How was the debt situation in low-income countries before the war in Ukraine?
An increasing number of low-income countries emerged from the Covid-19 pandemic with unsustainable levels of indebtedness. Even before Russia’s invasion of Ukraine, about 60% of low-income countries – most of them in Sub-Saharan Africa – were at high risk of or already in debt distress. A country is declared in debt distress when it is experiencing difficulties in servicing its debt payments.
How does the war in Ukraine affect the economic outlook?
The war in Ukraine is casting a long shadow over the world economy and could push poor countries further into a food crisis.
High debt-service burdens and low fiscal revenue collection reduce the available fiscal space for development and stabilisation.
Supply chain disruptions, high commodity prices, and energy shortages threaten global economic recovery. On top of this, there is a clear downtrend in business and consumer confidence.
Food, energy and fertiliser prices have soared and reached record levels since the beginning of the war, fuelling overall inflation.
As a result, experts predict a gloomy economic outlook for 2022 and 2023 with the world edging towards a recession while inflation will remain high.
Further monetary tightening to control surging inflation will cause significant harm to developing economies.
Heavy food importers are more exposed to commodity price swings and currency depreciation.
Many poor countries will face a trade-off between avoiding a debt crisis and tackling a food crisis.
Why could a debt crisis lead to an increase in hunger?
Due to limited fiscal space and inadequate social protection, the food crisis will hit the poorest households and could lead to an unprecedented hunger crisis.
A food crisis will disproportionately affect the poorest households in developing economies as food makes up over 60% of poor households’ total expenditures.
Food insecurity and hunger were already on the rise due to the Covid-19 pandemic.
Driven by the ripple effects of the conflict in Ukraine, the number of people who are acutely food insecure or at high risk has already soared.
Vulnerable populations in Sub-Saharan Africa and the Near East and North Africa are the ones most at risk of increased undernourishment due to the conflict.
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