Rising food prices have an impact on the poor economy

T.He is Sri Lankan The economy was in dire straits before Russian tanks began entering Ukraine. The Sri Lankan government is overwhelmed by the burden of foreign debt and the impact of the epidemic on its tourism access IMF For help as the year begins. Now the devaluation of the currency and the effects of war on commodity markets are driving up consumer prices. Troops have been deployed to calm the crowd lined up for fuel, and a debt default could be inevitable. As prices rise for everything from oil and gas to corn and wheat, other countries could expect similar consequences.

Food makes up a small part of the household budget in a rich world, but accounts for more than 20% of most consumer spending in the emerging world and about 40% in sub-Saharan Africa. Prices have already risen significantly in the last few years due to production disruptions and extreme weather. Global food prices, in fact, reached an all-time high in February, according to an index A Food and Agriculture Organization. From then on they will rise even higher.

One consequence of this is increased poverty. The Center for Global Development, a think-tank, estimates that Russia’s aggression in Ukraine will push 40 million people worldwide into extreme poverty. (By comparison, the World Bank estimates in 2021 that approximately 100 million people will fall into poverty as a result of the Covid-19 epidemic.) High commodity prices will also add to the macroeconomic strain in many places.

Total debt across emerging and developing economies stood at a 50-year high last year, comparatively GDP. These banks are raising the cost of services as central banks around the world start raising interest rates to check inflation. Tough economic conditions are weighing on emerging-market currencies, increasing the cost of foreign exchange borrowing and forcing the government to drain currency reserves to reduce exchange rates. High commodity prices could further complicate the financial picture for emerging economies, as many governments provide generous food and energy subsidies to households.

The case of Sri Lanka is exemplary. Its foreign exchange reserves have shrunk from 8 8 billion in 2019 to about 2 2 billion earlier this year. Although the government has sought help from both India and China, it will almost certainly need help IMFWith which it is expected to begin negotiations in April (and may call for a reduction in subsidies as part of any rescue package).

Egypt has also struggled. It imports about two-thirds of the wheat it uses, the lion’s share of which comes from Russia and Ukraine. At the pre-epidemic stage of consumption, Egypt’s annual bill for food and energy imports is about 40% of its foreign exchange reserves (see chart). Realizing the problem, foreign investors began withdrawing money from the country, forcing the government to devalue 14% of the currency. March 23 It is officially sought IMFIts help

The World Bank estimates that at least a dozen countries may be unable to repay their loans in the next 12 months due to low hard currency reserves. Some South Asian and North African economies are in crisis; Pakistan and Tunisia are particularly vulnerable. Even emerging markets with healthier financial positions can expect slower growth, higher inflation and the Krumper citizens to face the consequences of the Russian war.

The news is not all bad. Economies that specialize in producing the most disrupted goods due to war may benefit from the rise in prices. The oil-exporting Gulf states will collect a windfall, which will only partially offset the high price of imported food. Some Latin Americans have praised their high expectations for oil and grain exports since the start of the currency war. Brazil appears to be in crisis in 2021, driven by high inflation and revenue shortfalls. The war has given a remedy to a large exporting country. For many in the rest of the world, though, it has been something. 3

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This article is published under the heading “Menu Expenses” in the Finance and Economics section of the print edition.

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