Aurelia Butler

Well-targeted increases in government spending by OECD countries of the order of 0.5% of GDP could reduce the war’s economic impact by around half without significantly adding to inflation, the Organisation for Economic Cooperation and Development said.With Europe strongly dependent on Russian energy imports, the negative impact of the war to the euro zone economy could be as much as 1.4% while in the United States it would be about 0.9%, the OECD estimated in an analysis of the economic fallout of the war.Although Russia and Ukraine make up only 2% global GDP, they have an outsized impact on the energy and commodities markets as major producers of raw materials used in everything from catalytic converters for cars to fertilisers.As energy and commodity price spikes put new pressure on already surging inflation, the OECD said that central banks should focus on normalising monetary policy although a slower pace would be warranted in countries where the economic fallout from the war is worst.It added that central banks should be prepared to intervene as necessary to keep financial markets functioning if major stress emerges.In the face of surging energy and food costs, many governments have made handouts to consumers and businesses, with some also introducing price controls or cutting fees and taxes.The OECD said governments should be careful to ensure that such measures are temporary and targeted, and suggested some could consider funding the extra spending by taxing windfall gains. More

LONDON/NEW YORK (Reuters) – Russia has set out strict rules for foreigners seeking permits to buy and sell Russian securities and real estate, a client memo by Citigroup (NYSE:C) showed, as details emerge of new state controls on investment in response to Western sanctions.Russia temporarily stopped foreigners dumping Russian assets this month, saying it wanted to ensure decisions were considered and not driven by political pressure, as sanctions have intensified after Moscow’s invasion of Ukraine.Funds with tens of billions of dollars in exposure to Russia have been awaiting details on new restrictions they will face as they seek to offload assets.The invasion, which Moscow calls a “special military operation”, triggered an exodus of international firms and has largely cut off Russia’s economy from the rest of the world.The Russian authorities published Decree 81 this month that stipulates that any transaction between Russians and foreign counterparties requires permission from Russia’s Government Commission for Control of Foreign Investment.Effectively this meant foreign investors, who had acquired Russian stocks and bonds without restrictions, were left stuck with those holdings while the economy lurches from an enticing oil-rich investment destination to a financial pariah.Russia has now laid out details of the application process for foreigners seeking to trade assets and which will restrict trading to those granted permits, the Citigroup memo says.The process requires foreign investors wanting to buy and sell Russian assets to provide detailed information up front in order to obtain a permit to trade.”Russian authorities have announced the order for obtaining permits to carry out operations determined by Decree 81. An authorised body empowered to take decisions on the issuance of permits has been established,” the memo says.It says an application and related documents must be submitted to the Russian finance ministry, in the Russian language, containing “information on the purpose, subject, content and essential conditions of the transaction.”Applicants must also disclose full information on beneficiaries and beneficial owners, the memo says.”It’s a mechanism of control,” said one banking source about the rules. “This is just a mechanism to control which entities can transact foreign currencies and it won’t be companies from hostile countries that are exiting the country.”Citigroup declined to comment beyond confirming the authenticity of the memo. More

BEIJING (Reuters) – China opposes a U.S. crackdown on its telecom companies, the commerce ministry said on Thursday, after a U.S. regulator stripped Pacific Networks and its ComNet unit of authorisation to provide U.S. telecoms services.Ministry spokesman Gao Feng told a news conference that China would take the measures necessary to safeguard the legitimate rights of its firms after the Federal Communications Commission voted on Wednesday to revoke the authorisation. More

Sri Lanka has begun talks with the IMF over a debt relief package after protests over a deepening economic crisis forced Gotabaya Rajapaksa’s government into a policy U-turn.The president told the country on Wednesday night that he was “attempting to immediately resolve this crisis and provide relief to the people”.“Subsequent to my discussions with the International Monetary Fund, I have decided to work with them,” Rajapaksa said, according to a transcript of his comments by Sri Lanka’s Daily FT newspaper. “Through those discussions, we hope to find a way to pay off our annual loan instalments, sovereign bonds and so on.”Sri Lanka has for months faced mounting economic pain as its depleted foreign currency reserves triggered shortages of imports and fuel, power blackouts and double-digit inflation.Thousands of protesters and opposition parties gathered in Colombo this week calling on Rajapaksa’s government to resign over its handling of the economy.The government has until now insisted that Sri Lanka would be able to navigate the crisis without IMF assistance. But its strategy, which involved securing bilateral aid from countries such as India and a post-pandemic revival in tourism, was dismissed by many investors and analysts as unrealistic.The island nation had debt and interest repayments worth about $7bn due this year, its finance minister Basil Rajapaksa told the Financial Times in January. But analysts estimate that usable foreign currency reserves have fallen as low as $500mn.Among its more immediate challenges is a $1bn bond due in July, which many investors are sceptical Colombo will be able to repay without restructuring.Sri Lanka is Asia’s largest high-yield bond issuer, borrowing heavily in the years following the end of its 2009 civil war. It has never defaulted.About one-third of its debts are owed to international bondholders while other large creditors include countries such as China and India. It is expected to finalise a $1bn credit line this week with New Delhi.

However, after Rajapaksa came to power in 2019, his government introduced large tax cuts that eroded Sri Lanka’s revenue base. Combined with the blow to tourism from the Covid-19 pandemic, it prompted a series of rating downgrades into junk territory, leaving Sri Lanka locked out of international debt markets and unable to refinance.Analysts said that any programme with the IMF would probably involve restructuring its debts to bring them to sustainable levels.In a consultation document with Sri Lanka released this month, the IMF warned that challenges included “public debt that has risen to unsustainable levels, low international reserves and persistently large financing needs in the coming years”.If it restructures, Sri Lanka will join countries such as Suriname, Belize, Zambia and Ecuador that have defaulted on their debts during the pandemic. More