Tag: World Bank

CRUDE PRICES CONTINUE TO TUMBLE

At the beginning of the year crude was trading close to 100$/barrel, today it is close to 46$/barrel. Since June this year, global oil prices have witnessed a sharp decline with the main causes being weak demand for oil thanks to slow economic growth & a surge in U.S. Shale gas production. Experts believe the decline is here to stay with some of them predicting the next targets at 30-20$/barrel

Organisation of the Petroleum Exporting Countries (OPEC), the oil cartel has decided not to cut down on production in order to support prices. The UAE (United Arab Emirates), Saudi Arabia, Qatar among others are key members of the OPEC who control a majority of the world’s oil reserves & production. A majority of the OPEC members are oil-dependent economies who need oil to be trading at 100$/barrel levels to support their growth.

Tensions are surfacing among OPEC members with a few of them like Venezuela opposing the move to keep output levels unchanged. Venezuela which is among the world’s largest oil exporter is at the brink of a recession thus making it hard to cut down production.

Last month Russia, one of the world’s largest oil producers had to defend its currency by hiking interest rates overnight to 17% as a result of sliding crude prices. The struggling Russian economy is expected to contract further this year if oil prices do not recover.

Experts believe that Saudi Arabia which is one of the most influential OPEC member is resisting a move on output cuts in order to crush U.S. Shale gas output. Saudi Arabia has deep financial reserves & can resist a downfall in crude prices for a while. In the past during a similar downfall Saudi Arabia cut down production only to suffer huge losses in revenue & market share. Having learnt a lesson from their mistake the Saudis are not willing to burn their hands again.

According to Columbia University, U.S. oil production is at its highest level in 30 years. Discovery & drilling of Shale gas from rocks has become faster & inexpensive compared to the past thus boosting output levels. Echoing similar sentiments the U.S. Energy Department expects domestic crude production to rise this year though growth could witness a slowdown.

However experts believe in the long-term low prices will make Shale gas production unviable. Consequently investments will be scaled down & low-sized firms will be forced to wind up operations.

Another reason for the pressure on crude prices has been the strengthening U.S. Dollar. Since commodities like oil & gold are priced in U.S. Dollar it is expensive for consumers buying it with any other currency thus reducing its demand.

Meanwhile World Bank has cut its global growth outlook which is adding further pressure on crude prices. World Bank expects the world economy to grow by 3% this year compared to its earlier forecast of 3.4% for 2015.

EBOLA CRISIS DEEPENS; FIRST PATIENT DIES IN THE U.S.

In a dramatic turn of events Thomas Eric Duncan the first patient to be diagnosed with Ebola outside of Africa died in Dallas, Texas, U.S. Last month the Liberian became the first person in the U.S. to be diagnosed with the deadly disease which has killed almost 4,000 people.

As a cargo driver by profession the Liberian happened to offer a lift to an Ebola-affected family in the capital city of Monrovia where he apparently contracted the virus. Later Duncan travelled to the U.S. where he soon fell sick.

Before travelling to the U.S., Duncan failed to declare he had been in contact with Ebola in the mandatory pre-flight questionnaire. This move has prompted the Obama administration to tighten & expand Ebola screening at 5 major U.S. Airports. The check will extend to travelers coming in from Sierra Leone, Liberia & Guinea; worst-affected by Ebola. Incoming travelers will be screened with high-tech thermometers which don’t touch the skin.

After falling ill Duncan approached a hospital where he was turned away only to be admitted two days later after his condition worsened. Duncan was being treated with an experimental drug in an isolation ward in the Texas Health Presbyterian Hospital.

Duncan’s body will be cremated according to guidelines laid down by the Centers for Disease Control & Prevention (C.D.C). Ten other people who came in close contact with Duncan including health care workers & close family members haven’t been quarantined yet. These special cases are staying at their respective homes & are closely being monitored for Ebola symptoms.

