This combination could generate a wave of political instability, as people who were already frustrated with government leaders are pushed to the brink by rising costs.
“It’s very concerning,” said Rabah Arezki, 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 the price hike just yet,” said Hamish Kinnear, Middle East and North Africa analyst at global risk advisory firm Verisk Maplecroft.
Lessons from the Arab Spring
Circumstances differed in each individual country, but the bigger picture was clear. A major part of the problem was the skyrocketing wheat prices.
The situation is now worse than it was at the time. Global food prices have reached a new record. The FAO Food Price Index published on Friday came to 159.3 in March, up nearly 13% from February. The war in Ukraine, a major exporter of wheat, corn and vegetable oils, as well as harsh sanctions against Russia – the main producer of wheat and fertilizer – are expected to drive up prices in the coming months.
The pain is compounded by high energy prices. Global oil prices are nearly 60% higher than they were a year ago. The cost of coal and natural gas has also gone up.
Many governments are struggling to protect their citizens, but the fragile economies that borrowed heavily to weather the 2008 financial crisis and pandemic are most at risk. With growth slowing, their currencies hurting and debt payments becoming increasingly difficult to keep up, maintaining food and fuel subsidies will be difficult, especially if prices continue to rise.
“We are now in a situation where countries are heavily indebted,” Arezki said. As a result, they don’t have any buffers to try to contain the tensions that would arise from such high prices.
Where tensions run high
Asia: In Sri Lanka, the island nation of 22 million people, an economic and political crisis is already deepening, with protesters taking to the streets in defiance of a curfew and government ministers stepping down en masse.
Faced with high debt levels and a weak economy dependent on tourism, Sri Lanka has had to drain its foreign exchange reserves. This prevented the government from making payments for major imports such as Energy, leading to devastating shortages and forcing people to spend hours queuing for fuel.
Its leaders also devalued their currency, the Sri Lankan rupee, while trying to secure a bailout from the International Monetary Fund. But this made inflation worse at home. In January, it reached 14%, nearly twice the rate of price increases in the United States.
“Economic chaos has united the opposition to Imran Khan,” said Kinnear of Verisk Maplecroft.
Middle East and Africa: Experts are also watching for signs of political distress in other countries in the Middle East that rely heavily 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, Arezki said, the continent would be “extremely vulnerable” to rising food and energy prices.
The International Committee of the Red Cross said this week that droughts and conflict in countries such as Ethiopia, Somalia, South Sudan and Burkina Faso have caused a food security crisis for more than a quarter of the continent’s population. The situation could worsen in the coming months, she said.
Political instability is already emerging in parts of the continent. A series of coups has occurred in West and Central Africa since the beginning of 2021.
Europe: Even countries with more advanced economies, which have greater barriers to protect citizens from painful price increases, will not have the tools to cushion the blow completely.
Jesse Young, Rhea Mogul, and Sophia Sevi contributed to the report.
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