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The war in Ukraine and the resulting sanctions on Russian exports likely will throw millions of people in low-and middle-income nations into poverty and push those countries toward debt crises, the World Bank has warned.
The COVID era has driven about 40 lower-income countries into or toward debt distress, bank vice-president Indermit Gill said, but “with the war, debt crises may come much sooner and that can cause a lot of permanent damage.”
Rising commodity prices, disrupted world trade, higher interest rates, and a strengthening U.S. dollar will make it harder for countries that depend on imports to meet their debt obligations, Gill noted.
“If wheat and oil prices stay high for six months to a year, that will shave a percentage point off the growth rates we forecast a little more than a year ago,” he said.
In January, the World Bank predicted that developing countries’ economies would expand by 4.6 percent this year and 4.4 percent in 2023.
China, Indonesia, South Africa, and Turkey are all heavily dependent on oil and wheat imports and are particularly vulnerable, he said.
The economies of countries such as Argentina and Brazil had not fully recovered from the COVID War when inflation began to ravage them. Many countries’ central banks have raised interest rates—Argentina to 44.5 percent, as we reported in “Argentina’s Interest Rate Hits 44.5 Percent” (29 Mar 2022)—impinging on growth.
Several more-developed economies in Asia might be able to weather a one-point loss to GDP “but for Turkey or Brazil, it’s huge,” Gill said.
Last year, the bank predicted that the COVID plague would push 100 million people into extreme poverty, defined as living on less than $1.90 a day.
The Ukraine war is certain to increase that number, Gill added.
The Czech Republic, Hungary, and Poland are especially vulnerable to disrupted trade with Russia and Ukraine, according to an analysis by the Institute for International Finance, with Egypt and Turkey even more hard-hit.
TREND FORECAST: The Ukraine war and resulting Western sanctions will significantly negate the positive impact that higher interest rates will have on inflation.
The productivity lost to Ukraine and Russia because of the war, and the sanctions, are driving the world’s economy faster and deeper toward recession and Dragflation.