Aurelia Butler

KARACHI, Pakistan (Reuters) – Pakistani Prime Minister Shehbaz Sharif said on Tuesday he hoped a bailout decision from the International Monetary Fund would come in a day or two, capping off protracted negotiations as the country faces an acute balance-of-payments crisis.Islamabad is racing against time to unlock $1.1 billion under the lender’s ninth review of a $6.5-billion Extended Fund Facility agreed in 2019. The programme expires on June 30.Here are some facts about the importance of unlocking the funds for the cash-strapped South Asian country of 230 million people and the challenges it has faced:DELAYED TRANCHE-Pakistan has cleared eight of the 11 listed programme reviews, with the ninth review pending since November last year. The delay is already the longest since at least 2008.-The ninth review is to release a tranche of $1.1 billion, leaving about $1.4 billion on the table in unlocked funds. It is unclear if an IMF agreement would release the entire amount.-The ninth review had been stalled due to differences between the fund and Islamabad over policy actions, including external financing needs and a budget that meets programme goals.HOLE IN FINANCES-The government has earmarked $2.5 billion in external receipts from the IMF in its federal budget for FY24, which means the government is budgeting for the 10th and 11th reviews too, or a new IMF programme after the current one expires.-Pakistan needs upwards of $22 billion to service external debt, make interest payments, and finance its current account for FY24. Reserves, at $3.5 billion, are at a critical level, enough to cover barely one month of controlled imports.-Pakistan’s credit rating has suffered due to macroeconomic uncertainty: Three key rating agencies recently cut Pakistan’s ratings – Standard & Poor’s rating for Pakistan stands at CCC+, Moody’s (NYSE:MCO) at Caa3 and Fitch at CCC-.SECONDARY BENEFITS-A successful review would not only release much-needed funds, but also unlock credit from other financiers who are looking for a clean bill of health from the IMF for the ailing $350 billion economy. This includes raising money from the private market.-The country has received financing commitments from friendly countries Saudi Arabia and the United Arab Emirates of $3 billion, while China has granted rollovers on its debt payments due.-National elections are due by November this year and the government has said the decision to enter a new IMF programme will be a decision for the incoming administration.TOUGH CONDITIONS-The initial draft of the budget presented in parliament earlier this month failed to meet IMF expectations but was hurriedly revised to introduce new taxes and expenditure cuts.-The country’s central bank also hiked the key rate by 100 basis points in an emergency meeting on Monday barely two weeks after keeping the rate unchanged in a scheduled meeting.-Hopes of a last-minute bailout rose following meetings between Sharif and IMF Managing Director Kristalina Georgieva in Paris this month, followed by marathon meetings between IMF staff and finance ministry officials. More

