Chintamba Gama, who runs a small business in Malawi, Africa, involved in fish farming, livestock farming, and growing crops such as corn, chili peppers and beans, is ready to end Russia’s war on Ukraine. “By the grace of God, I hope something happens,” he said. luck.
Gama cannot afford bread for his family as the price has jumped 100%. He now pays more than three times as much as he does for fertilizer for his crops and feed for his fish. Labor and transportation costs also soared.
“Life is getting more and more unbearable with each passing day,” he said, adding that his greatest fear was seeing his business fail and not be able to support his family.
The Russian invasion of Ukraine, which began six months ago, has disrupted global trade and production. Until recently, Russia blocked Ukrainian wheat exports, which led to high global food prices. Meanwhile, Western countries are cutting energy imports from Russia, driving up fuel prices.
And it is emerging economies in Asia, Africa and the Middle East, already hard hit by the pandemic, that are suffering the most. The economic upheaval has destabilized society, shaken regimes, and even overthrew governments in Sri Lanka and Pakistan.
With no end in sight to the war and the growing humanitarian crisis unfolding in developing countries, there are no easy solutions. Due to the lack of safety nets in many cases, those most affected have to deal with the impact themselves.
First Collapse: Sri Lanka
Sri Lanka has become a symbol of a deep crisis.
That problem started well before the Russian invasion. Over the past two years, tax cuts and a pandemic have wiped out Sri Lanka’s thriving tourism sector and drained Sri Lanka’s treasury. Last year’s inappropriate ban on imported fertilizers devastated the country’s crops, leaving Sri Lanka even more dependent on imported food it can’t afford.
But the war in Ukraine has pushed Sri Lanka to the brink. Rajiv Biswas, chief Asia-Pacific economist at financial information firm S&P Global Market Intelligence, said the island’s dependence on oil imports, high external debt burden and low foreign exchange reserves have made it particularly vulnerable. Told. luck.
The massive crisis that followed paralyzed the economy and overthrew the government. By May, Sri Lanka defaulted on its foreign debt for the first time as food inflation surged to nearly 60% of hers, and non-foods inflation rose to nearly 31% of hers that month.
The government announced a four-day work week, gave citizens an extra day to grow food, and reintroduced fuel rationing. However, the measures were not enough. By June, Sri Lanka had only enough fuel to power essential services such as health care and public transport for two weeks. Businesses were paralyzed, schools were unable to operate, and the country ran out of essentials such as medicine. Then-Prime Minister Ranil Wickremesinghe admitted that “our economy has completely collapsed”.
Clarban Kursegram, an agricultural expert at Palmela, a non-governmental organization that helps rural people, said farmers were unable to find fuel for their equipment and had to travel to towns to access government services such as health care. Now, “People are in debt again. Many have had to take out loans to rebuild their lives again. It’s getting close,” he said. luck.
By July, fed-up Sri Lankans had ousted former president Gotabaya Rajapaksa from power, erased his family’s 20-year rule of the island, and propelled Wickremesinghe to the presidency. The Rajapaksa government “quickly and completely” lost public support as all its citizens faced difficulties, said Sumudhu Wattugala, a finance professor at Indiana University. luck.
Still, the Sri Lankan experience may be no exception.
The same pattern appears across Asia and Africa. In Bangladesh, he closes schools one day a week and reduces his working hours to reduce energy usage. The fuel crisis has hit the garment sector, which employs more than 4 million people and accounts for his 10% of GDP. Bangladesh is the world’s second largest garment exporter after China.
Pakistan, currently suffering from a summer heat wave, has implemented a power cut for more than 12 hours due to a lack of sufficient energy. That problem dates back to the pandemic, when the prices of food and other essentials skyrocketed.
But it was due to post-war price increases and double-digit inflation. [an] It is making an already bad situation worse for Pakistan,” said Shahrukh Wani, an economist at Oxford’s Bravatnik School of Public Administration. luckPakistan’s parliamentarians ousted Prime Minister Imran Khan from power in April. Khan, a former cricket star, has fallen out of favor with the country’s military establishment, but the opposition has also used inflation and economic hardships to turn the public against him, Wani said.
Pakistan, like other emerging economies, is currently competing with Europe for supplies of liquefied natural gas (LNG). As Russia curbs gas supplies to Europe and blocs rush to withdraw from Russian energy. This means that Europe is outpacing countries in Asia and Africa to devour the world’s LNG at inflated prices.
“This makes the cost of importing LNG increasingly prohibitive,” said S&P Global Market Intelligence economist Biswas.
Protests rage across Africa, from South Africa to Kenya to Guinea. Citizens are unafraid of rising fuel and food costs.
Landlocked Malawi saw inflation rise by nearly 10% last year as a result of the pandemic. However, Malawians are increasingly frustrated with their claims of a corrupt government that cannot solve the country’s economic problems.
Temuwa Deshi, who owns an agri-food business in Malawi, buys rice and honey from local farmers and sells it nationwide. Her fuel price hike prevented her from reaching customers in certain cities and reduced her monthly income from her $391 to just $117.. “We have to close,” she said luck, And with so many people like her, it is inevitable that there will be more unemployment in an economy that is already struggling to create job opportunities.
More shocks await
Emerging economies are now looking to the outside for help. But getting that help to revitalize a hard-hit economy is difficult, if at all possible.
“Many emerging markets, especially smaller ones, are at risk of a debt crisis,” said Gabriel Stern, head of global emerging markets and strategy research at Oxford Economics. luck.
Sri Lanka’s foreign exchange reserves have fallen to $1.82 billion (a 99% decrease compared to 2019) and the government owes foreign creditors more than $50 billion. The central bank says inflation is currently at 61% and he expects it to hit 70% before it finally eases.
Sri Lanka hopes to extend its line of credit with the International Monetary Fund (IMF), which is “essential to put the economy on a more secure footing,” said a senior Asia analyst at research firm Capital Economics. Economist Gareth Leather said. I wrote in July. Still, the IMF’s help is conditional and will depress the country’s economy even after the worst of the crisis is over, he said.
Sri Lanka also needs to negotiate debt relief with China, the country’s biggest lender. But so far, China seems reluctant to accept a “haircut” to Sri Lanka’s debt. Such deals with creditors are necessary before the IMF can fund governments.
Cash-strapped Pakistan recently reached an agreement with the IMF to resume lending. But they need more dollars, probably from China and the Middle East, Wani said. Pakistan’s new government, led by Arif Alvi, continues to face a precarious situation. As Wani put it, “the very steps taken by the government to stabilize the economy are adding to the political instability.”
Ultimately, the shock of the war with Ukraine will be even more difficult for governments, especially for smaller emerging markets. “We are likely to see a wave of greater national crises than we’ve seen since the 1980s,” says Oxford Economics’ Sterne.