Inflation rises in the aftermath of the Russo-Ukraine war
Livelihood crisis in developing countries
(Photo source: United Nations Development Program)
“Soaring prices in the aftermath of the Russia-Ukraine war raise the number of people living in poverty in developing countries to 71 million in three months”
This is the core of the report titled ‘Crisis of Livelihoods in Developing Countries’ published by the United Nations Development Program (UNDP) on July 7th.
The UN Development Program (UNDP) is an agency of the United Nations that addresses poverty, inequality and climate change. This report was prepared by surveying developing countries in 159 countries. Global poverty is expected to worsen as the living difficulties of the low-income class in poor countries increase.
The report begins by pointing out that, due to the COVID-19 pandemic and war-induced food inflation, at least 75 million people are still stuck in poverty, which had been expected to lessen.
In particular, sub-Saharan Africa (especially the Sahel region), the Balkans and the Caspian Sea region are hit most severely, with 71 million people newly driven into poverty.
About 49 million people in 46 poor countries are currently subsisting on the verge of famine, and 750,000 are at immediate risk of starvation, of which about 75% are concentrated in Ethiopia and Yemen.
The people trapped below the "poverty line"
The IMF, World Bank, and United Nations have set various "poverty lines" as the minimal living standards.
According to the World Bank, daily incomes for the poorest countries average less than $1.9 (2,400 won) per day, for lower middle-income countries $3.2 (4,100 won) per day, for upper-middle-income countries $5.5 (7,100) per day, and high-income countries average 28,000 won ($21.7) per day.
(Population growth rate by section for daily minimum cost of living, left is standard, right is post-Ukrainian war)
According to the report, in the three months following the Russo-Ukraine war, soaring food and energy prices have increased the number of people living on $1.9 per day by 51.6 million to 675.5 million. And the number of people living on less than $3.2 a day increased by an additional 20 million.
The table below shows a heat map of the poverty impact of inflation. The closer to red, the poorer the country.
Countries likely to hit all 'poverty lines' by inflation include Armenia and Uzbekistan along the Caspian Sea; Burkina Faso, Ghana, Kenya, Rwanda and Sudan in Sub-Saharan Africa; Haiti and other nations in Latin America; and Pakistan and Sri Lanka in South Asia.
Those living in Ethiopia, Mali, Nigeria, Sierra Leone, Tanzania and Yemen, at the lowest levels of poverty (below $1.9), are particularly vulnerable to the inflation crisis.
(For Sunhak Peace issues on the inflation crisis triggered by the war, go to the above links)
Fragile national economies on the verge of collapse
As the COVID-19 pandemic has lasted over 2 years, economies of developing nations highly dependent on tourism or nations with weak basic material means are on the verge of collapse.
According to a report released by the United Nations Development Program in March analyzing the global inequality database, the income of the bottom 40% of people in low- and middle-income countries is much lower than we think, and the share of the top 10 is much higher.
In October last year, the UN Development Program published the Multidimensional Poverty Index (MPI) report*, a study of 5.9 billion people in 109 countries. As a result of the study, 1.3 billion people were MPI poor, and the differences in MPI poverty rates were larger by ethnicity, gender and race than by region.
* The MPI report is a comprehensive poverty index published by the United Nations Development Program in cooperation with the Oxford Poverty and Human Development Initiative (OPHI), an economic research and policy center at Oxford University since 2010.
Whereas research on poverty has tended to focus on income, MPI is an index that quantifies health, education, and living standards. MPI is evaluated by a total of 10 indicators; if more than one-third of the indicators are substandard, the group is classified as "MPI poor", i.e. those suffering extreme poverty.
(Image source, University of Oxford)
Default in Sri Lanka
Emerging countries may default in a domino effect
(Sri Lankan students shouting anti-government slogans. Photo source: AP)
Recently, Sri Lanka declared national bankruptcy, and on July 10, the President and Prime Minister announced their resignation. It was a result of nationwide protests and chaos that began with economic hardships caused by the Russian-Ukrainian war.
Following Sri Lanka, nations with a high proportion of foreign debt such as Pakistan, Egypt, Argentina and Turkey in turn are being pushed into economic crisis one after another. It stems from worsening financial difficulties due to the increased burden of repayment of bonds in these countries due to the strengthening of the dollar after an interest rate hike in the U.S., plus a surge in inflation caused by the war.
In April, the World Bank warned that 10 countries could fail to repay their debts over the next year. This serves as a warning that a “domino default” may occur among emerging countries.
Achim Steiner, Secretary-General of the United Nations Development Program (UNDP), who published the Crisis of Livelihoods in Developing Countries report, expressed serious concern: "The livelihood crisis is driving millions of people into poverty, and the threat of social unrest is growing day by day.”
Changes in Arab Perceptions Caused by Poverty
“The economy is weak under democracy”
Recently, a new survey has revealed that there is a growing perception among Arab countries in the Middle East and North Africa that economic stability is difficult to achieve in a democratic system. Poverty is eroding hopes for democracy.
On July 6, the BBC and the ‘Arab Barometer’, an opinion polling agency affiliated with Princeton University in the U.S., surveyed 22,765 people in Palestine and nine Arab countries in the Middle East and Africa.
Of particular note is Tunisia, the epicenter of the 2011 Arab Spring* revolution. In Tunisia, which has maintained a democratic government since the revolution, the number of respondents replying in the affirmative to the same question has risen from just 17% in 2011 to 70% at present. It also pointed out that 61% to 79% answered “yes” to the question whether any form of government would be acceptable as long as the economic problem was solved.
*Arab Spring: An unprecedented anti-government protest, triggered by poverty, food shortages and corruption in the Middle East and North Africa at the end of 2010, that spread throughout the Arab world. As a result of the protests, governments in Tunisia, Egypt, Libya and Yemen changed. (Source: Commonsense Dictionary, et al.)
(Egypt experiences the wave of the Arab Spring in 2011. Photo: AFP)
The BBC analyzed that this change in perception of democracy was due to economic difficulties. More than a third of those surveyed say they have no money to buy food, which shows that no political system can be safe if poverty is not addressed.
To overcome poverty in developing countries,
“cash payment” is more effective than subsidies
The United Nations Development Program calls for tailored measures to overcome poverty, saying soaring food and energy prices pose a particularly difficult challenge in developing countries.
While developing countries are highly dependent on measures such as tax cuts and energy and food subsidies, UNDP advised that "cash payment" is more effective than subsidies.
Achim Steiner explains that subsidies encourage higher energy consumption and carbon emissions, and while more than half of the subsidy benefits are concentrated in the top 20% of the income distribution, if the subsidy is paid in cash with the same budget size as the subsidy, the 40% with the lowest income will benefit the most.
In addition, the UN Development Program ordered the extension of the Debt Service Suspension Initiative (DSSI), established to help developing countries repay their debts during the COVID-19 pandemic, for two more years and to expand the number of target countries.
Governments of major countries have shown flexibility in their response to severe economic crises since World War II.
However, following the outbreak of the Russia-Ukraine war, the G20 split, and the US-centered West, Russia, China, and their respective allied nations have come into conflict, shaking the existing basic order of free trade and multilateralism.
(For Sunhak Peace Prize article on Deglobalization and the New Cold War go to the above link.)
It is more difficult than ever to look ahead one inch. It seems that we need to seriously consider what impact the “eating problem”, the basic issues of food and survival, will have on the existing socio-economic order and political system.