IMF gives mixed scorecard for SL

“Despite early signs of stabilisation, full economic recovery is not yet assured,” Breuer told journalists yesterday.

• Acknowledges Sri Lanka’s economic progress amidst challenges
• Says sustaining reform momentum critical to put economy on path towards lasting recovery
• Expresses concern over significant disparity between Govt. spending and tax collection
• Predicts revenue mobilisation gains will fall short of initial projections by 15% by year end
• Govt. is tasked to raise revenue equivalent to 12% of GDP by end-2024 
• Commends steady progress in implementing structural reforms
• Says no fixed timeline for second tranche of $ 2.9 b facility
• Notes banks will suffer from restructuring, despite financial stability maintained
• Opines people are experiencing consequences of past policies, significant tax cuts in 2019

By Charumini de Silva, Daily FT Thursday, 28 September 2023

 IMF Mission Chief Peter Breuer gestures 

during the media briefing held at the 

Central Bank yesterday 

– Pic by Pradeep Pathirana 

The International Monetary Fund (IMF) yesterday said Sri Lanka is showing ‘tentative signs of stabilisation’ but insisted concerted efforts are still required to steer the country towards a complete economic recovery.

This observation follows the conclusion of a visit by an IMF staff mission team led by Peter Breuer and Katsiaryna Svirydzenka to Colombo from 14 to 27 September to discuss economic and financial policies to support the approval of the first review of the program under the $ 2.9 billion Extended Fund Facility (EFF).

“Despite early signs of stabilisation, full economic recovery is not yet assured,” Breuer told journalists yesterday.

Noting that the people of Sri Lanka have shown remarkable resilience in the face of enormous challenges, he said the country made commendable progress in implementing difficult, but much-needed reforms.

“Growth momentum remains subdued, with real GDP in the second quarter contracting by 3.1% on a year-on-year (YoY) basis and high-frequency economic indicators continuing to provide mixed signals. Reserve accumulation has slowed in recent months. Sustaining the reform momentum is critical to put the economy on a path towards lasting recovery and stable and inclusive economic growth,” he added.

Breuer pointed out that the significant gap between Government expenditures and revenue collection remains a concern, adding that reforms in tax policies and administration are vital to bridge it.

Stating that the Government has met the program’s primary balance targets and remains committed to this important pillar of the program to support their efforts to restore debt sustainability, he said that revenue mobilisation gains are expected to fall short of initial projections by nearly 15% by year-end, in part due to economic factors.

“Tax collection is a concern. It is an important pillar of the program to sustain the essential expenditures of Government services like education, health, infrastructure and support for the poor and vulnerable with an appropriate amount of revenue. However, in Sri Lanka, there is a big gap between State revenue and expenditure. The expenditures are 19% of GDP and the revenue is 9% of GDP and that gap needs to be filled. To accomplish that objective, it is important to have the appropriate tax policies and tax administration systems in place that support this effort.

He explained the need to address missing tax revenues requires reforms to increase taxation, recognising the impact on the population’s financial burden.

“This extends beyond taxes, encompassing utility prices and inflation, which have significantly raised costs for citizens. The country is grappling with the consequences of past policies and shocks, particularly the massive tax cut in 2019 compounded by subsequent economic challenges. This culminated in a crisis last summer, necessitating the public to share in the financial responsibilities.

He emphasised that to increase revenues and signal better governance, it is important to strengthen tax administration, remove tax exemptions, and actively eliminate tax evasion.

“The objective for the Government in 2024 is to raise revenue, equivalent to 12% of GDP. So there is some way to go to get there. We are looking to the benefits of the tax reforms that were introduced last year to bear full fruit and to be supplemented with appropriate conditionals,” Breuer said.

He commended the Government’s steady progress in implementing structural reforms, including the enactment of crucial legislations like the Central Bank Act and the Anti-Corruption Act, noting that if implemented effectively, it could significantly enhance governance.

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• Commends steady progress in implementing structural reforms
• Says no fixed timeline for second tranche of $ 2.9 b facility

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It was also noted that the upcoming IMF Governance Diagnostic report is expected to further guide future reform strategies aimed at strengthening governance.

In the context of the IMF’s assessment process for the second tranche, Breuer said there is ‘no fixed timeline’.

“Two crucial conditions must be met: firstly, an agreement on policies and reforms to progress in line with program objectives, especially in light of identified shortfalls this year. Efforts are underway to address and compensate for this shortfall. Secondly, addressing the debt situation and reaching agreements with creditors is essential for sustainability. Once both conditions are satisfied, an administrative process follows, including the preparation of a performance assessment report. This report undergoes various stages before being reviewed by the Executive Board, which ultimately makes the final decision and publishes the findings for public access,” he explained.

