This combination could create a wave of political instability as people who were already frustrated by the government’s actions are pushed to their limits by rising costs.
“This is extremely worrying,” said Rabah Arezki, a senior fellow at the Harvard Harvard School of Government. Kennedy and former chief economist at the African Development Bank.
“I don’t think people have already felt the full impact of price increases,” said Hamish Kinnear, Middle East and North Africa analyst at Verisk Maplecroft, a global risk advisory firm.
Lessons from the Arab Spring
Circumstances varied from country to country, but the overall picture was clear. Rising wheat prices were a major part of the problem.
Now the situation is even worse what it was then. World food prices have just reached a new record high. The FAO Food Price Index, released on Friday, hit 159.3 in March, up nearly 13% from February. A war in Ukraine, the largest exporter of wheat, corn and vegetable oils, and tough sanctions on Russia, a key wheat and fertilizer producer, are expected to push prices further up in the coming months.
Added to the pain is a surge in energy prices. World oil prices are almost 60% higher than a year ago. The cost of coal and natural gas has also risen sharply.
Many governments struggle to protect their citizens, but fragile economies that borrowed heavily to weather the 2008 financial crisis and pandemic are the most vulnerable. As growth slows, hurting their currencies and making debt repayments harder, sustaining food and fuel subsidies will be difficult, especially if prices continue to rise.
“Now we are in a situation where countries are in debt,” Arezki said. “As a result, they don’t have buffers to try and contain the tensions that such high prices will create.”
Where the tension builds
Asia: In Sri Lanka, an island nation of 22 million people, the economic and political crisis is already simmering, with protesters taking to the streets despite a curfew and mass resignations of ministers.
Faced with high levels of debt and a weak economy dependent on tourism, Sri Lanka has been forced to reduce its foreign exchange reserves. This prevented the government from making payments on key imports such as energy, creating devastating shortages and forcing people to queue for hours for fuel.
Its leaders also devalued their currency, the Sri Lankan rupee, in an attempt to secure financial assistance from the International Monetary Fund. But this only increased inflation at home. In January, it reached 14%, which is almost twice the rate of price growth in the US.
“The scale of the economic chaos has united opposition to Imran Khan,” said Kinnear of Verisk Maplecroft.
Middle East and Africa: Experts are also watching for signs of political crisis in other Middle Eastern countries that are heavily dependent on food imports from the Black Sea region and often provide generous subsidies to the population.
With about 70% of the world’s poor living in Africa, Arezka estimates, the continent will also be “highly exposed” to rising food and energy prices.
Droughts and conflicts in countries such as Ethiopia, Somalia, South Sudan and Burkina Faso have left more than a quarter of the continent’s population in food insecurity, the International Committee of the Red Cross said this week. The situation risks worsening in the coming months, he continued.
Political instability is already on the rise in parts of the continent. Since the beginning of 2021, a series of upheavals have taken place in West and Central Africa.
Europe: Even the more advanced economies, which have large reserves to protect citizens from painful price hikes, will not have the tools to fully cushion the blow.
– Jessie Yeung, Rhea Mogul and Sophia Saifi provided reporting.