rates to their highest level in 22 years this month and said a ninth consecutive rate hike was all but guaranteed in July as it predicted inflation would stay above its 2% target through the end of 2025.”It’s right to decisively fight inflation but to many people the simplistic recipe of rate hikes followed by the ECB doesn’t seem to be the right path,” Meloni told parliament.Rising rates make it more costly for Italy to service the euro zone’s second largest debt pile, and Rome fears they will trigger another recession for what has been the bloc’s most chronically sluggish economy since the launch of the euro. Meloni is the latest and most senior of a series of Italian government members who have taken aim at the ECB since it began its monetary tightening cycle.Environment and Energy Minister Gilberto Pichetto Fratin said in an interview with La Stampa daily on Wednesday that “excessive” ECB rate hikes may prove to be a “boomerang.”On Tuesday Foreign Minister Anonio Tajani said the ECB’s repeated hikes were “not in the interest of growth”.Meloni, speaking to the Chamber of Deputies ahead of an EU summit in Brussels, said inflation was not being caused by an overheating European economy but by external factors such as the war in Ukraine which had fuelled rising energy costs.”We must consider the risk that the constant increases in interest rates hurt our economies more than inflation, that the medicine ends up doing more harm than the illness,” she said.ECB President Christine Lagarde said on Tuesday that euro zone inflation had entered a new phase that could linger for some time. Conversations with seven rate-setters at the ECB’s annual forum in Portugal this week showed most expected it to increase borrowing costs again at both its July and September meetings despite signs the euro zone economy is flagging.Italy’s ECB representatives – board member Fabio Panetta and Rome’s central bank chief Ignazio Visco – have been among the most dovish voices on the bank’s rate-setting governing council.Visco steps down at the end of October, and the government on Tuesday proposed Panetta to replace him, leaving a vacant spot on the ECB’s six-person board.As the bloc’s third largest economy Italy has always had a board seat. Even though this is not an automatic right, Tajani told reporters on Wednesday he was “optimistic” it would retain a representative when Panetta leaves. More

Good morning. Today, our trade correspondent assesses the EU’s recent lacklustre achievements in clinching trade deals, while I hear how Estonia is seeking to solve Europe’s debate on spending frozen Russian assets by just doing it themselves.Trade-offNegotiations on a trade deal with Australia should be finalised within weeks, the EU’s trade commissioner said yesterday at a press conference to reannounce an agreement concluded a year ago with New Zealand.But as Valdis Dombrovskis hailed the pact with a “like-minded partner”, a slate of other trade talks remain stuck, writes Andy Bounds. Context: The EU’s big problem is signing deals with unlike-minded partners, ie developing countries. It recently clinched one with Kenya only by leaving out investment, services and agreeing less ambitious labour and sustainability commitments than those with New Zealand. A 2018 deal with Mexico remains unsigned, while talks with the Mercosur bloc are souring over EU demands for Brazil, Argentina, Uruguay and Paraguay (its members) to sign binding commitments to protect the rainforest after concluding a deal. Yesterday’s rubber-stamping ceremony seemed organised to give Sweden something to announce after a six-month-long presidency of pushing freer trade with frustratingly little result.Johan Forssell, the Swedish trade minister, said the EU was in a better place than six months ago. “I think we have succeeded in what we said we were going to do to give this important theme a big push forward,” he said.Dombrovskis said the “end game” with Australia was close, with a possible deal by mid-July. He added an upcoming EU summit with Latin America and the Caribbean was an “important milestone for the EU agreement with Mercosur”. Brazilian president Luiz Inácio Lula da Silva, whose election last year had EU officials hopeful for a fresh start in the trade negotiations, has however said he considers an EU request to attach additional climate and sustainability commitments to the deal a “threat”. EU officials say that behind closed doors, the Brazilian rhetoric is more muted. But even if Mercosur is signed, the EU faces a struggle to get member states’ approval. The Austrian and Dutch parliaments have passed resolutions against the deal, while France is sceptical. The fear of cheap beef imports is as big a factor as their love of the Amazon. When the FT asked free-trade champion Forssell what he had learned from herding the EU towards a more open market, he laughed and skirted around the question.Chart du jour: Between a rock and a hard border

