- Greece Approved for $1.8 Billion Conditional Loan From IMF
The International Monetary Fund agreed to a new conditional bailout for Greece, ending two years of speculation on whether it would join in another rescue and giving the seal of approval demanded by many of the country’s euro-area creditors.
The Washington-based fund said Thursday its executive board approved “in principle” a new loan worth as much as $1.8 billion. The disbursement of funds is contingent on euro-zone countries providing debt relief to Greece.
“As we have said many times, even with full program implementation, Greece will not be able to restore debt sustainability and needs further debt relief from its European partners,” IMF Managing Director Christine Lagarde said in a statement. “A debt strategy anchored in more realistic assumptions needs to be agreed. I expect a plan to restore debt sustainability to be agreed soon between Greece and its European partners.”
IMF officials estimate that, even if Greece carries out promised reforms, the nation’s debt will reach about 150 percent of gross domestic product by 2030, and become “explosive” beyond that point. European creditors could bring the debt under control by extending grace periods, lengthening the maturity of the debt or deferring interest payments, the IMF said in a report accompanying the announcement.
The IMF’s decision to agree on the “precautionary stand-by arrangement” reflects the compromise reached in June between euro-area finance ministers reluctant to offer more generous repayment terms to Greece, and the fund, which resisted financing a country whose debt it considers too high to be paid back in full.
“Despite no prospect of an immediate disbursement, the IMF’s participation is useful for everyone,” Tassos Anastasatos, an economist at Eurobank Ergasias, said before Thursday’s announcement. While for euro-area governments it’s a “disciplining device” on Greece, in the long-term it gives Athens leverage to demand something more on debt relief, he said.
Return to Markets
A much-anticipated Greek return to bond markets this week has been held off partly due to a ceiling set by the IMF on the amount of debt the country can hold, according to three officials familiar with the matter. Using possible workarounds like debt swaps — that could improve Greece’s maturity profile without increasing the overall load — the government is waiting on how markets react to the IMF’s debt sustainability analysis before a possible foray as soon as next week.
The government is closely monitoring conditions in bond markets, and will only return when the time is right, Greek government spokesman Dimitris Tzanakopoulos told reporters in Athens on Thursday.
Having the IMF co-finance Greece’s rescue program was a key demand of many of the country’s euro-area creditors, led by Germany, who see the fund’s participation as ensuring the credibility of the reforms the country is asked to implement. But upcoming elections in Germany also made it impossible for Berlin to concede to any further debt relief for Greece, pushing instead for all decisions to be taken at the end of the country’s bailout in the summer of 2018 — and only if needed.
While the fund’s decision helps both the IMF and Germany stick to their guns, it does mean the issue will likely arise after the German elections in the fall, when the question of whether Greece will actually receive any loans from the IMF resurfaces.
Oil Rises as Threat of Immediate Iran Supply Recedes
Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.
Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.
A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.
It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.
Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.
“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.
To meet rising demand, U.S. drillers are also increasing output.
U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.
Oil Prices Rise as Demand Improves, Supplies Tighten
Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.
Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.
U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.
“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.
“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”
Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.
The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.
“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.
The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.
IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.
The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.
On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.
U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.
It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.
FG Spends N197.74 Billion on Subsidy in Q1 2021
The Federal Government has spent a total sum of N197.74 billion on fuel subsidy in the first quarter (Q1) of 2021, according to the Federal Account Allocation Committee (FAAC) report for May.
The report noted that the value of shortfall, the amount the NNPC paid as subsidy, in the March receipts stood at N111.97 billion while N60.40 billion was paid in February.
In the three months ended March, the Federal Government spent N197.74 billion on subsidy.
The increase in subsidy was a result of rising oil prices, Brent crude oil, against which Nigerian oil is priced, rose to $73.13 per barrel on Monday.
The difference in landing price and selling price of a single litre is the subsidy paid by the government.
On May 19, the Nigerian Governors Forum suggested that the Federal Government removed the subsidy completely and pegged the pump price of PMS at N380 per litre.
The governors’ suggestion followed the non-remittance of the NNPC into the April FAAC payments, the money required by most states to meet their expenditure such as salaries and building of infrastructure.
However, experts have said Nigeria is not gaining from the present surge in global oil prices given the huge money spent on subsidy.
Kalu Aja, Abuja-based financial planner and economic expert, said “If Nigeria is importing Premium Motor Spirit and still paying subsidy, then there is no seismic shift.”
“Nigeria needs oil at $130 to meet the deficit. In the short term, however, more dollar cash flow is expected and with depreciated Naira, it will reduce short term deficit.”
Adedayo Bakare, a research analyst, said that the current prices do not really mean much for the country economically.
He said, “The ongoing transition away from fossil fuels and weak oil production from the output cuts by the Organisation of Petroleum Exporting Countries will not make the country benefit much from the rising oil prices.
“Oil production used to be over two million barrels but now around 1.5 million barrels. We need OPEC to relax the output cuts for the naira to gain.”
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