Through no fault of their own, developing countries are facing a veritable storm of famine, political upheaval and debt crises. Russia’s invasion of Ukraine and the Western-imposed sanctions it triggered are partly to blame, as are the Covid-19 lockdowns in advanced economies, which deprived poor countries of income vital to tourism and exports.
Millions of lives are now at risk, but mitigation is possible. That should begin at this month’s spring meetings of the International Monetary Fund and the World Bank.
Policy makers have many issues to address, starting with soaring food prices. The Russian-Ukrainian conflict, involving countries that alone supply 29% of the world’s wheat, has contributed to a 67% increase in wheat prices since the start of this year. Export bans imposed by other wheat producers are also fueling price increases, as is a shortage of fertilizer due to reduced supplies from Belarus and Russia.
Unsurprisingly, famine is spreading. The first countries affected are those that were in dire straits before the Russian invasion, including Afghanistan, Democratic Republic of Congo, Ethiopia, Nigeria, Pakistan, Sudan, South Sudan, Syria , Venezuela and Yemen. They are rapidly joining countries that depend on imported cereals and were already facing acute food insecurity, such as Burundi, Djibouti, El Salvador, Eswatini, Guatemala, Honduras, Lebanon, Lesotho, Madagascar, Mozambique and Namibia .
The Executive Director of the United Nations World Food Programme, David Beasley, recently issued a stern warning: “If you think we have hell on earth now, just be prepared. If we neglect North Africa, North Africa comes to Europe. If we neglect the Middle East, [the] The Middle East is coming to Europe.’
Rising food prices and hunger will make riots and political upheaval more likely. Even before the start of the war in Ukraine, people had been plunged into crisis in Afghanistan, Ethiopia, Myanmar, Somalia, Syrian refugee camps, Yemen and elsewhere. In March, large-scale protests erupted in countries including Cameroon, India, Pakistan, Spain and Sri Lanka.
Governments that can take preventive action are already doing so. Egypt, for example, which imports about 80% of its wheat from Russia and Ukraine, recently introduced a price cap to counter the soaring price of unsubsidized bread (the government already subsidizes bread for the most Population). The government also announced an economic aid package totaling 130 million Egyptian pounds ($7 million). These measures were made possible thanks to the help of the IMF and Saudi Arabia. But many countries have yet to receive such aid.
Lack of cooperation breeds famine and conflict. Surprisingly, global stocks of rice, wheat and maize, the world’s three main staple foods, are apparently at historic highs. Even stocks of wheat, the commodity most affected by the war in Ukraine, are “well above the levels of the food price crisis of 2007-2008”, while estimates suggest that around three-quarters of exports of Russian and Ukrainian wheat had already been delivered before the invasion. .
A severe debt crisis is also developing as many low-income countries, pushed to their limit by Covid-19, are hit by rising food and fuel prices, falling tourism revenues, reduced access to international capital markets, trade and supply chain disruptions, declining remittances and a historic increase in refugee flows. The debt of developing countries has reached its highest level in 50 years, at around 250% of government revenue. About 60% of countries that were eligible for the G20 pandemic-related debt service suspension initiative are at or at high risk of debt distress.
Moreover, slowing global growth and rising inflation, together with tighter financial conditions in wealthy countries, are spurring capital outflows from developing economies, forcing them to devalue their currencies and raise interest rates. of interest. As World Bank President David Malpass recently remarked, “never have so many countries experienced a recession at the same time”. Malpass added that stimulus policies in advanced economies have made matters worse by fueling rising prices and increasing inequality around the world.
Finding a truly global solution to these problems is vital today. In past debt crises, rich countries have used the IMF and World Bank to push the burden of adjustment onto developing economies, arguing that they should undertake reforms before receiving aid. But the most powerful forces shaking indebted low-income economies today are global and beyond their control – and IMF and World Bank member countries must pool resources and cooperate to confront them.
The good news is that the powerful shareholders of these institutions have shown themselves capable of collective action. Last August, for example, they agreed to a new allocation of $650 billion in special drawing rights (the IMF’s reserve assets).
But, because special drawing rights are distributed according to countries’ IMF quotas, most of the allocation went to the largest economies. Worse still, the major shareholders of the IMF and the World Bank have failed to channel resources where they are most needed. Instead, to limit their potential exposure to casualties, they continue to insist on conditions that prevent rapid deployment. This approach also threatens to hamper the IMF’s new Resilience and Sustainability Trust Fund and the World Bank Group’s emergency financing.
A much bolder collective approach is now required. The United States, China, Japan, the European Union and the United Kingdom depend on global security and prosperity. They must work together to prevent famine, conflict and a developing country debt crisis that will push the world into recession. They can prevent famine by acting together to calm world markets for wheat and other grains and by taking steps to keep exports flowing. They can reduce the risk of conflict by not impeding IMF and World Bank emergency assistance with strings attached. And they can build on the G20 debt initiative by creating a debt restructuring mechanism in which they all participate.
Two essential elements are crucial to managing the current crisis in developing countries. Powerful countries must refrain from pursuing trade, fiscal and monetary policies on their own which wreak havoc on developing economies. And they must use their combined resources in the IMF and World Bank to act quickly and unconditionally to avert disaster.
The challenges facing the poorest countries are unprecedented. And that means the cooperative response of richer economies must be too.