It has been one year since Russian tanks rolled into Ukraine, sparking a full-blown invasion and resulting in thousands of civilian deaths, millions of refugees, and extensive infrastructure damage. The war has had far-reaching implications for the global economy, with developing countries bearing the brunt of its effects.
The interplay between geopolitics, commodity prices, and financial markets has caused shockwaves across the global economy. Commodity prices have risen due to pent-up demand from national lockdowns and colossal economic stimulus programmes. This trend was further amplified by the war, with the energy component of the S&P Goldman Sachs Commodity Index ending 2022 10 percent higher than it was at the start of the year.
Energy importers have been particularly hard hit, with Pakistan and Bangladesh struggling to afford spot cargoes at current prices. On the other hand, hydrocarbon exporters in the Middle East and Africa have benefited from higher energy prices. However, this was partially offset by the increased costs of maintaining expensive petrol subsidies.
Food importers have also been affected by the war, as Russia and Ukraine were among the world’s top suppliers of staples like barley, maize and sunflower. Supply of these and other staples were critically affected by Russia’s blockade of Ukraine’s Black Sea ports, causing wheat prices to rise by 35 percent in 2022. Countries like Tunisia, Morocco and Egypt, which have large food subsidy programmes, were badly hit.
The war in Ukraine has also led to higher interest rates, as the US Federal Reserve and other leading central banks hiked their benchmark rate to slow price rises. This has caused investors to withdraw their funds from developing country financial assets, leading to widespread currency depreciations for developing countries against the US dollar. To cover the shortfall, many countries have had to take out loans from the International Monetary Fund (IMF), which has become more expensive due to rising borrowing costs from the five countries that make up the IMF’s reserve currency.
The war in Ukraine has had a devastating effect on developing countries, with many facing higher import prices, expensive food programmes, currency depreciations and more expensive IMF loans. To cope with this situation, international trade bodies, multilateral development banks and even private corporations need to adopt a portfolio approach to improve food resilience in developing countries. This should include improving farming and catastrophe insurance schemes, diversifying food import sources and removing export restrictions, as well as investing more in the agricultural systems of developing countries.