Duncan’s death has shifted the spotlight on the hospital’s role in handling the case. Five days after he arrived in Dallas, the Liberian went to the hospital’s emergency room. After an initial treatment he was discharged by the hospital which failed to recognize him as a potential Ebola patient. Three days after his condition worsened Duncan was admitted to the hospital. Lack of care at the right time could have cost the victim his life.

Meanwhile Spain reported its first case of Ebola; a sign that Europe too is not immune from Ebola. A Spanish nurse, Teresa Romero Ramos who treated two Spanish missionaries who flew back from Africa has become the latest victim of the deadly virus. Ebola spreads though bodily contact of fluids of an infected person. The nurse claims to have touched her face with a gloved hand while removing hear protective clothing after treating an Ebola patient.

Like in Duncan’s case the nurse was first told to take an aspirin to treat her fever & reportedly didn’t exhibit Ebola-like symptoms. However just a week later she tested positive for the virus. During this one week Romero went on a short holiday, sat for a civil service exam with 20,000 other people & even used public transportation. Many in Madrid are anxiously waiting to see if they also exhibit any Ebola-like symptoms.

With an increasing number of patients coming in to Europe from West Africa for Ebola treatment the World Health Organisation (WHO) hasn’t ruled out the possibility of an outbreak. More than 50 people who were in close contact with her before she was isolated are being closely monitored now for the virus. Spanish media reports suggest that the nurse had to beg for an Ebola screening test. She was reportedly made to wait in the hospital’s crowded waiting room for hours without any protective gear, thus increasing the exposure of the virus.

Isolation is the first form of defense against the disease which was not followed in both cases. Currently the nurse is being treated with antibodies of Ebola survivors; the only known successful treatment for the virus so far. However Duncan’s family claims he wasn’t administered these antibodies thus denying him a fair treatment.

It is baffling that developed economies like the U.S. & Europe have been so slack in responding to Ebola compared to poor African nations struggling with limited resources. The Spanish hospital did not provide nurses with bio-hazard suits confirming to WHO norms & nurses were given rushed training on treating Ebola patients. Human waste of Ebola patients was transported through the hospital’s same elevator used by unprotected staff.

In Sierra Leone, burial teams responsible for collecting Ebola victim corpses have resumed work after striking over delay in payment of dues. Around 600 workers working in teams of 12 receive an extra $100 per week over their regular pay for doing the hazardous work. Unclaimed bodies increase the risk of the virus spreading. While Britain & the U.S. are sending in troops, aircraft with supplies & medicines the Ebola-hit nations are struggling with shortage of trained medical personnel.

Panicked doctors are fleeing away in Ebola-hit West Africa thus leaving patients to fend for themselves. Most of these nations are so poor that they lack basic infrastructure like clean drinking water, soaps & hand sanitizer. A few healthcare workers haven’t been paid for months but are still treating Ebola patients without surgical or rubber gloves. Some clinics do not have electricity & are plagued with poor internet & mobile phone network.

In one of the Ebola-hit nations thousands of boxes of medical supplies & protective gear are sitting idle due to a dispute between the Government & the shipping company. Bureaucracy & tensions from political rivalries are hampering the disbursement of aid. People on the streets are questioning where the money coming in from donations has disappeared.

Meanwhile a World Bank study has pointed out that the economic costs of Ebola is close to $33 bn over the next two years if the virus spreads to neighbouring countries in West Africa.

African nations have to shake off their bureaucracy first & serve the ailing people first before thinking about their own needs. Only if the virus is contained in West Africa it can be prevented from spreading globally.

THE BRICS BANK IS BORN

After being in the pipeline for long, the BRICS have agreed to launch a new development bank, the BRICS bank. For the uninitiated BRICS comprises of Brazil, Russia, India, China & South Africa.

The bank is being billed as an alternative to global monetary institutions like the IMF (International Monetary Fund) & The World Bank. The new institution will be headquartered in Shanghai with India holding the President’s post for a five year tenure on rotation. With a capital pool of around $100 bn the new bank’s lending will be modest in comparison to the bigger loans given out by its established peers like the World Bank & IMF.