Regarding debt sustainability, he acknowledged ongoing efforts to regain control through domestic debt restructuring and discussions with external creditors.

On the debt situation, he said the key lies in a process called ‘financing assurances’, relevant to both official and commercial creditors. “In Sri Lanka’s case, the debt is spread around quite a bit, externally and domestically. What we look for is to be able to move forward in this debt restructuring case is adequate progress in the negotiations with the creditors. That would give us confidence that this process will be concluded promptly with program objectives and deadlines,” Breuer said.

“From the IMF perspective, what matters to us is that debt targets are achieved. Remember, these are the targets concerning the debt stock on the floor. The gross financing needs the debt service on the external side and also the debt relief that is needed within the program period. The Government has chosen a particular way and the banks are not in there. While we care about the target, we also care, to some extent, how we get it to maintain financial and social stability because otherwise the problem could just become worse and then these targets do not apply anymore,” he added.

He said the financial stability is maintained, but the banks will nevertheless suffer from the restructuring through the exposure to the Government through domestic foreign exchange instruments, as well as external foreign exchange instruments.

The IMF’s mission reaffirmed its commitment to providing support during these challenging times, highlighting the dynamic nature of programs that may require adjustments to meet their objectives.

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Explainer: Why US-led Saudi-Israel normalization talks are doomed to fail?

 

PRESS TV Wednesday, 27 September 2023 By Reza Javadi

On Tuesday, two events took place simultaneously that highlighted Saudi Arabia’s misplaced foreign policy priorities, especially vis-a-vis Palestine and Israeli settler colonialism.

In the occupied West Bank city of Ramallah, Saudi Arabia's newly appointed envoy to Palestine Nayef al-Sudairi presented his credentials to Palestinian Authority President Mahmoud Abbas.

Palestinian foreign ministry had earlier welcomed the appointment of the Saudi ambassador, describing it as “a historic milestone for developing fraternal relations between the two sister countries.”

Israeli Foreign Minister Eli Cohen told Tel Aviv’s 103 FM radio station Sunday that the Saudi ambassador’s appointment comes amid “the advancement of talks between the US and the Saudis regarding Israel.”

On the same day, the Israeli tourism minister landed in Riyadh, in what was described as the first visit by a senior Israeli regime official to the Arab kingdom, to attend a World Tourism Organization event.

"I will work to create collaborations to promote tourism and Israel's foreign relations," Katz said in a statement as cited by various media outlets.

The two events, according to observers, lay bare the duplicity of some Arab states in keeping the channels of diplomacy open with the Israeli regime while claiming support for the Palestinian cause.

The farce of normalization

Speculation has been rife that the US is trying to mediate the normalization of ties between the Saudi government and Israel, even though previous normalization agreements under the Abraham Accords brokered by Washington have so far proved to be an exercise in futility.

Saudi Arabia reportedly has put specific conditions for recognizing Israel. In an interview with Fox News last week, Saudi Crown Prince Mohammad Bin Salman cited the Palestinian issue and asserted that it is very important and needs to be resolved.

However, he didn’t rule out normalization with the Tel Aviv regime, dismissing reports that the ongoing talks have been suspended. He said the two sides are coming closer every day.

Israeli Prime Minister Benjamin Netanyahu has also prioritized normalization with Saudi Arabia, but it remains uncertain how his right-wing coalition will respond to any Saudi demands.

Netanyahu told Bloomberg TV on August 7 that the Palestinian issue is “a lot less than you think” on the agenda of negotiating normalization with the Saudis and affirmed that his regime categorically rejects the idea of a viable Palestinian state.   

Addressing the UN General Assembly on Saturday, Saudi Foreign Minister Prince Faisal bin Farhan warned that regional security in West Asia hinges on a “just, comprehensive solution to the Palestinian issue” and appeared to criticize Israel for “unilateral measures that are a flagrant violation of international law”

“Security in the Middle East region requires the acceleration of… a just, comprehensive solution to the Palestinian issue; the solution must be based on resolutions in the international arena and must bring about a peace that allows [the] Palestinian people to have an independent state based on the 1967 borders with East Jerusalem as its capital,” he said.

In his speech to the UNGA, Palestinian Authority President Mahmoud Abbas warned against sidelining the Palestinian people's legitimate national rights in any potential normalization agreement.

“Those who think that peace can prevail in the Middle East without the Palestinian people enjoying their full legitimate national rights would be mistaken,” Abbas told the summit of world leaders.

