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Economy

Sri Lanka’s crisis rings alarm for other troubled economies

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By Elaine Kurtenbach in Bangkok

BANGKOK (AP) — Sri Lanka is desperate for help with weathering its worst crisis in recent memory. Its schools are closed for lack of fuel to get kids and teachers to classrooms. Its effort to arrange a bailout from the International Monetary Fund has been hindered by the severity of its financial crisis, its prime minister says.

But it’s not the only economy that’s in serious trouble as prices of food, fuel and other staples have soared with the war in Ukraine. Alarm bells are ringing for many economies around the world, from Laos and Pakistan to Venezuela and Guinea.

Some 1.6 billion people in 94 countries face at least one dimension of the crisis in food, energy and financial systems, and about 1.2 billion of them live in “perfect-storm” countries, severely vulnerable to a cost-of-living crisis plus other longer-term strains, according to a report last month by the Global Crisis Response Group of the United Nations Secretary-General.

The exact causes for their woes vary, but all share rising risks from surging costs for food and fuel, driven higher by Russia’s war on Ukraine, which hit just as disruptions to tourism and other business activity from the coronavirus pandemic were fading. As a result, the World Bank estimates that per capita incomes in developing economies will be 5% below pre-pandemic levels this year.

The economic strains are fueling protests in many countries, as meanwhile, short-term, higher interest borrowing to help finance pandemic relief packages has heaped more debt on countries already struggling to meet repayment obligations. More than half of the world’s poorest countries are in debt distress or at high risk of it, according to the U.N.

Some of the worst crises are in countries already devastated by corruption, civil war, coups or other calamities. They muddle along, but with an undue burden of suffering.

Here’s a look at a few of the economies that are in dire straits or at greatest risk.

AFGHANISTAN

Afghanistan has been reeling from a dire economic crisis since the Taliban took control as the U.S. and its NATO allies withdrew their forces last year. Foreign aid — long a mainstay — stopped practically overnight and governments piled on sanctions, halted bank transfers and paralyzed trade, refusing to recognize the Taliban government. The Biden administration froze $7 billion in Afghanistan’s foreign currency reserves held in the United States. About half the country’s 39 million people face life-threatening levels of food insecurity and most civil servants, including doctors, nurses and teachers, have been unpaid for months. A recent earthquake killed more than 1,000 people, adding to those miseries.

ARGENTINA

About four of every 10 Argentines are poor and its central bank is running perilously low on foreign reserves as its currency weakens. Inflation is forecast to exceed 70% this year. Millions of Argentines survive largely thanks to soup kitchens and state welfare programs, many of which are funneled through politically powerful social movements linked to the ruling party. A recent deal with the IMF to restructure $44 billion in debt faces questions over concessions that critics say will hinder a recovery.

EGYPT

Egypt’s inflation rate surged to almost 15% in April, causing privation especially for the nearly one-third of its 103 million people living in poverty. They were already suffering from an ambitious reform program that includes painful austerity measures like floating the national currency and slashing subsidies for fuel, water and electricity. The central bank raised interest rates to curb inflation and devalued the currency, adding to difficulties in repaying Egypt’s sizable foreign debt. Egypt’s net foreign reserves have fallen. Its neighbors Saudi Arabia, Qatar and the United Arab Emirates have pledged $22 billion in deposits and direct investments as assistance.

LAOS

Tiny, landlocked Laos was one of the fastest growing economies until the pandemic hit. Its debt levels have surged and like Sri Lanka, it is in talks with creditors on how to repay billions of dollars worth of loans. That’s an urgent issue given the country’s weak government finances. Its foreign reserves are equal to less than two months of imports, the World Bank says. A 30% depreciation in the Lao currency, the kip, has worsened those woes. Rising prices and job losses due to the pandemic threaten to worsen poverty.

LEBANON

Lebanon shares with Sri Lanka a toxic combination of currency collapse, shortages, punishing levels of inflation and growing hunger, snaking queues for gas and a decimated middle class. It, too, endured a long civil war, its recovery hampered by government dysfunction and terror attacks.

