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EAEU and EU: A Common Economic Space from Lisbon to Vladivostok

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“The need for a dialogue of the EAEU and the EU is being frequently discussed nowadays in key international markets, involving an increasingly wide range of both of the representatives of businesses and expert communities, specialized international associations and institutions, and official representatives of the Member States of the two unions,” declared Tatyana Valovaya, Member of the Board – Minister in charge of Integration and Macroeconomics of the Eurasian Economic Commission (EEC) at the meeting of the working group “From Lisbon to Vladivostok.” It was created upon the initiative of large European businesses, which support the establishment of interaction between the Eurasian Economic Union (EAEU) and the European Union (EU). The event was held at the headquarters of the Eurasian Economic Commission in Moscow on February 15.

The meeting of the working group was opened by Ulf Schneider, Chairman of the Board of Directors of Schneider Group, and Alexander Rahr, the scientific director of the German-Russian forum, both being the initiators of the discussion in this format. In particular, Ulf Schneider highlighted the relevance of the professional discussion of the prospects for cooperation of the EAEU and the EU and informed the attendees about the successful past presentations of the “From Lisbon to Vladivostok” project in the EAEU Member States in 2017.

“We hear the message of European businesses and expect that their initiatives are contributing to the establishment of a formal dialogue between the EEC and the European Commission,” Tatyana Valovaya informed in her welcoming address at the opening of the meeting. The EEC Minister emphasized the fact that today’s level of contacts with the EU is considerably worse in terms of the intensity than the interaction of the EAEU with its partners on other tracks, such as Asian and Latin American ones.

The EEC Minister noted that the business discussion is supported by the analytical work of the international expert community. Tatyana Valovaya drew attention to the project of the International Institute for Applied Systemic Analysis (Austria) and the Eurasian Development Bank aimed at analyzing the prospects of the dialogue between the two integration frameworks, including the idea of presenting the results of the first phase of the study “EU and EAEU: long-term dialogue and prospects of their agreement” successively in Brussels and Moscow in the first half of this year.

“In order to establish a formal dialogue between the two unions, a powerful global objective is needed,” the EEC Minister summarized. “The formation of a common economic space in Eurasia is exactly the kind of prospects that should stimulate the negotiators.”

Tatyana Valovaya responded to questions raised by the representatives of the European businesses, which related to the EAEU cooperation with China, and interlinking of the EAEU and the Chinese “One Belt, One Road” initiative. At the same time, the EEC Minister expressed confidence that the beneficiary of interaction on this market could be not only Eurasian and Chinese businesses, but also the European ones. The EU companies are already interested in joint infrastructure projects, which the EAEU and China expect to implement jointly. According to Tatyana Valovaya, there is a great potential for cooperation in the field of digital infrastructure.

Following the discussion, two more European companies – Bosch and Knorr-Bremse – joined the open Memorandum on a common economic space from Lisbon to Vladivostok signed last year by the representatives of the European business community (Schneider Group, Bosch, Metro, Rhenus Logistics, Siemens, Knorr-Bremse, OWC, Wilo, Knauf, Allianz).

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The Politico-Economic Crisis of Lebanon

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Dubbed as a failed state. The Middle Eastern country, also known as the ‘Lebanese Republic’, is already leading towards a humanitarian crisis. The country is witnessing the worst financial crisis since the 1975-90 civil war. The financial catastrophe has done most of the damage as the country currently stands as one of the top 10 worst economic disasters witnessed over the past 150 years. If the economists are put true to their word, it means that Lebanon rates as the most dismal economic crash since the 19th century. As the state of Lebanon undergoes a significant political shift since last year, the social and economic fissures are subsequently broadening. A fragile democracy (for namesake) and a constant disequilibrium in the parliamentary stratosphere, have led to an economic depression that is rapidly expanding as the country fails to adopt a unified political stance and adhere to corrective measures to hold the toppling economy from a collapse.

More than half of the Lebanese population has slumped below the poverty line as escalating inflation continues to reel the populace. The main cause underpinning such brutal inflation is the hyper-devaluation of the Lebanese pound. The currency was originally pegged at a fixed rate of 1500 Lebanese pounds to the US dollar. However, over the past three decades, the economic crunch has crippled the economic nucleus of Lebanon. According to World Bank estimates, the Lebanese pound has devalued by 95% and currently trades at 22000 Lebanese pounds to the US dollar in the black market – roughly 15 times above the official rate. The resultant inflation has driven the government to push the prices to unfathomable levels – even pushing necessities beyond the reach of an average citizen. The fact could be witnessed by the rapid increase in the price of bread – which was hiked by another 5% last month to value at 4000 Lebanese pounds per loaf.