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Netanyahu told Bloomberg TV on August 7 that the Palestinian issue is “a lot less than you think” on the agenda of negotiating normalization with the Saudis and affirmed that his regime categorically rejects the idea of a viable Palestinian state.   

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Normalization and conditions

Saudi Arabia's conditions for a potential normalization pact with the Israeli regime go beyond Palestine.

Riyadh is seeking several concessions from the US, including support for its nuclear program, expansion of trade (including a free trade agreement), and various commitments related to defense.  These defense commitments encompass security guarantees, access to advanced military equipment, and more efficient procurement processes.

Meanwhile, members of the US Congress are hesitant to grant significant concessions to Riyadh, adding complexity to the negotiations. In exchange for meeting Saudi conditions, the US seeks Riyadh's commitment to cease sensitive transactions with Beijing and align more closely with US interests.

The Saudis appear unwilling to downgrade their relations with China, as China has already made substantial investments in Saudi Arabia's economic infrastructure, including in telecommunications, the sale of advanced weaponry, and cooperation on drone and ballistic missile production.

Furthermore, China's Belt and Road Initiative (BRI), a Chinese-led infrastructure project connecting Asia to Europe, has bolstered its presence in Saudi Arabia, with the kingdom being a pivotal component of this project among the Persian Gulf states.

In his July 2022 Middle East tour, US President Joe Biden affirmed that the US “will not walk away and leave a vacuum to be filled by China, Russia or Iran” but this visit did not accomplish its objectives, neither in energy nor in strategy, beyond opening Saudi airspace to Israel.

Despite US efforts to counter China's influence in the region, China has strengthened its ties with Saudi Arabia through a series of agreements. During Chinese President Xi Jinping’s visit to Riyadh last year, China finalized over 40 deals with Saudi Arabia covering the climate, technology, and energy sectors.

These agreements are poised to enhance economic and investment cooperation between the two countries, aligning with Saudi Arabia's Vision 2030 and the Belt and Road Initiative.

Saudi Minister of Investment Khalid Al-Falih stated that the accords will “contribute to raising the pace of economic and investment cooperation between the two countries.”

In a recent interview with Xinhua, Saudi Minister of Industry and Mineral Resources Bandar Alkhorayef highlighted the high complementarity between the two countries in the fields of economy and trade.

“The deep synergy between the Belt and Road Initiative and Saudi Arabia's Vision 2030 will bring advanced science, technology and ideas to the country, and boost its economic and social development,” Alkhorayef said.

“China is not only an important partner of our kingdom in the economic field but also in many other areas,” he added.

Betrayal of Palestinians

Amid reports of progress in normalization talks between Tel Aviv and Riyadh, Israeli atrocities continue in the occupied Palestinian territories, which have been quietly condemned by Riyadh.

Saudi Arabia issued a statement on Monday condemning incidents involving Jews praying on the Temple Mount, home to the al-Aqsa Mosque, the third holiest site in Islam.

“The Ministry of Foreign Affairs expresses the Kingdom of Saudi Arabia’s condemnation of the repeated provocative practices carried out by a group of extremists at al-Aqsa Mosque under the protection of the Israeli occupation forces,” the statement noted.

At the same time, they continue normalization talks with the Netanyahu regime, which have significantly increased in recent months, as confirmed by the highest officials on both sides.

Experts believe Saudi Arabia’s normalization with the apartheid regime in Tel Aviv, if it materializes, will represent another betrayal of the Palestinian cause and the Muslim world at large.

Iran’s President Ebrahim Raeisi, addressing a press conference on the sidelines of the UN General Assembly summit in New York last week, warned that any normalization deal between Saudis and Israelis would amount to a “betrayal” of the Palestinian cause.

“The initiation of a relationship between the Zionist regime and any country in the region, if it is with the aim to bring security for the Zionist regime, will certainly not do so,” the Iranian president asserted.

“We believe that a relationship between regional countries and the Zionist regime is a stab in the back of the Palestinian people and of the resistance of the Palestinians.”

Palestinians have also expressed concern and rage over the possible deal between Saudi Arabia and the Israeli regime, slamming it as a betrayal.

Failed normalizations

Before Saudi Arabia, the UAE and Bahrain formalized ties with the Tel Aviv regime in 2020 in what became known as the Abraham Accords. Sudan and Morocco also followed them. 

The normalization between the UAE and Israel is considered a failed exercise by regional experts, as the agreement has not yielded any results for the two sides.

