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ASEAN finance leaders end meetings in Laos, pointing to challenges from geopolitics, volatile prices

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4 weeks ago

April 5, 2024

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ASEAN finance leaders end meetings in Laos, pointing to challenges from geopolitics, volatile prices

Southeast Asian economies are gaining ground as tourism and exports recover from the shocks of the pandemic, but geopolitical tensions and volatile commodity prices still pose serious risks, regional financial leaders said Friday.

Laos’ Finance Minister Santiphab Phomvihane read out a joint statement following meetings among finance ministers at a hotel in the Laotian city of Luang Prabang, a UNESCO heritage site, but he made no other remarks and took no questions.

Estimates for economic growth in members of the 10-nation Association of Southeast Asian Nations vary but are generally near a robust 5% for 2024.

“Nevertheless, there are still challenges due to adverse financial spillovers from geopolitical tensions, volatility in global commodity prices,” Phomvihane said, also pointing to climate change, aging populations and rapid development of digitalization as key factors for the region.

He did not elaborate, but the repercussions of the war in Ukraine and tensions between Washington and Beijing are among the geopolitical risks that have impacted trade and global commodity prices in recent years, trickling down to the smaller ASEAN economies that depend heavily on trade with China.

ASEAN members also include Brunei, Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. East-Timor is seeking to join.

As ASEAN’s most economically challenged economy, excluding its strife-torn neighbor Myanmar, Laos has time to prepare for the aging of its youthful population of about 7.5 million. The government reckons it is in a demographic sweet spot with a couple of decades to prepare. But it faces a raft of other troubles, with massive foreign debt, a weakening currency and inflation running at about 25%.

In terms of U.S. dollars Laos’ economy is shrinking due to the devaluation of its currency, the kip. However, in local currency terms it grew at a 3.7% rate last year and is forecast to expand at a 4% rate in 2024.

“Things are normalizing,” said Winfried F. Wicklein, director general for Southeast Asia for the Asian Development Bank.

But the country is deemed to be in debt distress, with payment obligations exceeding $1 billion a year and total borrowing amounting to about 125% of its economy, with half owed to China.

Chinese financial institutions are believed to have rescheduled payments for about $2 billion in those debts since 2020, helping Laos to avoid an outright default and relieving some pressure on the economy.

“Pretty big chunks of debt repayments owed to China are being pushed into the future with not much transparency around the repayment process for this,” said Keith Barney, a professor at Australia National University’s Crawford School of Public Policy and who has been researching Laos for more than 20 years.

“It’s a bit of a serious situation the Lao economy is in at the moment and not any immediately apparent exit route that we can easily see,” he said. “Laos’ debt problems are narrowing its future options for economic growth in different ways.”

Still, Laos has acknowledged the seriousness of its debt quandary, allowing the public release of a report by the International Monetary Fund last year that minced no words in outlining urgent actions it said were needed to repair the country’s finances, Wicklein noted.

“They realize they have a problem and are open to help. They are inviting you to the kitchen and it means a lot,” he said.

On the sidelines of the ASEAN meetings this week, Laos signed agreements on launching cross-border payments using QR codes, among other incremental steps aimed at integrating its finances and economy into those of its bigger and richer neighbors.

There were no big statements on climate-related issues as the officials met surrounded by forests obscured by thick smoke from hill fires and burning of fields and waste, a seasonal problem that Laos shares with its ASEAN neighbors.

But such meetings allow top financial officials to collaborate in sharing lessons they have learned as they plot strategies on curbing carbon emissions.

“It’s a long way to go, but everybody is committed to the same direction,” Wicklein said.

Wicklein pointed to a 600 megawatt monsoon wind power project that will allow Laos to export electricity to neighboring Vietnam as an example of increasing investments in the energy sector beyond Laos’ huge hydroelectric power sector.

“These megadeals have a demonstrable effect,” he said.

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Business

A sigh of relief as inflation at lowest ebb of 17.3pc in two years

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2 hours ago

May 2, 2024

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A sigh of relief as inflation at lowest ebb of 17.3pc in two years

Pakistan’s consumer price inflation has come down to 17.3 per cent in April, the lowest during the preceding two years, data from the Pakistan Bureau of Statistics (PBS) says.

Pakistan has been beset by inflation above 20pc since May 2022, registering as high as 38pc in May 2023, as it has gone through reforms as part of an International Monetary Fund (IMF) bailout programme.

Month-on-month inflation is down 0.4pc, showing negative growth for the first time since June 2023.

The Finance Ministry in its monthly economic report said it expected inflation to hover between 18.5pc and 19.5pc in April and ease further in May to 17.5pc-18.5pc.

“The inflation trajectory is slowing primarily on account of food inflation which has slowed down considerably,” said Faizan Kamran, chief executive of a Karachi-based investment and research company.

