The International Monetary Fund (IMF) has warned about food security and the rising cost of fuel due to the ongoing conflict between Russia and Ukraine.
Abebe Aemro Selassie, head of the IMF’s African department, told AFP that he was “very worried” by the twin impact of food and higher fuel costs — something particularly felt in the great majority of African countries that are not oil or gas exporters.
“This is a shock that hits in a laser light, directed at the poorest,” he said.
“Fuel price increases feed into transportation costs, and people providing goods and services will raise their prices because they are now facing higher input costs,” he said.
Food prices, which account for roughly 40% of consumer spending in the region, are rapidly rising, according to the IMF report.
“The war in Ukraine has triggered a sharp increase in energy and food prices that could undermine food security in the region, raise poverty rates, worsen income inequality, and possibly lead to social unrest,” the Fund said in its annual Regional Outlook for Africa on Thursday.
The UN’s Food and Agriculture Organization (FAO) said on April 8, 2022, that food prices rose 12.6 percent between February and March, reaching their highest levels since the index was introduced in 1990.
The previous high point occurred in 2011. The report revealed that due to the COVID-19 pandemic, most nations south of the Sahara are already facing a slowdown in economic development compared to last year, and the impact will be magnified by increased cereal and fuel prices.
The shock complicates an already tough budgetary, and how it will balance increasing development expenditure, rising tax collections, and reducing debt constraints.
After the pandemic, fiscal authorities are typically unprepared for additional shocks. Half of the low-income countries in the region are already in or are on the verge of collapse.
Rising oil prices impose a direct financial burden on countries in the form of fuel subsidies, and cutting these subsidies will be unpopular due to inflation.
To navigate this trade-off, central banks will need to keep a close eye on price movements, be prepared to raise rates if inflation expectations rise, guard against the financial stability risks posed by higher interest rates, and maintain a credible policy framework based on strong central bank independence and clear communication.