Wednesday 06 April 2022 / 10:53 am / by FDC Ltd / Header image credit: Brand News Day

Emerging economies continue to struggle with soaring food prices which are now at very worrying levels in poor countries. Prices for most basic commodities, from oil and gas to corn and wheat, have surged rapidly, leaving households in a beleaguered state. Food takes up a significant portion of household budgets in emerging markets. In SSA in particular, food covers over 40% of consumer spending.

Prior to the pandemic and the Russian-Ukrainian war, prices had risen dramatically due to extreme weather conditions and production disruptions. With the impact of the Covid-19 pandemic coupled with ongoing crises, global food prices hit a record high in February and are expected to remain high in the coming months (FAO).

The impact of these higher food prices is far-reaching and would lead to a significant increase in poverty levels around the world, especially in emerging markets. An estimate by the Center for Global Development predicted that up to 40 million people would still fall into extreme poverty as a result of the invasion of Ukraine. This comes on top of previous World Bank forecasts that around 100 million people will fall into extreme poverty in 2021 as a result of the COVID-19 pandemic. This will put enormous pressure on many countries. This unprecedented spike in commodity prices comes at a time when the total cost of debt is rising and debt servicing costs are excruciating as central banks around the world gradually adopt tight monetary policy to contain the ‘inflation.

The cumulative impact of all these factors worsens the situation of poor countries. This forced the government of some of these countries to devalue their currencies. For example, Egypt devalued its currency by 14%. Other countries are forced to dip into their external reserves to defend the local currency. Furthermore, as the tax burden worsens for emerging countries, the government is further handicapped to support livelihoods by providing food subsidies or palliatives to households. This has made households in poor countries more miserable and poor.

Some of these countries (such as Sri Lanka and Egypt, etc.) have started seeking assistance from certain international financial institutions such as the IMF, as the impact of the war is causing the prices of commodities to skyrocket rapidly. based.

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