The dire social crisis could be gauged by the fact that an average Lebanese family requires a spending worth five times the minimum wage mandated by the government just to afford basic food requirements. Most of the families can’t suffice to consume utilities such as medicine, gas, or electricity. Astounding research revealed that even hospitals dealing with the Covid outbreak are not afforded gas and electricity which has led to a hike in petroleum consumption due to heavy usage of generators. The resulting shortage of petroleum has driven rage across the country as businesses fail to thrive while multiple wings of the airports are rendered powerless. The recent World Bank report signified that the food prices have inflated by roughly 700% over the past two years – a swell of 50% in just under a month. The regional countries have shown concern as Lebanon is heading towards a health crisis with a strengthening Delta variant in the Middle East and no room for recovery.

The main cause of such a debilitating situation is primarily the rampant corruption in the echelons of the government followed by the instability that ensued last year. Following the catastrophic blast in Beirut’s port that claimed an estimated 200 lives, the government resigned in the aftermath of virulent protests across Lebanon. The political vacuum, however, further pushed the state into despair. The caretaker government, led by the former Prime Minister, Saad Hariri, failed to consolidate a government as ideological differences between the President and the Prime Minister continued to displace the essential debates of the country. The contention between President Michel Aon, a stout supporter of the Shite militant group Hezbollah, and Prime Minister Saad al-Hariri, a Sunni Centrist, caused the efforts to falter as the country continued to plunge into crisis without an elected government to handle the office.

Hariri drove the narrative that due to President’s strong ties with the Hezbollah, which is arguably supported by Iran, Lebanon has suffered a shuffle of power to entrust financial support to the militant group. The narrative caused institutions like IMF and the World Bank to hesitate in injecting desperately needed social stimulus into the country despite continual warnings of an impending humanitarian crisis by France and the United States. A political vacuum coupled with the destruction caused last year along with the prudence of global financial institutions to pivot the country have ultimately resulted in the chaos that describes the landscape of Lebanon today.

However, Hariri resigned last month after failing to form a government even after nine months. The resulting political thaw helped President Aon to appoint Najib Mikati, a lucrative businessman, and former prime minister, as an interim Prime Minister entrusted to form a mandated government in Lebanon.

With a renewed Cabinet support, something that Hariri rarely enjoyed, Mikati is expected to assuage the concerns of the IMF and support economic reforms with the help of states like France. The Paris conference, scheduled on 4th August, is now the focal point as Mikati plans to convince the French diplomats regarding his schemes to pull Lebanon out of the puddle. Prime Minister Mikati recently reflected on his aspirations: “I come from the world of business and finance and I will have a say in all finance-related decisions”. He further stated: “I don’t have a magic wand and can’t perform miracles … but I have studied the situation for a while and have international guarantees”. It is clear that Mikati envisages repairing the economy which is already long overdue.

Under the French plan aiding Mikati’s regime, he would need to enforce significant political reforms to gain international aid. The diplomats, however, envision a far graver reality. It is touted that the IMF would likely focus on two facets before granting any leverage to the Mikati-regime: political-social reforms and progress towards parliamentary elections. However, with grueling Covid cases springing into action, the road to recovery would probably be highly tensile. 

While Mikati doesn’t stem from any particular political bloc unlike his failed predecessors, he was elected primarily by the backing of Hezbollah. A question emerges: would Mikati be able to navigate through the interests of an organization subjected as a terrorist fraction by most of the Western world. An organization that arguably serves as the primary reason why Lebanon stands as one of the highly indebted countries in the world. An organization that could be the decisive factor of whether financial support flows to Lebanon or sanctions cripple the economy further similar to Iran. The question stands: would Mikati refuse the dictation of Hezbollah and what would be the consequences. The situation is highly complex and time is running out. If Mikati fails, much like his predecessors, then not only Lebanon but the proximate region would feel the tremors of a ‘Social Explosion’.

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Bangladesh-Myanmar Economic Ties: Addressing the Next Generation Challenges

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Bangladesh-Myanmar relations have developed through phases of cooperation and conflict. Conflict in this case is not meant in the sense of confrontation, but only in the sense of conflict of interests and resultant diplomatic face-offs. Myanmar is the only other neighbor that Bangladesh has on its border besides India. It is the potential gateway for an alternative land route opening towards China and South-East Asia other than the sea. Historically, these two countries have geographic and cultural linkages. These two bordering countries, located in separate geopolitical regions, have huge possibilities in developing their bilateral economic relations. At the initial phase of their statehood, both countries undertook numerous constructive initiatives to improve their relations. Nevertheless, different bilateral disputes and challenges troubled entire range of cooperation. Subsequent to these challenges, Bangladesh and Myanmar have started negotiation process on key dubious issues. The economic rationales over political tensions in Bangladesh-Myanmar relations prevail with new prospects and opportunities.

