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IMF agrees to resume Pakistan loan after fuel, tax hikes

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Former Pakistan prime minister Imran Khan and senior aides aboard a bus during a protest against rising prices in Rawalpindi in early July
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The International Monetary Fund (IMF) said Thursday it had agreed with Pakistan to resume a suspended loan programme that will inject $1.17 billion into the struggling economy.

A statement from the IMF said a “staff level agreement” — which is still subject to board approval — will bring to $4.2 billion the amount dispersed under an extended fund facility (EFF) that could increase to $7 billion and stretch until June next year. 

An original $6 billion bailout package was signed by former prime minister Imran Khan in 2019, but repeatedly stalled when his government reneged on subsidy agreements and failed to significantly improve tax collection.

The new agreement follows months of deeply unpopular belt-tightening by the government of Shehbaz Sharif, which took power in April and has effectively eliminated fuel subsidies and introduced new measures to broaden the tax base.

“Pakistan is at a challenging economic juncture,” Nathan Porter, who headed the IMF team, said in a statement, adding external factors and domestic policies were to blame.

Pakistan is desperate for international support for its economy, which suffers from poor revenue collection and dwindling foreign reserves to pay its crippling debt.

The new government has slashed a raft of subsidies to meet the demands of global financial institutions but risks the wrath of an electorate already struggling under the weight of double-digit inflation.

A new coalition government — which came to power after Khan was ousted by a parliamentary no-confidence vote — has said it will make the tough decisions needed to turn the economy around.

Successive administrations blame their predecessors for the country’s economic woes, but analysts say the malaise stems from decades of poor management and a failure to tackle endemic corruption and widespread tax avoidance.

In a bid to secure the IMF loan, Prime Minister Sharif has imposed three fuel price hikes -– cumulatively totalling 50 percent -– and raised the cost of electricity to effectively end the subsidies introduced by Khan.

Islamabad has so far received $3 billion from the programme, but with the facility due to end later this year, officials sought an extension until June 2023. 

“It became essential to resume the IMF programme to save the country from default,” finance minister Miftah Ismail told the national assembly last month.

“We knew it would damage our political reputation, but still we did it.” 

The latest budget has earmarked 3.95 trillion rupees ($18.8 billion) just to service the country’s whopping debt of $128 billion.

Agreed policy priorities included steadfast implementation of the budget, the IMF’s Porter said in the statement.

Pakistan also agreed to continue power sector reforms, introduce a proactive monetary policy to tackle inflation, strengthen governance, combat corruption, and improve the social security net.

“The authorities should nonetheless stand ready to take any additional measures necessary to meet program objectives, given the elevated uncertainty in the global economy and financial markets,” the statement added.

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Biden signs major semiconductors investment bill to compete against China

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President Joe Biden signs the CHIPS and Science Act to support domestic semiconductor production, new high-tech jobs and scientific research
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President Joe Biden signed into law Tuesday a multibillion dollar bill boosting domestic semiconductor and other high-tech manufacturing sectors that US leaders fear risk being dominated by rival China.

The Chips and Science Act includes around $52 billion to promote production of microchips, the tiny but powerful and relatively hard-to-make components at the heart of almost every modern piece of machinery.

Tens of billions of dollars more are allocated for scientific research and development.

The White House says the government commitment to bolstering high-tech industries is already drawing in large-scale private investors, with some $50 billion in new semiconductor investment alone. The lion’s share of that is a plan announced by US firm Micron to put $40 billion into domestic expansion by 2030.

Biden said at a White House speech that the cash injection from the Chips Act will help “win the economic competition in the 21st century.”

Entrepreneurs are “the reason why I’m so optimistic about the future of our country,” he said, and “the Chips and Science Act supercharges our efforts to make semiconductors here in America.”

One of the Democrat’s key themes since he took office has been the need to revamp US leadership in cutting-edge innovation and rebuild the homegrown industrial base in the face of China’s mammoth state-backed investments.

Semiconductors are of particular concern because they are vital to everything from washing machines to sophisticated weapons and nearly all are made abroad.

Although the semiconductor was invented in the United States, the country only produces around 10 percent of global supply, according to the White House, with some 75 percent of US supplies coming from east Asia.

Biden is also counting on the Chips Act to generate enthusiasm among voters, as his Democratic party tries to defend a thin congressional majority from a Republican takeover in this November’s midterm elections.

He told Americans that studies show the expansion of factories will create around a million construction jobs over the next six years — and these will be “union jobs” that pay “the prevailing wage.”

On Wednesday, Biden will sign another bill increasing funding for military veterans exposed to toxins. Like the Chips bill, this won bipartisan support in the usually bitterly divided Congress.

Shortly, Biden is also expected to be signing an enormous domestic investment bill — backed only by Democrats — aimed at fighting climate change and reducing health care costs.

Reflecting on the string of successes in Congress and the sudden momentum for his long stalled agenda, Biden predicted that “people will look back at this week and all we passed, and all we moved on, that we met the moment at this inflection point in history.”