Proposed taxes in late 2019 ignited longstanding anger against the ruling class and months of protests. The currency began to sink and Lebanon defaulted on paying back worth about $90 billion at the time, or 170% of GDP — one of the highest in the world. In June 2021, with the currency having lost nearly 90% of its value, the World Bank said the crisis ranked as one of the worst the world has seen in more than 150 years.

MYANMAR

The pandemic and political instability have buffeted Myanmar’s economy, especially after the army seized power in February 2021 from the elected government of Aung San Suu Kyi. That brought Western sanctions targeting commercial holdings controlled by the army, which dominate the economy. The economy contracted by 18% last year and is forecast to barely grow in 2022. More than 700,000 people have fled or been forced from their homes by armed conflicts and political violence. The situation is so uncertain, a recent global economic update from the World Bank excluded forecasts for Myanmar for 2022-2024.

PAKISTAN

Like Sri Lanka, Pakistan has been in urgent talks with the IMF, hoping to revive a $6 billion bailout package that was put on hold after Prime Minister Imran Khan’s government was ousted in April. Soaring crude oil prices pushed up fuel prices which in turn raised other costs, pushing inflation to over 21%. A government minister’s appeal to cut back on tea drinking to reduce the $600 million bill for imported tea angered many Pakistanis. Pakistan’s currency, the rupee, has fallen about 30% against the U.S. dollar in the past year. To gain the IMF’s support, Prime Minister Shahbaz Sharif has raised fuel prices, abolished fuel subsidies and imposed a new, 10% “super tax” on major industries to help repair the country’s tattered finances. As of late March, Pakistan’s foreign exchange reserves had fallen to $13.5 billion, equivalent to just two months of imports. “Macroeconomic risks are strongly tilted to the downside,” the World Bank warned in its latest assessment.

TURKEY

Worsening government finances and a growing trade and capital account deficit have compounded Turkey’s troubles with high and rising debt, inflation — at over 60% —and high unemployment. The Central Bank resorted to using foreign reserves to fend off a currency crisis, after the beleaguered lira fell to all-time lows against the U.S. dollar euro in late 2021. Tax cuts and fuel subsidies to cushion the blow from inflation have weakened government finances. Families are struggling to buy food and other goods, while Turkey’s foreign debt is about 54% of its GDP, an unsustainable level given the high level of government debt.

ZIMBABWE

Inflation in Zimbabwe has surged to more than 130%, raising fears the country could return to the hyperinflation of 2008 that reached 500 billion percent and heaping problems on its already fragile economy. Zimbabwe struggles to generate an adequate inflow of greenbacks needed for its largely dollarized local economy, which has been battered by years of de-industrialization, corruption, low investment, low exports and high debt. Inflation has left Zimbabweans distrustful of the currency, adding to demand for U.S. dollars. And many skip meals as they struggle to make ends meet.

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Associated Press writers Munir Ahmed in Islamabad, Pakistan and Krishan Francis in Colombo, Sri Lanka, contributed to this report.

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Economy

Surprise Senate vote would overturn Biden environmental rule

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By Matthew Daly in Washington

WASHINGTON (AP) — In a surprise victory for Republicans, the Senate on Thursday voted to overturn a Biden administration rule requiring rigorous environmental review of major infrastructure projects such as highways, pipelines and oil wells — an outcome aided by Democratic Sen. Joe Manchin of West Virginia.

Manchin, a key player on energy and climate issues and a swing vote in the closely divided Senate, joined Republicans to support the measure, which was approved 50-47. The vote comes as Manchin has proposed a separate list of legislative measures to speed up federal permitting for major projects in return for his support of a Democratic bill to address climate change.

Republicans voted unanimously to overturn the Biden permitting rule, while Manchin was the only Democrat to support it. Three senators were absent: Republican John Cornyn of Texas and Democrats Patrick Leahy of Vermont and Jeff Merkley of Oregon. The vote sends the measure to the Democratic-controlled House, where it is unlikely to move forward.

Still, the vote signaled strong Senate support for action to reform the often onerous federal permitting process, which can take up to eight to 10 years for highways and other major projects. Streamlining federal review is a top Manchin and GOP priority that is not shared by most Democrats.