Bangladesh-Myanmar relations officially began from 13 January 1972, the date on which Myanmar, as the sixth state, recognized Bangladesh as a sovereign nation. They signed several agreements on trade and business such as general trade agreement in 1973. The two countries later initiated formal trade relations on 05 September 1995. To increase demand for Bangladeshi products in Myanmar, Bangladesh opened trade exhibitions from 1995 to 1996 in Yangon, former capital of Myanmar. However, that pleasant bilateral economic relations did not last for long, rather was soon interrupted mainly by Myanmar’s long term authoritarian rule and isolationist economic policy. In the twenty-first century, Bangladesh-Myanmar relations are expected to move towards greater economic cooperation facilitated by two significant factors. First, the victory of Myanmar’s pro-democratic leader, Aung San Suu Kyi, in 2011 has considerably brought new dimensions in the relations. Although this relation is now at stake since the state power has been taken over by military. Second, the peaceful settlement of Bangladesh-Myanmar maritime dispute in 2012 added new dimension in their economic relations.

Bangladesh and Myanmar don’t share a substantial volume of trade and neither is in the list of largest trading partners. Bangladesh’s total export and import with Myanmar is trifling compared to the total export and import and so do Myanmar’s. But gradually the trades between the countries are increasing and the trend is for the last 5 to 6 year is upward especially for Bangladesh; although Bangladesh is facing a negative trend in Balance of Payment. In 2018-2019 fiscal year, Bangladesh’s total export to Myanmar was $25.11 million which is more than double from that of the export in 2011-12. Bangladesh imported $90.91 million worth goods and services from Myanmar resulting in $65 Million deficit in Balance of Payment in 2018-2019 fiscal year. For the last six or seven years, Bangladesh’s Balance of Payment was continuously in deficit in case of trade with Myanmar. The outbreak of COVID-19, closure of border for eight months and recent coup in Myanmar have a negative impact on the trade between the countries. 

Bangladesh mainly imports livestock, vegetable products including onion, prepared foodstuffs, beverages, tobacco, plastics, raw hides and skin, leather, wood and articles of woods, footwear, textiles and artificial human hair from Myanmar. Recently, due to India’s ban on cattle export, Myanmar has emerged as a new exporter of live animals to Bangladesh especially during the Eid ul-Adha with a cheaper rate than India. On the hand, Bangladesh exports frozen foods, chemicals, leather, agro-products, jute products, knitwear, fish, timber and woven garments to Myanmar.

Unresolved Rohingya crisis, Myanmar’s highly unpredictable political landscape, lack of bilateral connectivity, shadow economy created from illegal activities, distrust created due to different insurgent groups, maritime boundary dispute, illegal drugs and arms smuggling in border areas, skeptic mindset of the people in both fronts and alleged cross border movement of insurgents are acting as stumbling block in bolstering economic relations between Bangladesh and Myanmar.

Bangladesh-Myanmar relations are yet to blossom in full swing. The agreement signed by Sheikh Hasina in 2011 to establish a Joint Commission for Bilateral Cooperation is definitely a proactive step for enhancing trade. People to people contact can be increased for building mutual confidence and trust. Frequent visit by business, civil society, military and civil administration delegates may be organized for better understanding and communication. Both countries may explore economic potential and address common interest for enhancing economic co-operation. In order to augment trade, both countries may ease visa restrictions, deregulate currency restrictions and establish smooth channel of financial transactions. Coastal shipping (especially cargo vessels between Chittagong and Sittwe), air and road connectivity may be developed to inflate trade and tourism. Bangladesh and Myanmar may establish “Point of Contact” to facilitate first-hand information exchange for greater openness. Initiative may be taken to sign Preferential Trade Agreement (PTA) within the ambit of which potential export items from both countries would be allowed to enter duty free. In recent year, Bangladesh was badly affected by many unilateral decisions of India such as onion crisis. Myanmar can serve as an alternative import source of crops and animals for Bangladesh to lessen dependence upon India.

Myanmar’s currency is highly devaluated for a long time due to its political turmoil and sanctions by the west. Myanmar can strengthen its currency value by escalating trade volume with Bangladesh. These two countries can fortify their local economy in boarder areas by establishing border haats. Cooperation between these two countries on “Blue Economy” may be source of strategic advantages mainly by exporting marine goods and service. Last but not the least, the peaceful settlement of maritime boundary disputes between Bangladesh and Myanmar in 2012 may be capitalized to add new dimension in their bilateral economic relations. Both nations can expand trade and investment by utilizing the Memorandum of Understanding on the establishment of a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

With the start of a new phase in Bangladesh-Myanmar relations, which has put the bilateral relations on an upswing, it is only natural that both sides should try to give a boost to bilateral trade. Bilateral trade is not challenge free but the issue is far easier to resolve than others. At the same time, closer economic ties could also help in resolving other bilateral disputes. For Myanmar, as it is facing currency devaluation and losing market, increased trade volume will make their economy vibrant. For Bangladesh, it is a good opportunity to use the momentum to minimize trade deficits and reduce dependency on any specific country.

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The Monetary Policy of Pakistan: SBP Maintains the Policy Rate

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The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.

The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.

Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22. 

Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.

Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.

The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.

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