Aurelia Butler

(Reuters) – The International Monetary Fund (IMF) on Thursday expressed dissatisfaction with Pakistan’s recently presented budget, a blow for the cash-strapped country which has only two weeks left until its bailout programme expires.Pakistan has barely enough currency reserves to cover one month’s imports. It had hoped to have $1.1 billion of the funds released in November – but the IMF has insisted on a number of conditions before it makes any more disbursements.With time for only one last IMF board review before the end of the $6.5 billion Extended Fund Facility (EFF), Pakistan was expected to present a budget in line with programme objectives, restore the proper functioning of the FX market, and close the $6 billion gap ahead of the board review. “Staff remains engaged to discuss policies to maintain stability. However, the draft FY24 Budget misses an opportunity to broaden the tax base in a more progressive way,” Esther Perez Ruiz, the IMF’s resident representative for Pakistan, said in a text message to Reuters.She added that the long list of new tax expenditures further reduces the fairness of the tax system and undercuts the resources needed for vulnerable recipients in the Benazir Income Support Programme.”The new tax amnesty runs against program’s conditionality and governance agenda and creates a damaging precedent,” added Perez Ruiz. She said that measures to address the energy sector’s liquidity pressures could be included alongside the broader budget strategy.Added Perez Ruiz: “The IMF team stands ready to work with the government in refining this Budget ahead of its passage,” implying the country still has a chance to unlock its ninth IMF board review prior to the end of the EFF programme.A Pakistan government spokesman did not immediately respond to a request for comment. More

FRANKFURT (Reuters) – The European Central Bank is all but certain to raise borrowing costs to their highest level in 22 years on Thursday and leave the door open to more hikes, extending its fight against high inflation even as the euro zone economy flags. Growth across the 20 countries that share the euro is at best stagnating and inflation has been moderating for months, courtesy of lower energy prices and the steepest increase in interest rates in the ECB’s 25-year history. Furthermore, the U.S. Federal Reserve broke a string of 10 successive rate hikes late on Wednesday, a powerful signal for investors around the world that the current tightening cycle across developed economies is nearing an end, even if more U.S. rate hikes are still likely. But inflation in the euro zone is still unacceptably high for the ECB at 6.1% – more than three times its 2% target – and underlying price growth, which typically excludes food and energy, is only starting to slow.That is likely to keep the ECB on the tightening path, particularly after it failed to predict the current bout of high inflation and began raising rates later than many global peers last year. “They simply cannot afford to mess it up once again,” said Carsten Brzeski, the global head of macro at Dutch bank ING. The ECB is predicted to increase the deposit rate – the interest rate banks pay to park cash securely at the central bank – for the eighth consecutive time, by 25 basis points to 3.5%, its highest level since 2001. Economists polled by Reuters expect another move of the same magnitude in July before the ECB pauses for the rest of 2023. ECB President Christine Lagarde is nevertheless expected to keep a further hike in September in play during her press conference on Thursday, and to push back against traders’ bets that the central bank will cut rates next year. “We expect the ECB to leave the possibility of a terminal rate above 3.75% on the table and to encourage the market to price out some of the 2024 rate cuts,” economists at Deutsche Bank (ETR:DBKGn) wrote in a note. MIXED PICTUREThe ECB will update its economic forecasts, which are likely to put inflation closer to, but still above, 2% next year before it reaches the target in 2025.While this would normally augur a pause in policy tightening, the ECB has been taking its own projections with a pinch of salt after years in which they missed the mark.Instead, euro zone rate-setters have focused on actual economic data that has been painting a mixed picture.Two quarters of contraction in industrial powerhouse Germany dragged the euro zone into a shallow recession last winter and the economy is likely to eke out only modest growth this year.But unemployment is at record lows and wage growth is picking up, even if it still lags inflation.Headline price growth has been falling fast after hitting double-digits late last year. But underlying prices, most notably for services, have yet to show the decisive drop ECB policymakers have said they would need to see before taking their foot off the monetary brake.Higher borrowing costs are curbing demand for credit from households and companies as well as banks’ willingness to lend, but consumption is holding up well in nominal terms. These opposing factors were likely to provide ammunition to both sides of the ECB’s Governing Council – the hawkish majority that has been pushing for more rate hikes and a minority of doves who have been advocating a pause.As a result, economists expect the ECB to send out a more balanced message about the outlook than at recent meetings, when it stressed the need to raise rates further to cool demand.”The ECB will probably emphasise even more strongly than before that its future policy path is data-dependent amid heightened uncertainty,” economists at Berenberg wrote in a note to clients. More