“We bet on ourselves, believed in ourselves and recaptured the story, the spirit and the soul of this nation,” he said.

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US regulators clear Boeing to resume 787 deliveries

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The FAA has approved changes Boeing made to production of its 787 Dreamliner which will allow deliveries to resume
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After more than a year, aviation giant Boeing will be allowed to resume deliveries of its 787 Dreamliner aircraft “in the coming days,” after the company made changes to its manufacturing process, US air safety regulators announced Monday.

Deliveries of the top-selling widebody plane have been halted since spring 2021, so the news will be welcomed by US airlines and travelers who have suffered from massive delays and canceled flights in recent weeks, partly due to the shortage of aircraft.

“Boeing has made the necessary changes to ensure that the 787 Dreamliner meets all certification standards,” the Federal Aviation Administration said in a statement.

The plane’s travails date to late summer 2020, when the company uncovered manufacturing flaws with some jets. Boeing subsequently identified additional issues, including with the horizontal stabilizer.

The difficulties curtailed deliveries between November 2020 and March 2021. Boeing suspended deliveries later in spring 2021 after more problems surfaced.

Acting FAA Administrator Billy Nolen met with safety inspectors in South Carolina last week to confirm they were satisfied with the company’s improvements, which were made to ensure they comply with standards and to identify potential risks after defects were uncovered on the plane.

“The FAA will inspect each aircraft before an airworthiness certificate is issued and cleared for delivery,” the statement said. “We expect deliveries to resume in the coming days.”

– Cleared for takeoff –

A company spokesman told AFP that Boeing will “continue to work transparently with the FAA and our customers toward resuming 787 deliveries,” but did not confirm the firm had received final FAA approval.

During a July 27 earnings conference call, Chief Executive Dave Calhoun described the company was “on the verge” of garnering approval, though he declined to give a precise target date.

At the end of June, Boeing had 120 Dreamliner planes in inventory and was producing the jet “at very low rates,” the company said in a filing.

The company’s stock price gained ground on the news, closing 0.5 percent higher.

Inability to deliver the Dreamliner has dragged down Boeing’s profits, which plunged 67 percent in the second quarter. And the manufacturing changes have led to billions in additional costs for the company.

The firm has delivered just over 1,000 of the planes since it was first introduced in 2004.

The enhanced regulatory scrutiny of the 787 and other Boeing planes comes on the heels of a pair of crashes in 2018 and 2019 on the 737 MAX, which led to aircraft being banned from the skies globally for more than a year.

But the MAX has since returned to service, enabling Boeing to ramp up production of the planes, collect meaningful revenues and announce significant new orders at the Farnborough Airshow earlier this month.

Even so, Boeing’s backlog of orders in the pipeline lags behind that of archrival Airbus.

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No recession in Switzerland this year: chief economist

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The Swiss economy is 'doing well' despite the impact of the war in Ukraine on energy prices, the country's chief economist said
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Switzerland does not expect to dip into recession this year despite the threat of an energy supply squeeze, the government’s chief economist said Sunday.

The Swiss economy is “doing well” despite the impact of the war in Ukraine on energy prices, Eric Scheidegger told the SonntagsZeitung newspaper.

He said it was down to companies to steel themselves for the possibility of power shortages in the winter months.

“We may have to revise our economic forecast downwards for next year. The revised forecast will be published on September 20. However, we do not expect a recession for this year,” Scheidegger said.

“We run the risk of an energy supply bottleneck in winter. If there are persistent production interruptions in the EU and we ourselves have a gas shortage, it becomes problematic.

“In our negative scenario, we expect zero growth for 2023 instead of growth of almost two percent.”

Despite the threat of power shortages and the effects of the war in Ukraine, Scheidegger does not see a serious economic crisis heading towards Switzerland.

“At present, the economy is still doing well. Current indicators show that the economy in this country also developed well in the second quarter — after the outbreak of the war in Ukraine,” he said.

“Economic support measures such as general perks or tax relief are currently therefore neither necessary nor helpful,” he added.

– ‘Foreseeable events’ –

Scheidegger said the Swiss economy was less susceptible to high energy prices than other European countries as gas accounted for only five percent of its total energy consumption.

He said the government would discuss possible measures to curb high energy prices in the coming weeks, which could involve reducing health insurance premiums for low-income households.

The State Secretariat for Economic Affairs official said the help for businesses during the Covid-19 pandemic could not become the norm during economic downturns.

“It’s been known since spring that there can be a power shortage in winter. Companies have time to prepare for this,” he said.

“Companies can, and must, take this operational risk into account… it is up to companies to prepare for foreseeable events.”

As for inflation, he said Switzerland was “an island of bliss” compared to the United States, and inflation was likely to fall before the end of the year.

“At 3.4 percent, inflation is much lower here than in other countries.  Core inflation — inflation excluding fresh food, energy and fuel — is at two percent,” he said.

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