Kamran added that he expected inflation to fall into single digits in the next five to six months.

The State Bank of Pakistan (SBP) maintained its key interest rate unchanged at 22pc for the seventh straight policy meeting on Monday, hours before the donor agency executive board approved $1.1 billion in funding under a $3 billion standby arrangement signed last year.

Pakistan receives last tranche from IMF

The State Bank of Pakistan (SBP) received SDR 828 million (around $1.1 billion) from the International Monetary Fund (IMF) on Tuesday – a day after the Fund approved the last tranche for Pakistan under the $3 billion Stand-By Arrangement (SBA).

In a statement, the SBP said the amount would reflect in the foreign exchange reserves for the week ending on May 3.

Last week, the SBP said its foreign exchange reserves dropped by $74 million to $7.981 billion (in the week ending on April 19) because of external debt repayments.

IMF greenlights $1.1bn tranche

On Monday, the IMF approved disbursement of $1.1 billion tranche, concluding the second bailout package in eight years. The board met in Washington and completed the second review. It is learnt that all board members, except India, favoured the last installment for Pakistan.

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Business

Czech central bank cuts a key interest rate again with inflation down and the economy on the mend

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2 hours ago

May 2, 2024

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Czech central bank cuts a key interest rate again with inflation down and the economy on the mend

The Czech Republic’s central bank on Thursday cut its key interest rate for the fourth straight time as inflation dropped and the economy showed signs of recovery.

The cut by a half-percentage point brought the interest rate down to 5.25%. The move was expected by analysts.

The bank started to trim borrowing costs by a quarter-point on Dec. 21, which marked the first cut since June 22, 2022. It continued with a cut by a half-percentage point on Feb. 8 and went on by another half-percentage cut on March 20.

Inflation declined to 10.7% in 2023 from 15.1% in 2022, according to the Czech Statistics Office, and dropped to 2.0% year-on-year in February, which equals the bank’s target, and remained unchanged at the same level in March.

The Czech economy was up by 0.4% year-on-year in the first quarter of 2024, and increased by 0.5% compared with the last three months of the previous year, the preliminary figures released by Statistics Office indicated on Tuesday.

That came after the Czech economy contracted by 0.2% in the last three months of 2023 compared with a year earlier.

The Czech bank’s decision comes as central banks around the world, including the U.S. Federal Reserve, are trying to judge whether toxic inflation has been tamed to the point that they can start cutting rates.

The European Central Bank left its key rate benchmarks unchanged at a record high of 4% in April, but signaled it could cut interest rates at its next meeting in June.

But the U.S. Federal Reserve emphasized earlier this week that inflation has remained stubbornly high in recent months and said it doesn’t plan to cut interest rates until it has “greater confidence” that price increases are slowing sustainably to its 2% target.

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Business

Neelum Jhelum Power Plant shutdown for physical inspection of head race tunnel

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2 hours ago

May 2, 2024

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Neelum Jhelum Power Plant shutdown for physical inspection of head race tunnel

The Neelum Jhelum Hydropower Plant was shut shutdown yesterday for a physical inspection of its head race tunnel to locate the problem which led to a decrease in pressure a month ago.

Once the problem is traced, a comprehensive plan will be chalked out in coordination with the project consultants and the international experts for undertaking remedial works to rectify the issue, said a press release.

According to the details, a sudden change in the head race tunnel pressure was observed on April 2, 2024. As per the advice of the Project Consultants for the safety of the head race tunnel, the project management kept operating the plant at a restricted generation of 530 MW since April 6 to monitor fluctuation in the head race tunnel pressure.

Neelum Jhelum Hydropower Plant continued generating about 530 MW of electricity till April 29 without any issue. However, at 2257 hours on April 29, further change in the head race tunnel pressure was observed. Subsequently, the generation was gradually reduced but the pressure could not sustain within the safe limits as per the advice of the Project Consultants.

Keeping in view the safety of the head race tunnel and the powerhouse, the plant was shut down at 0600 hours on May 1 for a physical inspection of the head race tunnel to identify the problem of reduced pressure. Consequent to the detailed discussion with the consultants for dewatering of the 48 Km-long tunnel, the intake gates at the dam site were lowered for flushing of the de-sanders.

The dewatering started from the powerhouse side on the same day. The dewatering will be executed at intervals for the safety of the tunnel.

It is important to note that Neelum Jhelum Hydropower Project has been constructed in a weak geological and seismic-prone area. It has a 51.5 Km-long tunnel system. Its head race tunnel is 48 Km long, while the tail race tunnel is 3.5 Km-long. About 90% of the project is underground. Earlier, the plant was shut down in 2022 for repair of the tail race tunnel downstream of the powerhouse. After completion of the repair and rehabilitation work, the plant resumed electricity generation in August 2023.

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