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UK inflation jumps to 40-year peak

May 18, 2022: Britain's annual inflation rate surged to a 40-year high last month on rocketing energy costs, official data showed Wednesday, sparking opposition calls for the government to announce an emergency budget to combat a cost-of-living crisis.

Consumer prices index inflation hit 9.0 percent in April from 7.0 percent in March, the Office for National Statistics said in a statement.

The ONS estimated that April was the highest level since 1982, and the fastest rate since the current data series began in 1989.

Nations across the world are plagued by decades-high inflation as the Ukraine conflict pushes up energy and food prices, in turn forcing the Bank of England, the US Federal Reserve and others to ramp up interest rates.

The squeeze on UK household budgets tightened further in April due to tax hikes, while wages are failing to keep pace with inflation.

- Global challenges -

"Countries around the world are dealing with rising inflation," said British finance minister Rishi Sunak.

"Today's inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.

"We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action."

The main opposition Labour party, however, wants an emergency budget to help Britons cope with the cost-of-living crunch.

Labour finance spokeswoman Rachel Reeves described the inflation data as "a huge worry for families already stretched".

"Today, Labour force a vote for an emergency budget and for a plan for growth."

Labour is also calling for a windfall tax on the energy sector, which has been boosted as gas and oil prices rocketed on supply worries following key producer Russia's invasion of Ukraine.

- Apocalyptic -

Bank of England governor Andrew Bailey on Monday warned of an "apocalyptic" situation surrounding runaway food costs -- which he said were fuelled by major wheat and cooking oil producer Ukraine finding itself unable to export its goods.

Addressing British MPs, Bailey spoke also of a "very real income shock" coming from surging energy and food prices.

Britain risks falling into recession with inflation expected to top 10 percent by the end of the year, the BoE warned earlier this month.

It came as the central bank hiked its main interest rate by a quarter-point to one percent to tackle inflation.

That was the fourth straight increase by the BoE, while its key rate now stands at the highest level since 2009.

- Energy cap -

UK consumer prices leapt in April after a cap on domestic gas and electricity was hiked due to spiking wholesale energy costs.

"Inflation rose steeply in April, driven by the sharp climb in electricity and gas prices as the higher price cap came into effect," added ONS chief economist Grant Fitzner.

"Around three-quarters of the increase in the annual rate, this month came from utility bills."

Official data showed Tuesday that Britain's unemployment rate has fallen further to a nearly five-decade low, but the value of wages continues to erode as inflation soars.

The economy shrank in March on the fallout from soaring consumer prices, data showed last week, increasing the prospect of the country falling into recession.

Raised rates have lifted borrowing costs for consumers and businesses, further impacting spending.

AFP/APP

Sri Lanka to be placed into default by rating...

May 18, 2022: Sri Lanka is expected to be placed into default by rating agencies on Wednesday after the non-payment of coupons on two of its sovereign bonds, while the energy minister said the country had run out of money to pay for fuel.

An economic crisis unprecedented in the country's history since independence in 1948 has led to a critical shortage of foreign exchange, that saw it miss two coupon payments on sovereign bonds on April 18.

Sri Lanka has already said it is unable to make the coupon payments, and a 30-day grace period ends on Wednesday.

S&P has said the ratings on the bonds, maturing in 2023 and 2028, have already been cut to 'default' and the country's overall rating could be further cut to 'D' on confirmation of the non-payment after the grace period ends.

Sri Lanka currently has no dollars to pay for petrol shipments, Power and Energy Minister Kanchana Wijesekera told parliament, appealing to people to stop queuing for the next two days.

A petrol shipment has been at Colombo port since 28 March but the government has been unable to pay, he added.

"There aren't enough dollars available to open letters of credit," he said.

"We are working to find funds but petrol will not be available at least until the weekend. The very small reserve stock of petrol is being released for essential services like ambulances," he said.

Prime Minister Ranil Wickremesinghe said on Wednesday the country had secured $160 million in bridge financing from the World Bank, but it was not clear if the funds could be used for fuel payments.

"The statistics have gone haywire," he said. "But the reality is we don't even have $1 million."

Hit hard by the pandemic, rising oil prices and populist tax cuts, Sri Lanka's dire economic situation has led to spiralling inflation and shortages of essential supplies, bringing thousands onto the streets in protest.

Violence between pro and anti-government factions and police left nine dead and more than 300 injured last week and was followed by the resignation of former prime minister Mahinda Rajapaksa.

 Reuters

Talks with IMF Mission started today: Finance Ministry

May 18, 2022 (MLN): The talks between Pakistan and the International Monetary Fund (IMF) have started today in Doha to resume the discussions over policies for the release of the remaining $1 billion tranche under the Extended Fund Facility (EFF), Ministry of Finance tweeted today.

Finance Minister Mr. Miftah Ismail, MoS Dr. Aisha Ghous Pasha, Finance Secretary Hamed Yaqoob Shaikh, Acting Governor SBP Dr. Murtaza Syed, Chairman FBR Mr. Asim Ahmad and senior officers from Finance Division joined virtually.

The talks are part of the ongoing 7th review of the Extended Fund Facility that Pakistan signed in July 2019, where the key issues such as increase in revenue collections and the removal of subsidies on petrol and electricity will be discussed.

The IMF has emphasized the need to reverse the unfunded subsidies which are the prior conditions for the ongoing $6 billion loan program. The government had assured the fund that it will increase the prices of petroleum products to fulfil this commitment. Despite the assurance, the incumbent government has not increased the prices of petroleum products yet, apparently due to political backlash.