Sen. Dan Sullivan, an Alaska Republican, sponsored the measure to overturn the Biden rule, saying new regulations under the National Environmental Policy Act, or NEPA, will further bog down the permitting process and delay critical infrastructure projects the country needs.

The Biden rule — which overturns an action by the Trump administration loosening environmental reviews — requires regulators to consider the likely impacts on climate change and nearby communities before approving major projects. The new requirement “is going to add to the red tape” that prevents major infrastructure projects from being approved in a timely manner, Sullivan said.

While President Joe Biden has called infrastructure a priority — and pushed for a $1 trillion bipartisan infrastructure law passed last year — the new NEPA rule actually “makes it harder to build infrastructure projects” in the United States, Sullivan said.

“The only people, in my view, who really like this new system are radical far-left environmental groups that don’t want to build anything … and probably the Chinese Communist Party,” he said on the Senate floor. China and other competitors likely “love the fact that it takes 9 to 10 years to permit a bridge in the U.S.A.,” Sullivan said.

The White House strongly opposed the measure and threatened a veto if Congress approves it.

“This action would slow the construction of American infrastructure, lead to the waste of taxpayer resources on poorly designed projects and result in unnecessary and costly litigation and conflict that will delay permitting,” the White House said in a statement Thursday.

Manchin countered that, “for years I’ve worked to fix our broken permitting system, and I know the (Biden) administration’s approach to permitting is dead wrong.”

Manchin called Thursday’s vote “a step in the right direction” but said the measure likely “is dead on arrival in the House. That’s why I fought so hard to secure a commitment (from Democratic leaders) on bipartisan permitting reform, which is the only way we’re going to actually fix this problem.”

The new rule, finalized this spring, restores key provisions of NEPA, a bedrock environmental law that is designed to ensure community safeguards during reviews for a wide range of federal projects, including roads, bridges and energy development such as pipelines and oil wells. The longstanding reviews were scaled back under former President Donald Trump in a bid to fast-track projects and create jobs.

The White House Council on Environmental Quality said in implementing the new rule that it should restore public confidence during environmental reviews. The change could speed development by helping to “ensure that projects get built right the first time,” said CEQ Chair Brenda Mallory.

Projects approved by the Trump administration were frequently delayed or defeated by lengthy court battles from groups challenging environmental reviews as inadequate.

Manchin, who brokered a surprise deal last week on climate legislation with Senate Majority Leader Chuck Schumer, said he’s won promises from Biden and Democratic leaders in Congress to pursue permitting reforms in the Senate to speed approval of projects in his energy-producing state and across the country. Manchin’s wish list includes swift approval of the controversial Mountain Valley natural gas pipeline in his home state and Virginia. The pipeline is nearly complete but has been delayed for years by court battles and other issues.

Manchin’s list includes a number of proposals supported by Republicans, including a two-year deadline on environmental reviews; changes to the Clean Water Act; limitations on judicial review; and prompt action on projects determined by the Energy secretary to be in the national interest.

Environmental groups have decried Manchin’s proposals as counter-productive to the climate legislation and a threat to the environment and communities where projects would be built.

Madeleine Foote, deputy legislative director of the League of Conservation Voters, dismissed the Senate vote Thursday as “nothing more than a Republican-led stunt to appease their fossil fuel-industry allies.”

Foote and other environmentalists said strong NEPA review is needed to ensure that those most affected by an energy project have a say in the projects built in their communities.

“Thorough, community-based environmental reviews are critical to helping eliminate environmental racism and making sure low-income communities and communities of color are protected from polluters who want to build dirty, toxic projects in their backyards,” Foote said.

She called on Congress to approve the Manchin-Schumer climate bill as soon as possible. Schumer said votes on the bill are likely this weekend.

Kabir Green, director of federal affairs at the Natural Resources Defense Council, another environmental group, said Americans are “seeing the effects of climate change in catastrophic detail, from the heat waves in Texas to wildfires in New Mexico to the devastating flooding in Kentucky. But the Senate is voting to prevent the federal government from considering climate change when making decisions. This makes no sense.”

