The combination could generate a wave of political instability, as people who were already frustrated with government leaders are pushed over the edge by rising costs.
“It is extremely worrisome,” said Rabah Arezki, a senior fellow at Harvard’s Kennedy School of Government and former chief economist at the African Development Bank.
“I don’t think people have felt the full impact of rising prices just yet,” said Hamish Kinnear, a Middle East and North Africa analyst at Verisk Maplecroft, a global risk consultancy.
Lessons from the Arab Spring
Circumstances in individual countries differed, but the bigger picture was clear. Surging wheat prices were a major part of the problem.
The situation now is even worse than it was then. Global food prices have just hit a new record high. The FAO Food Price Index published Friday hit 159.3 in March, up almost 13% from February. The war in Ukraine, a major exporter of wheat, corn and vegetable oils, as well as harsh sanctions on Russia — a key producer of wheat and fertilizer — is expected to spur further price increases in the coming months.
Adding to the pain is the surge in energy prices. Global oil prices are almost 60% higher than they were a year ago. The cost of coal and natural gas has spiked, too.
Many governments are struggling to protect their citizens, but fragile economies that borrowed heavily to make it through the 2008 financial crisis and the pandemic are most vulnerable. As growth slows, hurting their currencies and making it harder to keep up with debt payments, maintaining subsidies for food and fuel will be difficult, especially if prices keep climbing.
“We are now in a situation where countries are indebted,” Arezki said. “As a result, they have no buffers to try to contain the tensions that will emerge from such high prices.”
Where tensions are simmering
Asia: In Sri Lanka, an island nation of 22 million, an economic and political crisis is already boiling over, with protesters taking to the streets in defiance of curfews and government ministers stepping down en masse.
Grappling with high debt levels and a weak economy reliant on tourism, Sri Lanka was forced to run down its reserves of foreign currency. That prevented the government from making payments for key imports such as energy, creating devastating shortages and forcing people to spend hours lining up for fuel.
Its leaders have also devalued its currency, the Sri Lankan rupee, as they try to secure a bailout from the International Monetary Fund. But that just made inflation worse at home. In January, it reached 14%, almost double the rate of price increases in the United States.
Meanwhile, Pakistan’s Khan faces a vote of no confidence on Saturday in the country’s parliament. While his political problems date back years, he’s now battling claims of economic mismanagement as the cost of food and fuel leaps and the government depletes its foreign exchange reserves.
“The extent of economic chaos has united opposition to Imran Khan,” Kinnear of Verisk Maplecroft said.
Middle East and Africa: Experts are also watching for signs of political distress in other countries in the Middle East that are heavily dependent on food imports from the Black Sea region, and often provide generous subsidies to the public.
With an estimated 70% of the world’s poor living in Africa, the continent will also be “very exposed” to rising food and energy prices, Arezki said.
Droughts and conflict in countries like Ethiopia, Somalia, South Sudan and Burkina Faso have created a food security crisis for more than a quarter of the continent’s population, the International Committee of the Red Cross said this week. The situation risks getting worse in the coming months, it continued.
Political instability has already been building in parts of the continent. A series of coups have taken place in West and Central Africa since the start of 2021.
Europe: Even countries with more developed economies, which have greater buffers to shield citizens from painful price increases, won’t have the tools to fully cushion the blow.
— Jessie Yeung, Rhea Mogul and Sophia Saifi contributed reporting.
Quoted from Various Sources
Published for: The Bloggers Briefing