"We had very productive meetings with the Finance Minister of Pakistan Miftah Ismail over Pakistan’s economic developments and policies under the Extended Fund Facility (EFF) program. We agreed that prompt action is needed to reverse the unfunded subsidies which have slowed discussions for the 7th review," Mr. Nathan Porter, International Monetary Fund (IMF) Mission Chief for Pakistan said.

The authorities had also requested the IMF to extend the EFF arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the program objectives.

For the revival of the package, experts are of the view that the government has to take tough economic decisions pertaining to IMF requirements, otherwise, the country will have to bear irreparable losses.

Currently, rapid depletion in forex reserves, inflow delay, currency depreciation, rising inflation rates and quieter SBP are giving jitters to the economy.

Copyright Mettis Link News

VIS assigns long-term rating of A+ to NCPL on...

May 18, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A+/A-2’ (Single A Plus/A-Two) to Nishat Chunian Power Limited (NCPL).

Long-term rating of ‘A+’ signifies good credit quality; Protection factors are adequate while risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.

Nishat Chunian Power Limited (NCPL), a subsidiary of Nishat Chunian Limited, has been operating a 200 Megawatt (MW) RFO-based power plant for more than a decade. The plant is situated in District Kasur, Punjab. Assigned ratings takes into account the 25-year power purchase agreement with CPPA-G, which will expire in 2035 while ‘take or pay’ arrangement alleviates off-take risk. In addition, ‘Implementation Agreement’ provides sovereign guarantee for cash flows, contingent upon adherence to stipulated performance benchmarks. Ratings also draw comfort from the company’s association with Nishat Chunian Group; one of the leading groups in Pakistan with sizable financial strength and presence in textile and power generation. An experienced in-house team is managing operations and maintenance (O&M) of the plant and has demonstrated a satisfactory operating track record.

Ratings further take note of developments with regards to amendments in existing contractual arrangements, which mainly entails settlement of long outstanding dues (first installment of 40% is received while second installment of remaining 60% is committed to be paid by Sep’22), discounts in tariff components, sharing of future savings in fuel and O&M, reduction in delayed payment rate and conversion of PPA to 'take and pay' basis when CTA is fully implemented. In addition, dispute relating to withheld capacity payment was settled by extending the PPA term by 75 days.

Sales revenue has declined as long-term loan repayment component of the capacity tariff ceased (with effect from July’20), which also significantly impacted profitability margins. Retirement of entire project-related LT debt liability (last installment paid in Nov’20) eased pressure on liquidity while debt coverage metrics have remained strong. Given the same, leverage indictors have also depicted considerable improvement. On the flipside, build-up of receivables, if not arrested may impact cash flows from operations, going forward. In view of funding cash cycle delays, NCPL has not paid any dividend since last two years. Going forward, maintenance of performance levels in line with benchmarks would remain a key rating driver.

VIS

Japan’s 1Q GDP shrank as Omicron wave hit

May 18, 2022: Japan's economy shrank slightly in the first quarter of 2022, official data showed Wednesday, hit by Covid-19 restrictions and higher prices.

The world's third-largest economy shrank 0.2 percent quarter-on-quarter in the January-March period, slightly less than the market expectations of a 0.4 percent contraction.

It followed a modest rebound in the final three months of 2021 that proved short-lived after Japan put Covid restrictions in place as an outbreak fuelled by the Omicron coronavirus variant took hold in January.

Growth was also hit by the rising cost of imports with energy prices surging and the yen falling to its lowest level against the dollar in 20 years.

Economists expect the economy to recover again in the April-June quarter now that virus restrictions have been lifted, but caution there are some caveats.

"We see three headwinds to this expected recovery," said UBS economists Masamichi Adachi and Go Kurihara in a note ahead of the GDP data release.

"First is a rise in food and energy prices. Second is a drag from the lockdown in China," and third is the risk of a potential resurgence in virus infections, they said.

Others point to ongoing uncertainties linked to "tensions in international relations and military conflicts", according to a survey among economists conducted by the Japan Center for Economic Research.

During the current earnings season, major Japanese firms such as Sony and Nissan have offered cautious forecasts because of the uncertainty, particularly over supply chain disruption and the effect of Covid lockdowns in China.

Wednesday's data showed the economy's rebound in the last quarter of 2021 was 0.9 percent, slightly weaker than an initial estimate of 1.1 percent growth.

Japan is battling a series of economic headwinds linked to the pandemic and Russia's invasion of Ukraine, which has sent energy costs soaring.

The yen has also slumped against the dollar, with a widening gap between Japan's ultra-loose monetary policy and tightening in the United States as the Federal Reserve attempts to combat inflation.

Rising energy prices and other hikes are squeezing Japanese consumers and businesses, with household spending dipping 2.3 percent in March from a year earlier.

Analysts have warned that the pace of nominal wage increases in Japan is unlikely to track rising prices, dampening spending appetites.

Last month, the government unveiled a 6.2 trillion yen (around $48 billion) economic package that included handouts for low-income families to help cushion the impact of rising prices and energy costs.

Looking ahead, "net trade will boost growth over the coming months as supply shortages ease and the weak yen boosts exports and softens demand for imports," Tom Learmouth, Capital Economics economist, said in a note.

"With coronavirus cases continuing to fall and nearly 60 percent of the population triple-jabbed, another round of restrictions looks unlikely for now."

"However, we expect GDP growth to disappoint across 2022 due to the hit to household income from higher inflation and signs that elderly consumers remain wary of catching the virus," he added.

Japan has seen a smaller Covid outbreak than many countries, although cases surged because of the highly transmissible Omicron variant.

The country has recorded around 30,050 deaths despite avoiding harsh lockdowns.

AFP/APP

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