The bank will fund sustainable development & infrastructure projects along with assisting members in times of financial difficulties. The entry of the new bank is being viewed as a significant change in the world order.

Voting quotas in the IMF have remained unchanged from a long period of time. Each of the IMF member country is assigned a quota based on the country’s contribution to the global GDP (Gross Domestic Product). Emerging countries like China & India are witnessing rapid economic growth, yet their representation in the IMF is minimal; a contentious point among emerging economies.

BRICS economies from long have sought a Non-European leader to lead the IMF keeping in tandem with the changing global demographics. Christine Lagarde’s eventual appointment as the IMF Chief in 2011, further added to the feud.

However many economists believe that the BRICS Bank will not be a smooth sailing thanks to prevailing domestic issues in the member countries. Russia is fighting sanctions from Europe & US for it’s support in destabilizing Ukraine. The new spell of sanctions are expected to hit the country’s struggling economy & impact it’s two biggest banks. The freezing of aid will also hurt Russia’s key sectors like Energy & Infrastructure.

Meanwhile the new Indian Prime Minister Narendra Modi has an uphill task in hand of reviving the country’s sagging fortunes. Remember India & China have been engaged in a long & continuing cross-border tensions. India may use the bank as an opportunity to leverage it’s influence as the numero uno in Asia.

Brazil is struggling with high unemployment rates & a spiraling crime rate. The recently concluded Football World Cup doesn’t seem to have helped the country’s cause with the people’s unrest spreading to the streets just before the mega ceremony. Brazil’s currency is undervalued & it’s become an expensive place to live in compared to other places like Europe.

Meanwhile South Africa is recovering from a four-week strike across it’s steel & engineering sectors.

While the bank is a welcome move to reduce dependency on global giants for liquidity it remains to be seen how much of a success it will be in the near future.

WOOD FIRES & DIESEL CARS AIDING CLIMATE CHANGE: WORLD BANK

Simple steps to reduce pollution like use of cleaner cooking stoves and reducing carbon emissions from diesel-run vehicles could help in saving a million lives across the Asian subcontinent and control global warming according to a new World Bank study. According to the report ‘On Thin Ice-How Cutting Pollution Can Slow Warming & Save Lives’ the Himalayan glacier is increasingly showing dirt rather than ice. Diesel vehicles and cooking on open fires release pollutants in the air which lowers the reflectivity of snow and ice. This is turn leads accelerates the melting of ice.

According to the World Health Organisation (WHO) around 4 lakhs people die In India annually due to toxic fumes from cook stoves. According to TERI (The Energy & Resources Institute) four out of every five rural households & one out of every five urban households in India depend on direct burning of firewood, crop residue and cattle dung in traditional mud stove or a three stone fire for cooking. Women and young children are exposed to smoke in poorly ventilated kitchens and face an increased risk of pneumonia, respiratory diseases among others. The fumes emitting hazardous climate change agents like black carbon and carbon monoxide act as a double-edged sword. Additionally traditional mud stoves result in high fuel consumption which in turn leads to deforestation.

Earlier this year in June devastating flash floods, landslides & cloudburst resulting from extreme rainfall caused havoc in Uttarakhand, making it one of the worst natural disasters in recent times. Homes and roads were destroyed with pilgrims and tourists trapped in valleys. According to media reports an estimated 6000 lives were lost and thousands were stranded in the immediate aftermath of the incident. Immediately after the incident environmentalists termed the Himalayan Tsunami as a ‘man-made disaster.’

According to experts huge expansion of roadways is bringing down the mountains while expansion of hydel power projects is causing diversion of water to tunnels or reservoirs. While making note of the Uttarakhand disaster the report says, “The past decade has seen a general decrease in overall rainfall during the monsoon and a later date of onset.” As a result of the catastrophic changes the report cautions that water resources of more than 1.5 billion people, as well as services such as electricity, and the food supplies of 3 billion people could be under threat.

