Food-debt twin woes to gut poor countries

(AP)

POOR and even middle-income countries are at risk of facing a debt and food crisis given the steep increase in commodity prices, according to an economist from the World Bank.

In a World Bank blog post, Global Director of Macroeconomics, Trade & Investment Marcello Estevão said the war in Eastern Europe has already sent food prices through the roof and this posts a serious concern for many poor countries, including a number of middle-income countries.

“Over the next year, the tab for imports of wheat, rice, and maize in these countries is expected to rise by the equivalent of more than 1 percent of GDP,” Estevão said.

“That is more than twice the size of the 2021-2022 increase—and, given the relatively small size of these economies, it’s also twice as large as the expected increase for middle-income economies,” he added.

This is a major concern given that one crisis alone could have a significant impact on millions. In 2008, Estevão said, the food crisis caused malnutrition to increase.

Many poor families were forced to sell their valuables in order to buy food. Some of them even sacrificed the education of their children just to cope with high food costs. Due to the pandemic, many countries are already seeing public debts surge. By the end of 2020, Estevão said, public and publicly guaranteed debt owed by poor countries to foreign creditors stood at a record $123.8 billion, an increase of nearly 75 percent from 2010.

He added that debt-service payments of these economies now constitute nearly 10 percent of their export earnings, up from less than 4 percent a decade ago.

Deadly combination

“WHEN a food crisis coincides with a debt crisis, the effects are magnified: the high debt paralyzes local governments, and international assistance becomes the only way out,” Estevão said.

The World Bank economist recommended that emergency aid be ramped up for countries at risk of facing food and debt crises. These funds must be extended to the poorest and most vulnerable households in the form of cost-effective transfers.

Governments, the economist said, should also improve farmers’ access to fertilizers in order to increase food production. This is already part of the Philippine government’s plans as the Department of Agriculture, led by the President himself, is looking at government-to-government arrangements to improve fertilizer access.

Apart from this, Estevão said, countries should not impose restrictions on exports of food and fertilizers. But as of June, 34 countries had already resorted to this, causing commodity prices to further increase.

“The poorest countries face dangers they have not encountered in decades. But few outcomes are more devastating to the poor than a simultaneous food and debt crisis. This is why policymakers across the world share an obligation to act promptly and decisively to prevent it,” Estevão said.

PSA warning

EARLIER, the Philippine Statistics Authority (PSA) and local economists warned that Filipinos must brace for higher inflation and expect the further decline of their purchasing power.

PSA reported that inflation averaged 6.1 percent in June, the highest since October 2018 when inflation averaged 6.9 percent. Year-to-date inflation averaged 4.4 percent as of June.

The rapid increase in commodity prices cut down the purchasing power of the peso to only P0.87 centavos. This means, in order to buy goods worth P1, every Filipino must shell out P0.13 centavos more or P1.13.

Mapa said based on their estimates, the level of the purchasing power of the peso was at P0.89 in March 2022. This means, there was a P0.02-centavo decline in the value of the currency in terms of purchasing goods and services.

For the poorest Filipinos, their purchasing power is even lower. BusinessMirror estimated that for the Bottom 30 percent or the poorest 30 percent of the population, the value of the currency is at P0.72 centavos as of June 2022 from P0.74 centavos in March 2022.

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