More importantly, the accord has failed to bring any stability to the region and has had nothing more than entrenching Israeli settler colonialism.

When the UAE agreed to normalize relations with Israel in 2020 through the Abraham Accords, it faced criticism for betraying the Palestinian cause. 

The UAE defended its decision, claiming it served Palestinian interests by preventing Israel's annexation of the West Bank and preserving the two-state solution.

However, recent statements from Abu Dhabi's Ambassador in Washington, Yousef Al-Otaiba, suggest that the situation on the ground is different.

Al-Otaiba noted that Israel's actions in the West Bank are effectively annexing the territory, complicating the prospects for a two-state solution.

“It’s challenging because it’s ongoing. It’s happening subtly, which complicates the path to a two-state solution even further” Al-Otaiba said, adding that “our agreement had a specific timeframe, which is nearly over. Thus, we cannot influence decisions made beyond that period.”

Given the increasing Israeli violence against Palestinians under the current far-right regime, the UAE has condemned Israel's violations of basic Palestinian rights.

Three years into their relationship, the UAE faces significant challenges in dealing with Israel's most extreme right-wing regime ever, including the likes of Bezalel Smotrich, Itamar Ben-Gvir, and others.

A recent survey conducted by Arab Barometer, a research group affiliated with Princeton University, revealed that the majority of citizens across the Middle East/West Asia region oppose the normalization of relations between Arab states and Israel.

The extensive survey, conducted between October 2021 and July 2022, involved 26,000 participants from 11 populous MENA countries.

Participants were asked the question: “To what extent do you favor or oppose the normalization of relations between Arab states and Israel?”

In nine out of the 11 countries surveyed, fewer than one in five participants expressed support for normalization agreements with Israel, which shows how unpopular the move is.

Experts believe Saudi Arabia’s normalization, if it happens, will not only not serve the interests of any party but prove counter-productive for Riyadh and the region.

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China stresses need for WTO reform, high-level opening-up

 

SOURCE / ECONOMY

By GT staff reporters Published: Sep 27, 2023 

Nation’s 'dual circulation' policy doesn’t mean isolation: experts

China's top leadership has stressed efforts to actively participate in the reform of the World Trade Organization (WTO) and improve the ability to handle high-level opening-up. 

Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, made the remarks while presiding over a group study session of the Political Bureau of the CPC Central Committee on Wednesday, Xinhua News Agency reported.

He urged efforts to fully participate in WTO reform and adjustments of international economic and trade rules, while promoting deep-level reform and high-quality development with high-level opening-up.

Historical changes have taken place in the relationship between China and the WTO, he said, noting that the country has gradually grown from a passive recipient of and an active adapter to international economic and trade rules, to an important participant in this field.

The facts have proven that China's decision to join the WTO was a perfectly right one, as the accession has not only accelerated China's own development but also benefited the rest of the world, Xi said.

He stressed the need to stick to the overall trend of economic globalization, champion free trade and true multilateralism, oppose unilateralism and protectionism, oppose politicizing, weaponizing and overstretching the concept of national security on economic and trade issues, and build an open world economy.

Experts have highlighted China's proactive engagement in WTO reform, its commitment to opening-up and contribution to multilateralism and free trade.

Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies, told the Global Times on Wednesday that China's entry into the WTO has led to a boost in global trade, thanks to China's advantages in population, resources, and sophisticated industry system. 

Dong also highlighted that China's role as a world factory has helped balance global merchandise prices and ease global inflation.

Li Yong, a senior research fellow at the China Association of International Trade, told the Global Times on Wednesday that China's commitment to continuing high-quality opening-up will contribute to China's "standard-bearer" role for free trade and investment and globalization, which is facing headwinds under the complex global geopolitical situation.

As the world's largest trading nation, the second largest economy and the world's largest consumer market, China's further opening-up stands to benefit partner countries, Li said.

Since its accession to the WTO more than 20 years ago, China has become the world's largest trader for goods and a major trading partner for over 140 countries and regions, contributing an average of nearly 30 percent to the world's annual economic growth.

Experts also argued that China's development, centered on "domestic circulation," does not equate to a policy of isolationism or abandoning the international market, as hyped by some Western media.

"Dual circulation," the new development paradigm that China adopted in 2020, takes the domestic market as the mainstay while allowing domestic and foreign markets to reinforce each other.

Dong said that large economies like China, the US, and India should focus on domestic economic circulation, which is the basis for generating spillover effects to the outside world and driving global economic growth.

"China's 'dual circulation' strategy aligns with the regular trend of large economies and stigmatization against China from some Western media exposes their misunderstanding and ignorance," Dong said.

