The worsening global economic situation has exacerbated the suffering of the world’s poorest countries. Still recovering from the sharp downturn caused by the pandemic, low-income countries (LICs) have been hit hard by soaring domestic inflation and rising global interest rates. The disruption to global commodity markets due to the pandemic, exacerbated by the war in Ukraine, has led to food and fuel shortages and rising prices for basic consumer goods. This undermines real incomes, exacerbates food insecurity and exacerbates extreme poverty in LICs. Rising world food priceswho have reached their the highest levels on record this yearcontribute to the rapid growth of LIC inflation (Figure 1).
Figure 1. Inflation in low-income countries
Sources: Food and Agriculture Organization of the United Nations (FAO); Haver Analytics; The World Bank.
Note. The median line shows the average percentage increase in consumer prices compared to 12 months earlier for a sample of eight low-income countries. Last observation April 2022. Base period prices for the FAO Food Price Index are 2014-2016 averages..
Food insecurity exacerbates suffering
Food consumption accounts for 45 percent of total household expenditure in low-income countries, and diets are heavily based on staple foods, including wheat. All LICs are food-deficit countries dependent on food imports. Wheat imports from Russia and Ukraine alone account for about 14 percent of total caloric intake on average in LICs, compared with 3 percent on average for emerging market and developing economies. Disruptions in wheat imports from Russia and Ukraine and rising global food prices are slowing the growth of LICs and increasing extreme poverty, especially in countries where large segments of the population were already severely food insecure (Figure 2).
Figure 2. Wheat imports and food insecurity in LICs
Sources: Global Food Crisis Network; Comtrade (database); The World Bank.
Note: DRC = Democratic Republic of the Congo. The shares of wheat imports are average for 2019-2020; wheat import data for Sudan is only available for 2018. “People in Food Crisis” indicates the estimated percentage of the population in stage 3 or above of the Integrated Food Security Stage Classification (IPC) for 2022; estimates are not available for Madagascar and Togo.
Sluggish growth and shortfalls in public finance have undermined the ability of governments to protect vulnerable populations from soaring food and fuel prices. Even in low-income countries that do not depend on wheat imports from Russia and Ukraine, millions of people struggles to afford enough food to avoid hunger. Increasing hunger and malnutrition will inevitably have adverse long-term consequences, exacerbating the more than two-year pandemic’s detrimental effects on human capital.
War-related disruptions and sharp slowdown in global growth intensify other current issues faced by LICs, including widespread poverty, deteriorating security, and policy uncertainty. As a result, growth projections for 2022 presented in the latest World Bank report Global economic outlook the report was downgraded in more than 80 percent of LICs (Figure 3). Per capita income growth in LICs is projected to be just 1.3 percent this year, well below middle-income (2.3 percent) and high-income (2.4 percent) countries.
Figure 3 Forecast revised to 2022 growth
Sources: World Bank.
Note. EMDE = emerging market and developing countries; LICs = low-income countries. The sample includes 145 EMDEs and 22 LICs. The revised projections show the proportion of countries where 2022 growth forecasts were lowered/unchanged/upgraded between January 2022 and June 2022 in the Global Economic Prospects. Data for 2022 are forecast.
In commodity-exporting LICs, higher commodity prices will only partly mitigate the detrimental effects of higher food and fuel prices. In these countries, rising costs of living are holding back growth in export earnings. High oil prices are also unlikely to significantly boost the growth of LIC energy exporters, as aging oil fields, as well as pandemic-driven maintenance delays and weak upstream investment, limit prospects for increased oil production.
Agricultural production is also expected to remain low in most LICs, further reducing food supplies. Several LICs have experienced worsening drought conditions and delays in planting due to irregular and poor rainfall. In some LICs, higher grain prices are expected to limit the ability of farmers, especially those dependent on subsistence agriculture, to purchase enough seeds for the new planting season and feed for livestock. The war in Ukraine also disrupted global fertilizer supplies. IInsufficient access to agricultural inputs could lead to widespread subsistence agriculture, making LIC food systems more vulnerable to shocks.
More suffering ahead
These sobering prospects could become even weaker if supply shortages, conflicts and divisions persist. With nearly all LICs dependent on wheat imports, a longer disruption in global cereal trade will worsen the availability and affordability of staple foods. Further increases in the prices of agricultural inputs such as seeds, fuel and fertilizers could increase food price pressures. This pressure will be especially painful in LICs, where climate change has already reduced agricultural productivity and in countries with high levels of extreme poverty. In an environment of high inflation, a more marked deterioration in living standards will exacerbate social unrest, especially in countries suffering from high levels of insecurity and violence. As financial conditions tighten, rising risk aversion will drive up borrowing costs in low-income countries. The high level of public debt and the growth of non-concessional borrowing could further slow down the process of debt relief. About a quarter of all LIC external debt has floating interest rates, up from 11 percent in 2010.
Need quick and coordinated responses
Already weakened by adverse shocks over the past two years, low-income countries have faced strong headwinds. In most cases, domestic fiscal and monetary policy responses are limited. A concerted global effort is needed:
- BUT rapid global response improving access to safe and nutritious food and food security is critical to health and human development in low-income countries. The international community needs to significantly increase funding for LIC food systems, including measures for agriculture, nutrition, social protection, water and irrigation.
- LICs also face huge debt problems. Even before the invasion of Ukraine, about 60 percent of low-income countries were in or close to debt distress. To mitigate the risks that the debt burden could lead to financial crises, globally coordinated debt relief efforts necessary.
- The global community also needs to help boost vaccination rates in low-income countries, which continue to lag far behind other EMDFs due to a combination of inadequate supply, logistical challenges, and vaccine hesitancy. Sustained collective action is needed to improve pandemic preparedness and rapidly scale up vaccination campaigns in the CND.
- Finally, the growing frequency and severity of climate change-related natural disasters highlights the rising costs of climate change, especially among poorest countries. Green investment projects must be accompanied by policies to reduce the economic, health and social costs of climate change, many of which are disproportionately borne by vulnerable populations in countries with poor economies, and make these countries more resilient to climate shocks.
In the world’s poorest countries, a quick return to economic growth and prosperity is the surest antidote to all these problems, including climate change.