BEIJING (Reuters) – As news broke on Saturday that mercenary Wagner troops were careering towards Moscow in a short-lived rebellion, several businessmen from southern China began frantically calling factories to halt shipments of goods destined for Russia.While the mutiny – the biggest test of Russian President Vladimir Putin’s leadership since his February 2022 invasion of Ukraine – quickly faded, some of these exporters are now left questioning their future dependence on Beijing’s closest ally.”We thought there was going to be a big problem,” Shen Muhui, the head of the trade body for the firms in China’s southern Fujian province said, recalling the scramble among its members exporting auto parts, machinery and garments to Russia.Though the crisis has eased, “some people remain on the sidelines, as they’re not sure what will happen later,” he added, declining to name the companies pausing shipments.China has sought to play down the weekend’s events and voiced support for Moscow, with which it struck a “no limits” partnership shortly before Russia invaded Ukraine in what Moscow calls a “special military operation”.But a top U.S. official on Monday said the weekend uprising had unsettled Beijing’s cloistered leadership, and some analysts inside and outside China have started to question whether Beijing needs to ease off its political and economic ties to Moscow. “It has put a fly in the ointment of that ‘no-limits’ relationship,” said Singapore-based security analyst Alexander Neill.China’s foreign ministry, which described the aborted mutiny as Russia’s “internal affairs” and expressed support for Moscow’s efforts to stabilise the situation, did not immediately respond to a Reuters request for comment. CALLS FOR CAUTIONYevgeny Prigozhin, head of the Wagner private army that has fought some of Russia’s bloodiest battles in the Ukraine war, led the armed revolt after he alleged a huge number of his fighters had been killed in friendly fire.But the mercenary leader abruptly called the uprising off on Saturday evening as his fighters approached Moscow while facing virtually no resistance during a dash of nearly 800 km (500 miles).China did not comment as the crisis unfolded, but released a statement on Sunday when Foreign Minister Qin Gang hosted a surprise meeting with Russia’s deputy foreign minister in Beijing.At the heart of China and Russia’s relations is a shared opposition to what they see as a world dominated by the United States and the expansion of the NATO military alliance that threatens their security.After securing an unprecedented third term as president earlier this year, Chinese President Xi Jinping made his first overseas trip to Moscow to meet his “dear friend” Putin.While nationalistic commentators in state-run Chinese tabloids cheered Putin’s swift efforts to stamp out the rebellion, even some in China – where critical speech is tightly controlled – have started to question Beijing’s bet on Russia.China “will be more cautious with its words and actions about Russia”, said Shanghai-based international relations expert Shen Dingli. Some Chinese scholars have gone even further. Yang Jun, a professor at Beijing’s China University of Political Science and Law, wrote a commentary published on Saturday that called for China to directly support Ukraine to avoid being “dragged into a quagmire of war by Russia”.”With the development of the current situation and the trend of the war…(China) should further adjust its position on Russia and Ukraine, make its attitude clearer, and decisively stand on the side of the victors of history,” he wrote in Chinese-language Singaporean newspaper Lianhe Zaobao.It was unclear if Yang’s article was written before the Wagner rebellion and he did not respond to requests for an interview from Reuters.Other China-based academics, however, said Beijing would not change its stance on Russia as a result of the incident.INVESTOR UNCERTAINTYChina is Russia’s top trading partner, with Beijing exporting everything from automobiles to smartphones and receiving cheap Russian crude oil that faces sanctions in much of the rest of the world. But even in the energy sector, which fuelled a 40% jump in trade between Russia and China in the first five months of this year, there are some signs of caution in China.Top company executives at Chinese state energy companies have routinely said it was too early to comment or sidestepped questions on new investments in Russia.”Should Russia lose the war or see changes in the domestic leadership, it will create huge uncertainties for Chinese investors,” said Michal Meidan, head of China energy research at The Oxford Institute for Energy Studies.He said the Chinese government also seemed to be exercising caution, pointing out that Beijing had not yet signed a deal for a major new gas pipeline connecting the countries despite a push from Moscow. While China is vital to Russia’s economy, China’s trade with the likes of the United States, the European Union and Japan – among the fiercest critics of Moscow’s war in Ukraine – dwarfs its dealings with Russia.”Beijing now has more reasons to have more reservations and to become more transactional in its dealings with Putin’s Russia,” said Wen-Ti Sung, a political scientist at the Australian National University.”There’s no point making long-term investment in someone who may not credibly survive into the long-term.” More

BRASILIA (Reuters) -Brazil’s central bank on Tuesday signaled that a majority of its policymakers see a possibility of initiating a “parsimonious” rate cut at its next meeting in August, provided that a more benign inflation scenario is consolidated, while a minority adopts a more cautious stance.The minutes of the June 20-21 meeting, where the rate-setting committee known as Copom kept the benchmark rate at 13.75% for the seventh consecutive time, revealed a divergence of opinions regarding the signaling of future steps.”The prevailing assessment was that the continuation of the ongoing disinflationary process, with its consequent impact on expectations, may allow the necessary confidence to be built up to start a parsimonious process of inflection at the next meeting,” the central bank said. In response to the minutes, short-term interest rate futures opened lower and the yield curve indicated an unequivocal rate cut in August, with a 95% probability of a reduction of 25 basis points.Meanwhile, Brazil’s currency firmed slightly against the U.S. dollar.William Jackson, chief emerging markets economist at Capital Economics, said it is now “hard to argue against the start of an easing cycle in August,” also citing support from annual inflation to mid-June at 3.4%, released on Tuesday, to change his previous expectation of a reduction in September.Although it adopted a more moderate tone by excluding the possibility of rate hikes from its policy statement, the central bank refrained from signaling when monetary easing could kick off, pointing instead to a data-dependent stance. The communication drew criticism from President Luiz Inacio Lula da Silva, ministers and some market participants who expected a notable shift in the bank’s tone due to lower-than-expected inflation, a stronger currency and easing inflation expectations.In addition, future interest rates fell as Congress advanced the government’s new fiscal rules, seen as crucial to curb uncontrolled public debt after Lula’s increased social spending to fulfill campaign promises.In the minutes, the bank pointed out that some members still support the need to observe a further decrease in long-term inflation expectations and more evidence of disinflation in the more cyclically sensitive components. The central bank stressed that inflation expectations declined slightly but remain de-anchored from official targets, partially due to the questioning about a possible change in future inflation targets, adding that “decisions that re-anchor expectations can lead to faster disinflation.”The National Monetary Council, consisting of the finance minister, planning minister and central bank governor, will convene on Thursday to confirm the 3% inflation targets for 2024 and 2025 as well as set the official target for 2026. Lula’s earlier push for higher inflation targets to ease monetary policy has lost momentum, with Finance Minister Fernando Haddad recently emphasizing the government’s inclination to adjust the timeline for achieving the goals, favoring a continuous approach over the current calendar year-based target. More