OTTAWA (Reuters) -Canada is freezing ties with the China-led Asian Infrastructure Investment Bank (AIIB) while it probes allegations it is dominated by the Chinese Communist Party, Finance Minister Chrystia Freeland said on Wednesday.Freeland said she did not rule out any outcome of the investigation, a clear hint that Ottawa could pull out of a bank it officially joined in March 2018.The bank’s global communications director, a Canadian, said on Wednesday he had resigned and criticized the bank as “dominated by the Communist Party”, allegations which the AIIB said were baseless and disappointing.”The Government of Canada will immediately halt all government led activity at the bank. And I have instructed the Department of Finance to lead an immediate review of the allegations raised and of Canada’s involvement in the AIIB,” Freeland told reporters.She said as the world’s democracies worked to limit their strategic vulnerabilities to authoritarian regimes, they must be clear about the ways such governments exercised their influence.”The review I am announcing today is to be undertaken expeditiously. And I am not ruling out any outcome following its completion,” she said.The Chinese embassy in Ottawa, asked for comment, said in an email that “the claim that ‘AIIB is controlled by the Communist Party of China’ is nothing but a lie”.Liberal Prime Minister Justin Trudeau was in power when Canada joined the AIIB. The opposition Conservatives have long demanded Ottawa pull out of the bank, saying it is a tool for Beijing to export authoritarianism throughout the Pacific.Freeland’s remarks mark a new dip in bilateral relations with China, which have been frosty for the last five years.The Royal Canadian Mounted Police said on Tuesday it was investigating allegations China tried to intimidate a federal Conservative legislator. Canada has accused China of trying to interfere in its affairs through various schemes, including illegal police stations and the targeting of lawmakers. Beijing denies all such allegations. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.A raft of economic data and a likely medium-term policy easing from China will give Asian markets direction on Thursday, but the main steer will probably come from investors’ reaction to the Federal Reserve’s ‘hawkish skip’ on interest rates.The Fed paused its policy tightening cycle on Wednesday for the first time but signaled in new economic projections that rates will likely rise by another half of a percentage point by the end of this year as it continues to try to get inflation down.Short-dated Treasury yields jumped, the U.S. yield curve inversion deepened, and the dollar fell. But Wall Street put up a better fight – although the Dow had its worst day in two weeks, the Nasdaq rebounded and closed up for a fifth day at a new 14-month high, and the S&P 500 basically ended flat.Will Asian markets show similar resilience, or will the prospect of another 50 bps of Fed tightening this year – plus the lagged impact of the previous 500 bps – weigh on investors and prompt a profit-taking reversal? Japanese stocks could be the most vulnerable to a correction. The benchmark Nikkei on Wednesday rallied another 1.4% to a fresh 33-year peak above 33,500 points, its 20th rise in the last 25 trading sessions. Markets have the latest trade and machinery orders data from Japan to digest on Thursday. Trade activity in May is expected to have slumped – economists are forecasting a 10% year-on-year slump in imports and a 0.8% fall in exports.China’s central bank, meanwhile, is expected to cut the borrowing cost of medium-term policy loans for the first time in 10 months on Thursday, after it lowered two key short-term policy rates earlier this week.An outlier among its global peers, the People’s Bank of China is battling disinflation – perhaps even deflation soon – and an under-performing economy that has significantly soured investors’ outlook on the country’s financial assets.Further easing may help shore up confidence in the economy, but will widen the yield gap with overseas assets, put the yuan under further pressure, and risk even greater capital outflows – the Institute of International Finance said on Wednesday net inbound foreign direct investment to China in 2023 will be the lowest in 18 years.Beijing also releases a batch of top-tier economic indicators for May on Thursday – urban investment, industrial production, house prices, retail sales and unemployment – which are broadly expected to reflect a weak growth environment. The annual rate of growth in investment is seen slowing to 4.4% from 4.7%, industrial production to 3.6% from 5.6%, and retail sales to 13.6% from 18.4%. Here are key developments that could provide more direction to markets on Thursday:- China investment, industrial production, house prices, retail sales, unemployment (May)- China medium-term lending facility loan rate – Australia unemployment (May) (By Jamie McGeever) More

