Russia-Ukraine boom begins to decline fragile ‘border’ economies According to Reuters

© Reuters. FILE PHOTO: Egyptian workers prepare dough before baking loaves of traditional Egyptian bread in a bakery in the Mokattam district, southeast of Cairo, as prices of basic commodities in Egypt soar since the Russia Invades Ukraine, In Egypt, March 16,

By Rachel Savage and Marc Jones

LONDON (Reuters) – The aftermath of the war between Russia and Ukraine has both helped plunge the world’s two poorest countries into full-blown crises, and the list of those at risk – and the queues at the door of the International Monetary Fund. economy – will only get longer from here.

They may be a far cry from the fighting in Ukraine, but the mass resignations of the Sri Lankan cabinet on Monday and the drastic maneuvers over the weekend by Pakistani Prime Minister Imran Khan to avoid removal show the impact they have had. the extent to which economic activity spreads.

Both Sri Lanka and Pakistan have seen longstanding public suspicion of economic mismanagement emerge, but there is a double-digit list of other countries that are also in the danger zone.

A few have been on the brink of debt crises in the wake of the COVID pandemic, however, the rise of war, which has led to food and energy prices, has certainly made things worse.

Turkey, Tunisia, Egypt, Ghana, Kenya and others also imported most of their oil and gas as well as basic foods, such as wheat and corn, all of which increased from 25% to 25%. 40% this year, are also facing heavy pressure.

These rising import costs and subsidies for daily necessities have convinced Cairo to devalue its currency by 15% and seek IMF help in recent weeks. Tunisia and a perennially resistant Sri Lanka have also asked for assistance.

Ghana, still reluctant to access the Fund, while its currency is depreciating, while Pakistan, which already has 22 IMF programs, will almost certainly need more as it now sinks into a financial crisis. turmoil.

“This energy shock certainly contributed to political instability in Sri Lanka and Pakistan,” said Renaissance Capital chief economist Charlie Robertson.

“I wouldn’t be surprised if more countries were affected,” he added, citing Jordan as well as Morocco, which has a relatively large middle class that makes it sensitive to political change.


IMF Managing Director Kristalina Georgieva has issued a stark warning that “war in Ukraine means famine in Africa”.

The IMF’s sister organization, the World Bank, also revealed a dozen of the world’s poorest countries currently could default in the next year, which would be “the largest debt crisis in developing economies in a generation”.

The Institute of International Finance (IIF) estimates that too constrained “border” economies, as a group of least-developed nations, currently owe $3.5 trillion — about $500 billion more. compared with pre-pandemic levels, as estimated by the Institute of International Finance (IIF).

Pakistan and Sri Lanka spent the equivalent of 3.4% and 2.2% of GDP respectively on energy before the pandemic. In Turkey, the number is even larger than 6.5%, and with oil prices having stayed above $100 a barrel for months now, the pressure is getting worse.

According to the IIF, every $10 spent on a barrel of oil adds 0.3 percent to Turkey’s current account deficit. For Lebanon, the figure is 1.3%, while ratings agency Fitch estimates that the cost of electricity subsidies in Tunisia could rise from 0.8% to more than 1.8% of GDP this year.


Food prices are also a problem. They have increased as countries emerge from lockdowns, exacerbated in some regions by drought.

With Ukraine and Russia accounting for 29% of the world’s wheat exports and 19% of the world’s corn exports, their prices have increased by 25%-30% this year.

Egypt buys more than 60% of its wheat abroad, four out of five from Russia and Ukraine. After devaluing its currency and gaining access to the IMF, President Abdel Fattah al-Sisi’s government also just fixed the price of bread to curb the cost of fleeing food.

“For many countries, this increase (energy and food prices) will have implications for budgets, subsidies and political and social stability.” Viktor Szabo, an emerging markets portfolio manager at abrdn in London.

“If you don’t control prices, you can have unrest, think back to the Arab Spring and the role food prices played there.”

Several emerging markets are now growing rapidly as the major central banks start to raise interest rates, said Max Castle, a portfolio manager, said Max Castle, fixed-income portfolio manager at Mediolanum Irish Operations. In some emerging markets, commodity importers may have no choice but to seek help, says fixed-income portfolio investment at Mediolanum Irish Operations.

“This is an appropriate situation for the IMF to intervene to support more vulnerable countries – especially countries with current account deficits,” he said.

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