Issue link: https://maltatoday.uberflip.com/i/1451754
G iven the international uncertain- ty prevailing as oil has peaked at over $100, with the Ukraine / Russian military standoff and the threat of rising inflation, it was the perfect time for finance minister Clyde Caruana to an- nounce measures and extension of others in a bid to safeguard businesses. Previously, he announced an exten- sion in the tax deferral scheme for busi- nesses, with all income tax, social secu- rity contributions and VAT payments between August 2020 and December 2021 being eligible for deferral until May 2022, when they can be repaid in instalments. On the contrary, the PN is asking for an eight year tax deferral and the ab- olition of fines and interest over such arrears to help businesses walk out of the post-pandemic crisis. In the ab- sence of the Ukraine/Russian crisis, it was encouraging to note how the EU commission predicted a return to eco- nomic normality would come in 2023, with inflation in the eurozone sinking to 1.7 per cent – below the Europe- an Central Bank's two per cent target. Most certainly, interest rates will go up to restrain the growth of inflationary pressures. is scenario may possibly lead to the FED increasing interest rates partly to clam inflation which in USA is hov- ering around 7%. Banks in Malta will certainly breathe a sigh of relief at this prospect as they can look forward with greater visibility to the day when they are not charged a negative rate on the balances they deposit with the Central Bank. But for many local savers, this is also an important step towards returning to the concept that you are rewarded for saving rather than penalised for it. Back to the Ukraine's crisis and indirectly the instability that had the effect of in- crease in oil prices. is closed on the $100-a-barrel mark last seen in 2014, as investors grow increasingly worried about supplies in the event of a war. is was in reference to the more than 130,000 Russian troops that are deployed on the border with Ukraine, raising Western fears of a possible at- tack. e crisis has brought major un- certainty over the supply of energy from Russia, which accounts for roughly 40 per cent of the gas that heats homes and powers factories in the 27-member EU. e crisis comes with crude prices al- ready tight, owing to a pick-up in de- mand as economies reopen after the coronavirus pandemic and people re- turn to a more normal life. Now with a high oil price and cost of LNG deliv- eries peaking, it will not be long before the existing temporary subsidy by the Malta government will not suffice to keep fuel and electricity tariffs stable this winter. On the international scene, despite the widespread risk due to border skirmishes by Russian troops, there is mounting tension among companies fearing disruption of supplies. An in- vasion by Russian troops will definitely lead to the imposition of new sanctions by the West slowing down trade and bank transfers. As can be expected, European oil and gas companies would benefit on bal- ance due to a potential oil price jump. During such grey times, the media talks in terms of the impact on the broader equity markets, yet history shows that as long as military conflicts remain rel- atively localised, the impact is generally not expected to be felt for too long. is is a relief yet in the short term, one notices how the average freight spot rate per 40-foot container, as registered by the World Container Index, is 79 per cent higher than it was a year ago. is is a worrying trend and is affecting ad- versely importing countries (including Malta) seeing their imports cost higher and inflation creep in. e current sit- uation has, and is, directly hitting the freight transport sector as the first point of contact – sea, road, air, and other in- termodal transportation have all been challenged. Availability of containers is low (albe- it recovering); some key ports remain congested and cargo is hence blocked; freight rates have increased; and, ulti- mately, cargo deliveries delayed. All this is adversely hitting Malta as it sees its cost of living shooting up. A one-time remedy proposed by the prime minister is the issue of a one-time €100 voucher. Regrettably, this is not a Midas touch. It will hardly dent the spiral effect of rising prices hitting pensioners and low-income groups. is was in con- text, to more Russian troops and assets deployed on the border with Ukraine, raising Western fears of a possible at- tack. e crisis has brought major uncertainty over the supply of energy from Russia, which is a major player ac- counting for roughly 40 per cent of the gas that heats homes and powers facto- ries in the EU. In Asia, we note the warning issued by Eli Lee at Bank of Singapore. He argues that the volatility that had characterised markets so far this year would probably continue considering the possibility of military action by China over Taiwan. He predicts a spike in oil and gas pric- es, which would exacerbate the issue of inflation over the near term. Investors last week, got a taste of the sort of mar- ket shock that could come if Russia in- vades Ukraine. e alarm was triggered after the White House warned Americans should leave Ukraine immediately due to worries about an imminent invasion by Russia. Investors had hoped on a diplomatic resolution of the matter, but recent developments indicate this may be wishful thinking and therefore, not fully priced into the markets. In conclusion, the sabre-rattling ex- ercise by Mr Putin deploying Russian armed forces circling Ukraine's borders may lead to a recognition of how frag- ile is the Western alliance (including NATO) against aggressors and how ut- terly dependent is Europe on the Rus- sian supply of oil and gas (not to men- tion wheat and cereals). In short, Mr Putin appears to be keep- ing all options open. He could invade Ukraine "at the drop of a hat", yet, he could keep troops deployed for an ex- tended period as a form of armed di- plomacy. Surely with his diplomatic overtures, he has also given himself the means of turning away from war if he thinks he has gained enough clout without having to take more risks. Only time will tell if 2022 will be marked as the start of all-out war at the Eastern front ushering a recession while hopefully the pandemic eases its deadly grip on the world. Oil hitting $100, Ukraine crisis and business recovery George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island 8 OPINION 17.2.2022