Good morning. Today’s top story is about a controversy at the Asian Infrastructure Investment Bank. But first I’d like to introduce myself, as I just began writing this newsletter two weeks ago, and encourage you to let me know what stories you’d like to see in your FirstFT newsletter. Send your thoughts to [email protected]. I’d love to hear from you!A Canadian communications chief of the multilateral lender that is China’s answer to the World Bank has resigned, alleging that the institution is run by Communist party members who “operate like an internal secret police.”Bob Pickard, the Canadian director-general for communications of the Beijing-headquartered multilateral lender, said he flew to Tokyo on Wednesday because he feared for his safety after raising concerns about what he claimed was the party’s infiltration of the lender.The accusations underline the tensions in multilateral institutions trying to bridge the growing divide between China and the west. “These people are like an invisible government inside the bank and this is what I can’t be part of,” Pickard told the Financial Times from Tokyo. “I don’t want to be a useful idiot.”The AIIB said in a statement that Pickard’s “recent public comments and characterisation of the Bank are baseless and disappointing”.Here’s what else I’m keeping tabs on today:Monetary policy: China is expected to cut the headline interest rate for the first time in almost a year, and economists are convinced the European Central Bank will raise interest rates today by another quarter percentage point. Meetings: Nato defence ministers begin a two-day meeting in Brussels, and US national security adviser Jake Sullivan visits Tokyo, where he will meet counterparts from Japan, the Philippines and South Korea. Sam Bankman-Fried: Lawyers for the former FTX chief executive, who faces multiple charges including wire fraud, will present oral arguments in New York. Five more top stories1. India’s government has denied reports of a leak of highly sensitive personal data that experts say could be one of the country’s worst digital security breaches. The alleged breach originated from the government’s Co-Win online vaccination platform via a “bot” on the Telegram messaging app. 2. The US Federal Reserve paused interest rate hikes following 10 consecutive increases but signalled its intention to implement further rises this year. The Fed kept the benchmark rate at the existing target range of between 5 per cent and 5.25 per cent, marking the first reprieve since the US central bank embarked on an aggressive monetary tightening programme last year.3. Vladimir Putin has backed a plan to bring Russia’s irregular forces fighting in Ukraine under the authority of the defence ministry, appearing to side with the military in its long-running dispute with the Wagner paramilitary group. Read more on the drive to put Yevgeny Prigozhin’s militia under central control.4. Exclusive: The EU is funding Huawei to run cutting-edge research on technology ranging from artificial intelligence and cloud computing to 6G, the FT has discovered. The funding comes despite the EU pressing for stricter curbs on the company over security fears.5. China has offered to mediate between rival Palestinian factions and facilitate peace talks with Israel, in the latest move by Beijing to boost its diplomatic role in the Middle East.Visual story

Aviation companies around the world are closing in on the dream: a battery-powered aircraft that takes off and lands like a helicopter, cruises like a plane and is blessed by regulators for commercial use. Yet the journey to build, certify and fly such an aircraft remains expensive, uncertain and competitive. Which flying taxi will take off first? We’re also reading and listening to . . . Open-source AI: Experts are waking up to the threat posed by AI tools if they fall into malevolent hands, writes Gillian Tett.Edward Luce: A victory in next year’s presidential election would be Trump’s get-out-of-jail-free card — and America’s funeral. FT’s new Unhedged podcast 🎧: In the debut episode, the FT’s Ethan Wu and Katie Martin try to figure out the confusing US economy and the possibility of a recession. Free to listen.Want more from Unhedged? FT premium subscribers can click here to get the weekday newsletter. Not a premium subscriber? Try Unhedged for free for 90 days.Chart of the day

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Chinese policymakers acted earlier this week to boost financial sector liquidity. But many economists believe even stronger action will be needed to reinvigorate the world’s second-biggest economy. Our analysis reveals months of disappointing data.Take a break from the newsWith their capacity for flight, birds are truly global creatures. And as three new books show, the contemplation of these animals offers a simple way to engage with the world beyond ourselves, and can also produce what you might think of as a broader planetary consciousness, writes Olivia Judson in this engaging essay.Additional contributions by Tee Zhuo and Gordon Smith More