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The British territory of Gibraltar with its 34,000-strong population heavily relies on Spanish workers. But the probable victory of the conservative People’s party (PP) in Spain’s upcoming election could undermine negotiations for a post-Brexit deal on the territory’s status, writes Barney Jopson. Test caseAs EU governments, the European Commission, and the European Central Bank squabble over the legalities of spending frozen Russian assets, Estonia has decided it’s done waiting for a decision. They’re just going to crack on and do it themselves.Context: In response to Russia’s war against Ukraine, EU member states have frozen more than €224bn in Russian assets as a result of sanctions. Many countries want to find a way to use that to help rebuild Ukraine. Others say there are too many legal barriers and financial risks to do so.Estonia’s government is set to propose legislation this autumn to use the assets to compensate for specific damage caused by Russia, in effect charging sanctioned individuals for the crimes of their state.“We have decided all together that Russia should pay . . . Now, the question is about the legal solution,” said Estonia’s foreign minister Margus Tsahkna. “We have to move forward as the European Union . . . What Estonia is offering nationally is this process. And this is an example for everybody else.”Estonia’s thinking is simple: Tired of hearing that various legal approaches won’t work, they want to show that under their national law, it is possible, and that afterwards the world keeps turning.A court will review each claim, and those whose assets are requisitioned will have the opportunity to seek redress.The two caveats are that Tallinn is only targeting frozen assets belonging to sanctioned Russian individuals and entities, which in Estonia only add up to around €50mn. That’s a far cry from the main debate on Russian central bank assets frozen in the EU. They are worth more than €200bn according to the EU Commission, and their use could have much more far-reaching implications for global markets. “Most of the things we have done together in the EU, they first were said to be a bad idea,” said Tsahkna. “In Estonia we have bad weather, but we have great optimism.”What to watch today EU Commission presents proposal on digital euro.Estonian prime minister Kaja Kallas and Finnish premier Petteri Orpo meet EU chiefs in Brussels.French president Emmanuel Macron hosts Nato secretary-general Jens Stoltenberg in Paris.Now read theseCompetitive disadvantage: High-end manufacturers in the UK increasingly feel the headwinds of trading with their EU clients after Brexit.Keeping control: Wagner has been a key tool of Russian power in African countries. What will happen after its thwarted mutiny?Power play: Janan Ganesh argues against the “Tech Bro view of geopolitics”, and why the case for democracy remains strong. More

The writer is managing director at Crossborder Capital and author of ‘Capital Wars: The Rise of Global Liquidity’Rising world stock markets appear to confirm that global liquidity — the pool of cash and credit shifting around financial markets — is once again expanding after skidding lower last year. So much then for central bank quantitative tightening, the much-mooted unwinding of the massive stimulus programmes to support markets and economies.Our estimates show that the liquidity cycle bottomed during October 2022, in the wake of former UK prime minister Liz Truss’s “mini” Budget debacle, and looks set to trend higher over the next few years. Investors should therefore expect a continuing tail wind from global liquidity instead of last year’s severe headwinds. This should prove good for stocks, but less positive for bond investors.Britain’s gilt sell-off last autumn gives us a foretaste of future challenges for sovereign debt markets and points to some coming hard decisions for both policymakers and investors. The integrity of banks and sovereign bond markets are sacrosanct in modern finance. Led by the US Federal Reserve, central banks have just injected substantial cash into money markets over recent months helping to bailout flaky banks. But in coming years they will probably have to bailout debt-burdened governments, too.In short, markets need ever more central bank liquidity for financial stability and governments will need it even more for fiscal stability. In a world of excessive debt, large central bank balance sheets are a necessity. So, forget QT, quantitative easing is coming back. The pool of global liquidity — which we estimate to be about $170bn — is not going to shrink significantly any time soon.The promised fall in the size of the US Fed’s balance sheet has been far from convincing. Falls in direct bond buying have been offset by other Fed liquidity-creating programmes such as short-term lending to commercial banks. A rundown of the Treasury General Account, the government’s cheque account at the Fed, and small withdrawals of deposits at the central bank have also contributed.On top of this, the US Treasury is debating buybacks to improve bond market liquidity, targeting sales of bills to money market funds and is likely to reduce the average duration of Treasuries available for private investors to boost demand. All will help to boost global liquidity. Expect more of these unconventional policy twists in the future.The past two roller-coaster decades have shown how financial markets need liquidity to rollover the vast debts built up by corporations, households and governments. We estimate that a whopping seven in every eight dollars changing hands in world financial markets are now used to refinance existing debts. An increasing share of the one dollar leftover for “new” financing is applied to fund swelling government deficits.

