The deterioration of the global economic landscape has exacerbated the suffering of the world’s poorest countries. Still recovering from the severe recession caused by the epidemic, low-income countries (LICs) are being hit hard by rising domestic inflation and rising global interest rates. The displacement of global commodity markets due to the epidemic, led by the war in Ukraine, has led to food and fuel shortages and rising prices of major consumer goods. This is reducing real incomes, increasing food insecurity and exacerbating extreme poverty in LICs. World food prices are risingWhich has reached them This year’s record is the highest levelLIC is contributing to the rapid rise in inflation (Figure 1).
Figure 1. Inflation in low-income countries
Sources: Food and Agriculture Organization of the United Nations (FAO); Haver Analytics; World Bank.
Note: For the sample of eight low-income countries, the “medium” line shows a moderate percentage increase in consumer prices from 12 months ago. Last observed April 2022. The base period prices of the FAO Food Price Index averaged 2014-2016.
Food insecurity is exacerbating the problem
In a low-income economy, 45 percent of total household expenditure is responsible for food consumption, and food depends on staple foods, including wheat. All LIC food-deficient countries depend on imported food. Wheat imports from Russia and Ukraine alone accounted for about 14 percent of total caloric intake in an intermediate LIC, compared to only 3 percent in intermediate emerging markets and developing economies. Barriers to wheat imports from Russia and Ukraine and rising global food prices are slowing LIC growth and increasing extreme poverty, especially in countries where large sections of the population are already experiencing severe food insecurity (Figure 2).
Figure 2. Wheat imports and food insecurity in LICs
Sources: Global Network Against Food Crisis; Comtrade (database); World Bank.
Note: DRC = Democratic Republic of the Congo. Wheat import shares average for 2019-2020; Wheat import data for Sudan is only available for 2018. “People in Food Crisis” refers to the approximate percentage of the population in phase 3 or above of the Integrated Food Security Phase Classification (IPC) for 2022; Estimates are not available for Madagascar and Togo.
Lower growth and expanded public finances have hampered the government’s ability to protect vulnerable populations from rising food and fuel prices. Even millions of people in LICs that do not depend on wheat imports from Russia and Ukraine Struggling to afford adequate food to avoid hunger. Growing hunger and malnutrition will inevitably have adverse long-term consequences, exacerbating the detrimental effects of more than two years of epidemics on human capital.
War-related impediments and a sharp decline in global growth are on the rise Other ongoing challenges LIC faces widespread poverty, deteriorating security, and policy uncertainty. As a result, the World Bank’s latest report predicts growth for 2022. Global economic prospects More than 80 percent of reports have been downgraded to LIC (Figure 3). Per capita income growth at LIC could be a modest 1.3 percent this year – lower than in middle-income countries (2.3 percent) and higher-income countries (2.4 percent).
Figure 3. 2022 forecast revision Increase
Source: World Bank.
Note: EMDEs = emerging markets and developing economies; LICs = low income countries. The sample included 145 EMDEs and 22 LICs The forecast revisions show the share of countries where the 2022 growth forecast was downgraded / unchanged / upgraded between the January 2022 and June 2022 editions of the Global Economic Prospects. Data forecast for 2022.
In commodity-exporting LICs, higher product prices will only partially alleviate the detrimental effects of higher food and fuel costs. In these countries, rising living costs are tampering with profits from increased export earnings. High oil prices also make LIC energy exporters less likely to grow meaningfully, as aging-induced maintenance delays in the aging oil sector as well as weak extraction investment limits are likely to increase oil production.
Agricultural production is also expected to decline in most LICs, with food supplies becoming more stringent. Several LICs have faced increasing drought conditions and planting delays due to irregular and poor rainfall. In some LICs, high grain prices are expected to limit the ability of farmers, especially those who depend on subsistence farming, to purchase adequate seeds for their new planting season and feed for livestock. There has also been war in Ukraine Disrupting global supply of fertilizers. IInadequate access to agricultural inputs can result in a state of broad, low-productivity livelihoods, which makes the LIC food system more risky to push.
More misery ahead
These thought-provoking possibilities could be further weakened if supply shortages, conflicts and divisions continue. Depending on almost all LIC wheat imports, long-term disruptions to global trade in cereals will result in worsening purchasing power and staple food availability. Further rise in prices of agricultural inputs like seeds, fuels and fertilizers may further exacerbate food price pressures. These pressures will be particularly painful in LICs where climate change has already reduced productivity in agriculture and those who have a high incidence of extreme poverty. In this environment of high inflation, a more pronounced deterioration in living standards will exacerbate social instability, especially in countries suffering from high levels of insecurity and violence. Due to the tight financial situation, avoiding higher risks will increase the cost of borrowing at LIC. High levels of government debt and increased non-concessional debt may further delay the progress of debt relief. All LIC external loans have variable interest rates of about one-fourth, which was only 11 percent in 2010.
A quick and coordinated response is needed
LICs, already weakened by adverse shocks over the past two years, are facing tough headwinds. The scope for response to internal revenue and monetary policy is largely limited. A concerted global effort is needed:
- A Quick world response Improving access to safe and nutritious food and strengthening food security are important for health and human development at LIC. A.
- LICs also face difficult debt-related challenges Even before the invasion of Ukraine, about 60 percent of LICs were in or near the debt crisis. To reduce the risk that the debt burden could lead to a financial crisis, Global integrated debt relief efforts Essential.
- The global community also needs to help increase the rate of LIC vaccination, which lags far behind other EMDEs due to inadequate supply, logistical challenges and the dilemma of vaccines. Sustainable concerted action is needed to strengthen epidemic preparedness and Expand the vaccine quickly Campaign at LIC.
- Finally, the increasing frequency and severity of climate-related disasters highlight the growing costs of climate change, in particular Poor country. Green investment projects need to be aligned with policies to reduce the economic, health and social costs of climate change, many of which are disproportionately borne by poor economies and vulnerable populations, making these countries more resilient to climate shocks.
In the world’s poorest countries, rapid growth in economic growth and prosperity is a sure cure for all these problems, including climate change.