The "dual circulation" strategy will make China more proactive in its openness, effectively enhancing its resilience against risks, and is also a response to the Western "decoupling" from China, expert said.

In fact, China has been continuously exploring higher levels of openness, and the construction of pilot free trade zones (FTZs) serve as a proactive exploration.

Xi has recently delivered instructions on advancing the development of FTZs, Xinhua reported.

He called for being a pioneer to forge ahead and overcome difficulties, explore a wider field and at a deeper level, and strive to build higher-level pilot FTZs.

He said that it is essential to align domestic rules with international economic and trade rules by high standards, further promote institutional opening-up, strengthen overall planning and systematic integration of reform, and promote innovative development of the entire industrial chain.

Since the establishment of the first pilot FTZ in Shanghai in 2013, China has so far established 21 FTZs and the Hainan Free Trade Port.

In the past 10 years, 278 institutional innovations have been formulated in FTZs and then replicated nationwide, covering investment facilitation, trade liberalization, financial opening-up, among other fields, Xinhua reported.

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Who’s Gaining Ground in Ukraine? This Year, No One.

Less territory changed hands in August than in any other month of the war, according to a New York Times analysis of data from the Institute for the Study of War. While Ukraine made small gains in the south, Russia took slightly more land overall, mostly in the northeast.

Across the front line, every mile of territory has been a grinding fight, with no repeat of the rapid breakthrough that Kyiv managed in Kharkiv in September last year, when Russia’s defenses collapsed after a surprise Ukrainian counterattack.

Russia and Ukraine have faced similar challenges this year. Both sides are fighting for positions that have remained largely entrenched for months, or even years in some parts of eastern Ukraine. Seasoned troops and commanders who were killed earlier in the war have been replaced with new recruits who often lack sufficient training.

Ukraine’s counteroffensive has struggled to push forward across the wide-open fields in the south. It is facing extensive minefields and hundreds of miles of fortifications — trenches, anti-tank ditches and concrete obstacles — that Russia built last winter to slow Ukrainian vehicles and force them into positions where they could be more easily targeted.

When both sides’ gains are added up, Russia now controls nearly 200 square miles more territory in Ukraine compared with the start of the year.

Rather than seeking rapid gains, the Russian military appears to be comfortable holding the territory it already controls, according to Marina Miron, a postdoctoral researcher in war studies at King’s College London. “It’s not losing anything by not moving forward,” she said.

Russia’s forces outnumber Ukraine’s nearly three to one on the battlefield, and with a larger population to replenish its ranks, Russia could see a prolonged defense as in its interests.

“The whole strategy in Ukraine is for the Russians to let the Ukrainians run against those defenses, kill as many as possible, and destroy as much Western equipment as possible,” she added.

Russia controls about 18 percent of Ukraine — a swath of land larger than Switzerland. This includes Crimea and part of eastern Ukraine, which it has occupied since 2014.

The slowdown comes with huge risks for Ukraine. If it looks unlikely to recapture large areas of the country, Western support could wane, either through lack of political will or unwillingness to donate more weapons, especially given the yearslong wait for deliveries of replacement equipment.

“Russia is trying to wait out until the West turns its back,” said Dr. Miron.

Ukraine continues to battle through Russia’s defenses in the south. Last month it successfully recaptured the village of Robotyne, and in recent days moved armored vehicles past Russia’s main anti-tank defenses near Verbove, about eight miles to the west of Robotyne.

But the clock is ticking for Ukraine’s counteroffensive to make significant territorial gains. Heavy rains are expected next month, and muddy terrain could prevent the use of heavy vehicles, such as the newly arrived U.S. Abrams tanks and the Challenger tanks supplied by Britain. “When there is mud and you have a 75-ton Challenger, it will just sink,” said Dr. Miron.

Our Coverage of the War in Ukraine

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• The Future of Ukraine: The European Union and NATO have promised a path to membership for the country. But real partnership will hold risks and benefits.

• Photos: Photographers with The New York Times and other news organizations have been chronicling the war, capturing a slice of how soldiers and civilians have experienced it. Our photographers say some images will never leave them.

• Defying Isolation: After the invasion of Ukraine, the West tried to cut Russia off from the rest of the world. But wealthy Russians continue to rely on a network of middlemen to circumvent the restrictions.

• A Wartime Partnership: The alliance between President Biden and President Volodymyr Zelensky of Ukraine has become critical to the world order.

• Zelensky’s Rise: The Ukrainian president, once brushed off as a political lightweight, has become a household name, representing his country’s tenacity.

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