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Looking ahead, the advanced economies face renewed pressures on public finances as military requirements and demographics boost mandatory spending, while the tax base is compromised by larger numbers of retiring high-wage workers. On top, international tax competition probably rules out substantially higher marginal rates.Consider US fiscal math. The US government will need to sell an average of $2tn of Treasuries each year over the next decade. And according to latest Congressional Budget Office forecasts the Fed will be required to chip in. The CBO estimates that Fed holdings of US Treasuries will have to rise to $7.5tn by 2033 from current levels of nearly $5tn. No QT here, but worse, these CBO spending projections are likely too low — especially for defence outlays. More realistic numbers point to required Fed Treasury holdings of at least $10tn. That translates pro rata into a doubling of its current $8.5tn balance sheet size and will mean several years of double-digit growth in Fed liquidity.Looking around, there are not many alternatives to this Fed QE. Mandatory spending is effectively already set in stone and tax bases have been squeezed dry. Foreigners hold about one-third of US debt, with China still a major investor, but growing geopolitical tensions will probably reduce their appetite.How about domestic US households and pension funds? The trouble here is that higher interest rates may be required to entice them into bonds especially when the threat of monetary inflation looms large. Yet higher interest rates boost the fiscal deficit, requiring still greater amounts of debt, thereby compounding the problem. As they joke in Ireland, if you want to travel to Dublin, don’t start from here. More

A recent rash of “big pharma” investments in Ireland by the likes of Pfizer, AstraZeneca and Eli Lilly is worrying Dave Seaward, co-founder of 3P Innovation, which makes automated machines used in the production of vaccines and other medicines.Seaward said business had boomed before the UK left the EU single market but since 2016 the company had battled Brexit headwinds including engineers returning home to the EU and border bureaucracy that has complicated 3P’s pan-European supply chains.With clients in Ireland saying privately that their global parent companies are keen to remove UK risk from their businesses, Seaward fears for the long-term future of British industries like his that are reliant on integrated supply chains that criss-cross the EU.“If big pharma retreats to places like southern Ireland it puts my business at a competitive disadvantage to one inside the EU,” he said. “Big corporations are risk-averse and now, after Brexit, they see the UK as risky.”According to an in-depth analysis by trade economists released this month, high-end UK manufacturing that feeds into EU supply chains is going to find itself being increasingly squeezed by the challenges of post-Brexit trade. Nearly 50 per cent of UK manufacturing exports to the EU are so-called “intermediate” in nature, feeding components into EU supply chains that are then often exported onwards to the rest of the world as finished products.

