As the war in Ukraine grinds into its fifth month, it has brought home the implications of the cliché that says the world is now a global village. In his second report, UN Chief, Antonio Guterres, warned on Wednesday that 1.6 billion people are likely to be affected as “the war’s impact on food security, energy, and finance is systemic, severe, and speeding up.” On the food front, with Russia and Ukraine supplying one-quarter of the world’s supply of wheat and the former’s shipping outlet on the Black Sea blockaded, flour prices in almost every country in the world, including Guyana, have skyrocketed.
But the report says that, for many poor countries, it is more than a question of flour prices, and hunger has already escalated. The war may increase the number of food-insecure people by 47 million in 2022, bringing it to 323 million by the end of the year, with an estimated 58 million more Africans falling into poverty.
Extreme poverty in the Middle East and North Africa could increase by 2.8 million people; while, in South Asia, 500 million people are at risk, according to the report. One bit of good news is that India, seen traditionally as a food-challenged country, has accumulated massive stocks of wheat, and has increased its export of the food staple.
The day before the UN Secretary General’s Report was published, the World Bank had issued a warning about the war’s effect on the overall global economy. The Washington-based multilateral institution cut its forecast for global economic expansion in 2022 further, warning that several years of above-average inflation and below-average growth lie ahead, with potentially destabilising consequences for low- and middle-income economies.
“The world economy is again in danger,” President David Malpass said in the foreword of the latest edition of the lender’s “Global Economic Prospects” report, released on Tuesday. “It is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years — unless major supply increases are set in motion.”
This stagflation is reminiscent of the 1970s, which had led to the collapse of many economies, especially in Latin America and Guyana. The World Bank is therefore advising that a steeper-than-anticipated policy-tightening may now again be required to rein in inflation; and this might trigger a hard landing. With our GDP growth rate projected to be in the 40% range into next year, our policymakers in the Bank of Guyana would have to diligently monitor our inflation rates, and use every tool at their disposal to keep them in check.
Another danger lies in the disruption of the financial system, occasioned by the Western sanctions on Russian banking processes, capital, and oil payments combined with massive Chinese loans for infrastructure arranged in very opaque circumstances. With emerging and developing economies’ debt at multi-decade highs, the World Bank is also worried that “the associated rise in global borrowing costs and exchange-rate depreciations may trigger financial crises as it did in the early 1980s.”
From a wider perspective, the Ukraine war is also accelerating in the world order systemic changes that were precipitated by China’s astounding economic rise after becoming “America’s Factory”, following US President Nixon’s bringing in that country out of the cold in 1972. Fifty years later, China presents the US, under democratic or Republican administrations, with its greatest challenges, not only economically and financially, but militarily. Without any question, we are in the midst of a new Cold War. As the Ukraine War is dragged out and sanctions against Russian start to bite, Russia will not only seek to become more self-sufficient by using the extra revenues from higher oil prices, but may turn to China and boost that country’s rise. Their ruble-yuan exchanges are already bypassing dollar hegemony.
For us in Guyana, we have to be cognisant of our historic vulnerabilities as a small nation trying to navigate through the treacherous waters of big power international politics.
