Sri Lanka’s crisis should be warning to all on global food, fuel and finance: UN

The warning came as new data from the UN Food and Agriculture Organization (FAO) indicated that the number of people affected by hunger globally rose to 828 million in 2021, an increase of about 46 million since 2020, and 150 million since the outbreak of COVID-19

Livemint
First Published8 Jul 2022
Sri Lanka's 's economic crisis
Sri Lanka’s ’s economic crisis(REUTERS)

Amid economic turmoil and human misery in Sri Lanka, ongoing war in Ukraine and countries already reeling under pressure from the economic fall-out of the COVID-19 pandemic, the UN has urged the international community to resort to radical financial measures to help countries saddled with debt.

“We’re witnessing a tragic series of events that are unfolding in Sri Lanka right now that should be a warning to anyone who thinks that, you know, it is up to countries themselves to figure out how to deal with this crisis,” said Achim Steiner, Administrator of the UN Development Programme (UNDP), in reference to the South Asian nation’s debt default last month – the first in its history.

“That default essentially means the country is no longer able to pay - or not only service - its debt, but actually to import fundamental parts of what keeps an economy alive, whether it is petrol or it is diesel, whether it is fuel, whether it is medicines,” Steiner added.

The warning came as new data from the UN Food and Agriculture Organization (FAO) indicated that the number of people affected by hunger globally rose to 828 million in 2021, an increase of about 46 million since 2020, and 150 million since the outbreak of coronavirus.

Shock after shock

UNDP Senior Economist George Gray Molina said that many countries had faced 36 months of ‘shock after shock after shock’. First COVID-19, then Russia’s invasion of Ukraine on 24 February, with the latter in particular shaking global food and energy supplies and sparking an inflationary surge.

Speaking at a virtual briefing at UN Geneva to flag a series of policy recommendations that countries could follow to withstand the global food, fuel and finance crisis, Molina said, “With COVID, what we saw is effects that worked through labour markets, lockdowns, and income, that was slowly cumulative but had a strong impact over time,” said Mr Molina. “Official estimates are about 125 million people falling into poverty over about 18 months…what we found right now is that three months of inflation have drawn about 71 million people into poverty.”

Failure to take decisive and radical action by governments risked sparking widespread unrest, UNDP chief Steiner suggested.

When politics moves out of parliaments, out of government, onto streets

Steiner further said, "Very quickly, we might see also with the troubling economic outlook a situation where for many countries the patience and the ability of people to cope with this reality runs out. And as I’ve often said, when politics moves out of our parliaments, out of government, onto the streets, we are in a fundamentally different situation. We are very vulnerable at this moment to see these kinds of developments happen in many more countries.”

Following the start of the war, Food and Agriculture Organization (FAO) has enacted a Rapid Response Plan to provide agricultural assistance and ensure food security to those most affected by the conflict. 

Outlining some of the finance policy recommendations that are detailed in the new UNDP report - Tackling The Cost-Of-Living Crisis: Policy Responses to Mitigate Poverty and Vulnerability around the World, Steiner insisted that it might be possible for some countries to tackle runaway inflation without resorting to the “blunt instrument” of raising interest rates.

“There is potential through the multilateral investment banks for example by paying in more capital, to allow them to provide through targeted lending and crisis-response measures,” he said, adding that the International Monetary Fund (IMF) could also be involved in this process.

There were ways and means by which countries can address more specifically their needs, that did not necessarily have to be in contradiction to the inflationary pressure measures now being put in place by central banks, added the UNDP Administrator.

Drastically faster impact of global food, fuel and finance crisis on global poverty

The impact of the global food, fuel and finance crisis on global poverty has been “drastically faster” than the shock of the COVID-19 pandemic, according to the UNDP report.

Price spikes in key commodities were already having ‘immediate and devastating’ impacts on the poorest households, analysis of 159 developing countries globally indicated.

According to UNDP, clear hotspots have emerged in the Balkans, the Caspian Sea region and Sub-Saharan Africa (in particular the Sahel region).

Gobal Crisis Response Group

The report also highlights insights provided by the two briefs of the UN Secretary-General’s Global Crisis Response Group on the ripple effects of the war in Ukraine.

UNDP chief Steiner insisted that the key to the global recovery will be the recognition that it is in everyone’s interest to help countries that are grappling with depleted fiscal reserves and high levels of sovereign debt, as well as rising interest rates on global financial markets.

UNDP Administrator, Achim Steiner stated that unprecedented price surges mean that for many people across the world, the food that they could afford yesterday is no longer attainable today. 

He further said that his cost-of-living crisis is tipping millions of people into poverty and even starvation at breathtaking speed and with that, the threat of increased social unrest grows by the day.”

Among the UNDP report’s strongest takeaways is the warning that ‘entire developing countries’ risk decoupling from the global economy permanently.

Steiner suggested that internationally-agreed measures ‘can take the wind out of this vicious economic cycle’ and save lives and livelihoods, also recommending ‘targeted cash transfers’ as being more equitable and cost-effective than blanket energy subsidies, which ‘disproportionately benefit wealthier people’.

The UNDP Administrator suggested that seismic shifts in the international financial system will also be necessary to ensure that low and middle-income countries can recover.

"You also have to be smarter about it and the IMF originally put together some of the responses to COVID; most developing countries at the end of the day did not dare to borrow against those measures because immediately the rating agencies would downgrade them," he added.

 

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