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The report by the Resolution Foundation said that UK global exports in the first three months of 2023 were still 17 per cent below the levels before the EU-UK trade deal came into force three years ago, and warned that the UK’s more advanced manufacturers would be supplanted by lower-productivity domestic manufacturing in the longer term. It cited the UK auto industry’s recent struggles to attract investment to build the battery factories needed for the electric car revolution as a harbinger of the future challenges facing other high-value sectors, including machinery, chemicals and computer equipment manufacturing. “Although these [EU-UK] supply chains will take time to disentangle, they will shrink the UK’s high productivity manufacturing — from chemicals to spacecraft — as they do,” the report warned.With manufacturing accounting for nearly 50 per cent of UK exports, the report added that the structural shift would further contribute to the longstanding productivity crisis that has weighed on the UK economy since 2008. “Policymakers need to face the choice over whether or not to stay part of EU supply chains, to support high productivity manufacturers, and they need to accept that doing so means addressing the EU border,” the report said.Trevor Mathers, the managing director of Alfa Chemicals, a medium-sized chemicals importer and distributor in Bracknell, Berkshire, said the air of instability around the UK’s regulatory and industrial policies also threatened future investments.The chaos of the shortlived Liz Truss government in 2022, rising corporate tax rates and the uncertainty around UK regulation, which no longer tracks EU rules in sectors such as cars, chemicals and medical devices, have also weighed on investors.“Nothing will disappear overnight, but chemical plants are 20-40 year investments and talking to people we work with in Europe, they see economic and political instability in the UK compared with the EU,” Mathers said.A survey of US businesses this month by BritishAmerican Business, a transatlantic trade association, saw confidence in the UK slipping for the third consecutive year, with two-thirds of US businesses putting improving EU-UK trade relations among their top three priorities.Make UK, the industry lobby, last month called for a Royal Commission to build an industrial policy for the UK, warning of further pressures from the $396bn US green subsidy programme and EU regulatory policies, including the introduction of a carbon border tax.Stephen Phipson, the chief executive of Make UK, said that while there was now a “bit of realism” from Rishi Sunak’s government on the limited benefits of Brexit divergence, there was still a need to develop a coherent strategy for the sector, which includes myriad smaller companies that support big manufacturers in autos, pharma, chemicals and aerospace.“What we have seen so far, is a large reduction in the variety of products in trade with the EU and concentration on larger, higher tech companies. The question we must ask is, ‘would Airbus make all their wings in the UK, if they were making that decision now’?” he added.Adam Vicary: ‘My worry is that over the next few years the UK’s energy policy erodes our competitiveness and suddenly EU companies are asking “why should we go with the UK” ’Adam Vicary, the chief executive of Castings, a Midlands-based foundry business that makes components for the heavy truck industry, with EU clients including Volvo, Scania and DAF, said he was concerned over the UK’s future position vis-à-vis Europe.Vicary said that Castings has not lost its pre-existing contracts with EU customers but rising UK energy costs compared with those in the EU, coupled with additional Brexit bureaucracy, risked undermining his company’s ability to win contracts for future models. “My worry is that over the next few years the UK’s energy policy erodes our competitiveness and suddenly EU companies are asking ‘why should we go with the UK, when it’s no longer cheaper and we’ve got all this Brexit rubbish to deal with’?” he said.

The Department of Business and Trade said the government had provided support, including an Export Support Service, to help UK manufacturers trade globally.“The government has pursued a clear strategy for UK manufacturing with a variety of support schemes that ensure sectors from auto, to aerospace, to low-carbon technologies have access to the funding, talent and infrastructure they need,” it added. 

Video: The Brexit effect: how leaving the EU hit the UK

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(Reuters) – A prolonged heat wave kept its grip on the U.S. South on Tuesday as dangerously high temperatures rising well above 100 degrees Fahrenheit (38 Celsius) and oppressive humidity were on tap across a wide swath of the region through the holiday weekend.Meanwhile, in Chicago, children, the elderly and people with respiratory diseases were being cautioned to stay indoors for a wholly different reason: polluted air. Some 62 million Americans in central Arizona, across Texas and the Deep South and into Florida’s panhandle were under excessive heat watches, warnings and advisories that were expected to last until the Fourth of July, the National Weather Service said. “There may be more danger than a typical heat event due to the longevity of elevated record high nighttime lows and elevated heat index readings during the day,” the NWS said in an advisory. “It is essential to have a way to cool down and interrupt your heat exposure.”Heat index temperatures were forecast to reach 110 degrees in Dallas, 111 degrees in New Orleans and 107 in Mobile, Alabama, on Tuesday, the service said, urging people across the region to stay out of the sun and drink plenty of fluids.”This is a health threat,” New Orleans Mayor LaToya Cantrell said during a news conference on Tuesday, noting that the city had opened cooling centers. “This is unprecedented. We are living in unprecedented times. We are going to do everything necessary to meet the needs of the most vulnerable.”The stationary high pressure system across the South that is trapping the heat and humidity, known as a heat dome, has been lingering for the last few weeks, causing the sweltering weather. The heat wave claimed the life of a 14-year-old boy who was hiking in the Big Bend National Park in Texas on Friday when the temperature reached 119 degrees. His stepfather was killed in a car crash when he went to get help, the park said in a statement.In several upper Midwestern cities, air-quality alerts were in effect as a cloud of hazy smoke from wildfires in Canada hovered above the region. Chicago, the third-largest city in the United States, had the worst air quality of any large city in the world due to the smoke, according to IQAir, a website that tracks pollution. The growing frequency and intensity of severe weather across the United States is symptomatic of human-driven climate change, scientists say.As of midday on Tuesday, no widespread power outages were reported in the South. However, some 110,000 homes and businesses remained without electricity in Arkansas, Tennessee and Oklahoma after strong storms over the weekend took down power lines, according to poweroutage.us. More