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Alberta

Proposed emissions cap on oil and gas sector overly ambitious’: CNRL

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CALGARY — The head of Canada’s largest oil-and-gas producing company criticized the federal government’s proposed emissions cap for the energy sector Thursday, arguing environmental goals must be balanced with economic and energy security concerns.

Canadian Natural Resources Ltd. president Tim McKay made the comments during a conference call with analysts. While the purpose of the call was to discuss the company’s second-quarter financial results, McKay took aim at Ottawa’s proposed cap in his opening remarks.

He also talked up the emissions reduction efforts that are already underway through Pathways Alliance, an industry group that includes CNRL and other major Canadian oilsands producers.

“In our view, this (federal) cap is unnecessary and overly ambitious in light of our stated preference for government and industry to continue to work together through the Pathways initiative to achieve an already announced emissions reduction target,” McKay said.

“It is important for all parties to continue to work together.”

The federal government indicated earlier this year that it would impose a cap on greenhouse gas emissions from the oil and gas sector in order to enable Canada to meet its 2030 emissions reduction target.

While the government has so far not indicated what the allowable level of emissions will be, it issued a discussion paper earlier this month that said it is considering two options — a cap-and-trade system that will set regulated limits on emissions from the sector, or a modified carbon pricing system for heavy emitters that would see oil-and-gas players pay a higher carbon price.

“As presented, both emissions cap options have the potential to limit oil and natural gas production in Canada by adding regulatory burden and eliminating options for economywide co-operation on emissions reductions,” said Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers, in an emailed statement Thursday.

The federal government has stated it believes Canada’s oilpatch is capable of reducing emissions by 31 per cent below 2005 levels by 2030, or 42 per cent below 2019 levels. (Emissions from the sector have risen by 20 per cent since 2005, due to increased production, though emissions intensity per barrel has decreased).

That would bring total emissions from the sector — including production, refining and transportation via pipelines — to 110 million tonnes by 2030, down from 191 million tonnes in 2019. They haven’t been that low in more than three decades.

Oilsands industry leaders have suggested meeting such an ambitious target in a relatively short time frame is likely unachievable. Instead, they have set their own targets through the Pathways Alliance, pledging to reduce oilsands production emissions by 22 million tonnes by 2030. That would represent an approximate 30 per cent reduction from current levels.

Key to the industry’s plan is a proposed carbon capture and storage project that would capture CO2 from oilsands facilities and transport it to a storage facility near Cold Lake, Alta., delivering about 10 million tonnes of emissions reductions per year from oilsands production.

Pathways Alliance members have not yet pulled the trigger to go ahead with the project, though the group has said the investment tax credit for carbon capture and storage projects unveiled by the federal government earlier this year is an important step.

“The tax credit is a positive approach where industry and government can co-invest in CCUS infrastructure at an achievable pace of development,” McKay said Thursday.

CNRL reported Thursday that it more than doubled its second-quarter profits in 2022 as the war in Ukraine continued to put pressure on global energy supplies. The Calgary-headquartered company said it earned $3.5 billion or $3 per diluted share for the quarter ended June 30, up from $1.6 billion or $1.30 per diluted share in the same quarter last year.

Crude prices spiked during the quarter, driven largely by Russia’s invasion of Ukraine, with North American benchmark WTI up 15 per cent from the first quarter and up 64 per cent from last year’s second quarter.

Canadian Natural’s daily production, before royalties, averaged 1,211,147 barrels of oil equivalent per day in the quarter, up from 1,141,739 in the same quarter last year.

The company increased its production guidance for 2022 by two per cent on Thursday, and said it now expects to add 40 million barrels of oil equivalent per day of growth in 2023, and 96 million barrels of oil equivalent per day of growth by 2025. It increased its 2022 total budget for capital expenditures by $575 million to $4.9 billion, saying it will drill 15 additional thermal in situ wells this year.

CNRL also announced Thursday a special dividend of $1.50 per common share, citing what the company called its “very robust” financial position, rapidly decreasing debt levels, and “significant” free cash flow. The special dividend will be payable Aug. 31 to shareholders of record by end of day Aug. 23.

This report by The Canadian Press was first published Aug. 4, 2022.

Companies in this story: (TSX:CNQ)

Amanda Stephenson, The Canadian Press

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