Finally the report states around 3,40,000 premature deaths can be saved by reducing emissions from diesel transport. Diesel consumption in India is estimated at 69 million tonnes according to figures put out by the Petroleum Ministry’s research wing. Bulk of the fuel is consumed by the Agriculture & Transport sectors. Diesel vehicles in particular are popular for their better mileage; however this advantage is negated since they emit high amounts of smoke particles and nitrogen oxides.

According to the International Council on Clean Transportation (ICCT), between April 2012 to March 2013, India witnessed a 10% rise in new diesel-powered car sales. Even after full elimination of the diesel subsidy one can expect a negligible gap between the retail prices of petrol and diesel in India. Hence consumers will opt for a cheaper fuel without realising the environmental hazards of their choice.

The on-going UN Climate Summit at Warsaw, Poland has been bogged down by disputes between developed and developing countries over emission cuts and climate aid. India’s official stance is that it expects industrialised nations to take a leadership role when it comes to tackling global warming.

Back home, time is running out for India. There are many more ‘Himalayan Tsunamis’ waiting to happen unless India gets its act together. India should scout for more renewable energy options and subsidise cleaner cook stove options for the poor. While eliminating poverty & economic development are India’s top priorities it cannot afford to ignore the growing danger of climate change. Ultimately building climate resilience is crucial for ending poverty.

SKEWED RESOURCE ALLOCATION HURTING INDIA’S GROWTH PROSPECTS

In 2004 the Indian economy was growing at a healthy rate of 8 per cent. Cut to the current fiscal year of 2013-14 and India has registered just a meagre 4.4% GDP growth in the first quarter (April-June). This figure is the lowest in four years. In what could spell more gloom for the economy, a host of international organisations have slashed their growth forecasts for India. The International Monetary Fund (IMF) has lowered the growth projection for India from an estimated 5.7 to 3.75 per cent in the current fiscal year. An Asian Development Bank (ADB) forecast expects India to grow at 5.8 per cent this year compared to the earlier projection of 6 per cent. Amidst these growth downgrades a new World Bank report suggests that skewed resource allocation in India is hurting the country’s growth rate. The report titled World Bank’s ‘Development Report 2014’ states that, “If resource allocation in India is made as effective as that in the US, the country’s economic growth could rise 60 per cent through higher factor productivity.”

Allocation of central Government funding for states has always been a bone of contention. A recent report by a six member panel headed by Raghuram Rajan, Reserve Bank of India (RBI) Governor has proposed drastic changes in central funding for states. The panel recommends that proposed allocations should be on the basis of development ranking of each state. In effect states which have shown improvement in development parameters could face a proportionate reduction in financial assistance from the Centre.

Even if the committee’s recommendations are accepted once cannot expect drastic progress in the development patterns of states immediately. If today ‘Odisha’ falls under the ‘least developed’ states as per the Rajan Panel report, then the state and the Centre need to chalk out ways to boost trade. In order to set up an industrial hub necessary infrastructure like ports, coal and fuel linkages, roads, electricity among others is essential. Besides there is no guarantee that the funds will be used for development; they could be diverted into non-productive avenues. Every state will have their own methodologies for resource utilisation and are likely to formulate policies which do not toe the Centre’s line.

The report states, “Government officials tend to provide resources to their constituents in the run-up to elections or fall prey to lobby group competing for higher spending during upswings.” A good example of the above would be the Food Security Bill, which is the brainchild of Sonia Gandhi, the United Progressive Alliance (UPA) Chairperson. The bill will provide subsidised food grains worth 5 kg in the range of Rs 1-3, every month to 67% of India’s population. Many analysts and even recently the World Trade Organisation (WTO) has expressed concerns over the bill stating that the new ordinance will only increase the country’s subsidy burden and hurt the fiscal deficit. The UPA is hoping this measure will woo voters in the run up to the General Elections next year.

It is evident from the findings of the report that Government can help the labour market by providing information about training practices and changing market trends which in turn can boost productivity. With specific reference to India the report says, “Field experiments on large Indian textile firms show that increasing awareness of the necessary management skills raised average productivity by 11 per cent by improving quality and efficiency and reducing inventory.”