2023-Public-Sector-Perspectives

Multiple solutions are required to address the food crisis Today’s perfect storm vividly demonstrates the world’s vulnerability due to its dependence on a limited number of countries for food: less than 10 countries account for 90% of global exports of key agricultural commodities. 8 When one of these 10 breadbasket countries suffers poor crop yields or experiences an unforeseen geopolitical event, there is an inevitable severe supply side contraction, which drives prices up and hits low-income earners the hardest. To make matters worse, debt levels across low-income countries are at the highest levels in decades, reducing their capacity to respond to the current food crisis. These countries have been squeezed by the high cost of food and energy, a slowing global economy, a sharp increase in interest rates around the world and the impacts of the COVID-19 pandemic. Figure 2: Gross government debt (2021, % of GDP) Figure 3: Short term external debt (2020, % of total reserves) Figure 4: Government bond yields (Spread over US Treasuries, percentage points) Nigeria Ukraine Ethiopia Ecuador Kenya Gabon Pakistan Argentina Ghana Tunisia El Salvador Angola Egypt Nigeria Ukraine Ethiopia Ecuador Kenya Gabon Pakistan Argentina Ghana Tunisia El Salvador Angola Egypt Nigeria Ukraine Ethiopia Ecuador Kenya Gabon Pakistan Argentina Ghana Tunisia El Salvador Angola Egypt 93.5 86.3 83.6 82.0 81.8 80.6 74.0 69.5 68.1 62.2 53.0 49.0 37.0 30.7 46.3 60.7 65.2 108.4 108.1 81.3 26.2 27.6 13.2 13.4 82.6 0 11.6 10.3 10.8 13.5 12.3 10.3 33.3 31.1 17.3 20.8 22.7 38.1 78.3 The IMF has classified 53 countries as “most vulnerable”, meaning they have unsustainable debt, have defaulted on debt, or have bonds trading at distressed levels. Some of these countries have heightened vulnerability because they have debt denominated in foreign currencies, which effectively increases as their currencies are devalued. Although these 53 low and middle-income countries generally have modest-sized economies — with a combined output equivalent to just 5% of world GDP — they are home to 18% of the world’s population, or 1.4 billion people. 9 While an end to the war in Ukraine would reduce pressure on these “most vulnerable” countries, a debt crisis — and therefore a likely food security crisis — seems inevitable for some. Bilateral creditors, including non-Paris Club countries such as China, need to come together to provide debt relief and restructuring on an unprecedented scale in support of an IMF program. In addition to debt relief and restructuring, creditors and other developed countries should consider a potential role for innovative financing mechanisms, which can specifically target agriculture, food security and nutrition needs. 8 ”The Global Food Crisis, Explained” by The Economist — YouTube 9 https://www.economist.com/finance-and-economics/2022/07/20/the-53-fragile-emerging-economies 24 Emerging Markets Need Food Crisis Support and Long-Term Solutions