TOKYO (Reuters) – The Bank of Japan (BOJ) is likely to move steadily towards phasing out its massive stimulus and may tweak yield curve control as early as October, said former central bank policymaker Makoto Sakurai.While the central bank is likely to revise up this fiscal year’s growth and inflation forecasts at the next rate review in July, it is seen keeping monetary settings unchanged as it awaits more clues on whether wages keep rising, Sakurai said.”Japan’s economy is in quite good shape with capital expenditure strong. But the BOJ probably wants to look at the outcome of summer bonus payments. Uncertainty over the overseas economic outlook is also a good reason to wait,” he said.”The key timing will come around October or December. If the economy is holding up, the BOJ could act” such as by widening the allowance band around its yield target, Sakurai told Reuters in an interview on Tuesday.Under yield curve control (YCC), the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around 0%. It also sets a band at which it allows the 10-year yield to move up and down 50 basis point each around the 0% target.Markets are simmering with speculation BOJ Governor Kazuo Ueda will phase out his predecessor’s massive stimulus including YCC, which has drawn criticism for distorting market pricing and narrowing financial institutions’ margins.The ultra-low interest rate policy has made the BOJ an outlier among a global wave of central banks tightening policy, and triggered an unwelcome yen fall that boosts import costs.Sakurai, who as board member was involved in the adoption of YCC in 2016, sees signs suggesting that Ueda will move slowly but steadily towards an exit.For one, the BOJ’s decision in April to remove a pledge to keep interest rates at “current or lower levels” was a first step towards normalising policy, he said.”The BOJ is gradually moving towards a revision to its ultra-loose policy,” said Sakurai, who retains close contact with incumbent policymakers.The BOJ’s eventual goal will likely be to remove the yield cap and shift to a policy guiding short-term interest rates as the sole policy target, he said.But the BOJ must tread carefully because any abrupt rise in bond yields could inflict huge losses on financial institutions’ bond holdings, and boost the cost of financing Japan’s huge public debt, Sakurai said.”The BOJ probably wants to start raising rates. But the pace will be very slow,” he said.Japan’s core consumer inflation hit 3.2% in May, exceeding the BOJ’s 2% target for 14 straight months and casting doubt on its view the recent cost-driven inflation will prove temporary.Ueda has stressed the need to keep loose policy until inflation is sustainably around 2% and accompanied by wage hikes.But a BOJ policymaker called for an early revision to its controversial yield curve control, a summary of opinions at the June meeting showed on Monday, suggesting the central bank’s ultra-loose monetary settings may be at a crossroads. More

The initiative is part of an anti-inflation package worth 8.9 billion euros ($9.7 billion) in which other measures already in place – such as public transport subsidies and value-added tax cuts to basic foods – will be extended until Dec. 31. Those measures had been set to expire on June 30. “The aim is to consolidate the investments underway in our country for the modernisation of the auto industry” and place Spain at the forefront of Europe’s rollout of EVs, Calvino told a news conference. She added the maximum income tax deduction would be 20,000 euros ($21,900).Calvino said that total state support – including tax cuts, subsidies and grants – since Russia’s invasion of Ukraine in February 2022 amounted to 47 billion euros.”The macroeconomic situation is favourable and Spain is coping much better than the rest of Europe with the complex international scenario, but the war and the consequent rise in interest rates continues to have its effects … which is why (the package) will allow us to move calmly and confidently through the second half of the year in a context of uncertainty but with the hope that this war will end as soon as possible,” Calvino said.Prime Minister Pedro Sanchez had hinted at the new measure in an interview late on Monday with radio station Cadena SER and said the policy had already been included in an addendum submitted to the European Commission.Sanchez has called a snap general election on July 23. It is unclear whether a potential new government led by the conservative People’s Party would keep or repeal many of the economic policies implemented by Sanchez’s Socialist-led coalition.($1 = 0.9139 euros) More

In Latin America’s largest economy, 12-month inflation reached 3.40% in mid-June, data from statistics agency IBGE showed on Tuesday, slightly above market expectations of 3.36% but still the lowest since September 2020.The latest figure, showing a deceleration from 4.07% in May, comes as the local central bank said that a majority of its monetary policy committee sees a rate cut in August as possible if the ongoing disinflation process continues.The stance followed the bank’s decision to keep its benchmark interest rate at a six-year high of 13.75% for a seventh consecutive meeting last week, a move that upset government officials who see it as hindering economic growth.President Luiz Inacio Lula da Silva, who on Tuesday renewed his criticism of central bank Governor Roberto Campos Neto, said it was “irrational” for the institution to hold rates at that level while 12-month inflation runs at around 4%.Brazil’s IPCA-15 consumer price index, IBGE data showed, rose 0.04% in the month to mid-June, down from 0.51% in the previous month. The index had been expected to fall 0.01%, according to the median forecast in a Reuters poll.The monthly data was driven by a drop in food and transportation costs in the month, the agency said, which ended up offset by a jump in housing prices and personal expenses. More