Rickshaw drivers queue up to buy petrol near a fuel station in Colombo, Sri Lanka. Photo / AP
A mix of pandemic recovery, climate shocks, war in Ukraine and global inflation is sowing the seeds of 'a crisis of mega proportions'.
The snaking queue stretches through the Sri Lankan capital. For 4km, motorists in Colombo stand behind their vehicles and slowly push them closer to a petrol station. Many have been queuing for more than 24 hours, sleeping by the side of the road in the hope of securing a meagre supply of petrol when deliveries finally arrive.
Sri Lanka is teetering on the verge of total collapse amid an unprecedented crisis triggered by years of economic mismanagement. On Friday, it defaulted on its debts for the first time – the country owes £27 billion ($51.9 billion), but has less than £1 million ($1.9 million) remaining in the bank.
Across the nation, pensioners who celebrated Sri Lanka's independence in 1948 and survived its devastating 26-year civil war are now struggling to live on one handful of rice each day. Earlier this week, a father-of-two died from a heart attack this week after hospitals ran out of life-saving drugs.
But Sri Lanka is unlikely to be an isolated case. Experts warn a swathe of other countries could be pushed to a similar breaking point as Russia's invasion of Ukraine and the "weaponisation" of food supplies disrupts markets and pushes prices to record highs.
Any string of upheaval would have huge implications, and this week veteran US statesman Henry Kissinger urged the West to urgently start negotiations to maintain the status quo and prevent war creating "upheavals and tensions that will not be easily overcome".
Widespread economic collapse could require huge bailouts from the West via the World Bank and International Monetary Fund, push countries across the world closer to Russia and China, and trigger a new wave of international migration.
According to the World Bank the threat is real – with as many as a dozen developing countries at risk. The IMF estimates that 60 per cent of low income countries across the globe are in or near debt distress – up from 30 per cent in 2015.
This is partly because Covid pushed countries to borrow more money for their pandemic response, partly because the cost of servicing borrowing has risen steeply.
"That then constrains the government's ability to address new problems, like rising food prices," Dr Friederike Greb, an economist at the World Food Programme, told The Telegraph. "You have a situation where incomes are depressed, prices are rising and governments are tapped out – so households are hit from two sides and at the same time."
Already, the IMF is in talks with Egypt, Tunisia and Pakistan about dispensing urgent loans, with Egypt's prime minister on Wednesday describing the crisis as the country's worst in a century. He announced his government will sell 10 of its largest state-owned and military-owned companies, listing them on the stock exchange by the end of this year.
"We expect 130 billion pounds of immediate impacts, as well as 335bn pounds of indirect effects as a result of increased prices for commodities like wheat, oil and even interest rates," Mostafa Madbouly said.
Tunisia's finance minister, Sihem Boughdiri, also said her country is suffering its worst ever financial crisis. The country is seeking a US$4 billion loan to avoid public financial bankruptcy, but it would mean committing to unpopular reforms – including freezing wages and cutting energy and food subsidies.
Meanwhile in sub-Saharan Africa, analysts say nations including Burkina Faso, Mali and Chad are close to the brink.
Economists are keeping a keen eye on Kenya, Ethiopia and South Africa – where the central bank said on Wednesday the risk of a spillover from the conflict could damage the country's financial stability. Last week, it increased its prime lending rate by 50 basis points to 4.75 per cent, its highest increase in six years, to rein in inflation.
Over in Latin America, El Salvador and Argentina are also facing mounting difficulties, while Peru is experiencing a fertiliser crisis.
The country's president, Pedro Castillo, replaced four ministers this week after the government failed to find a solution to the shortage. Last month, the country raised interest rates to the highest level in 13 years to curb soaring inflation – triggering mass disorder.
The United Nations trade and development arm, UNCTAD, gives a sense of the scale of the challenge. Already, 107 countries are witnessing at least one of three shocks: rising food prices, surging energy costs or tighter financial conditions. Of the 69 countries experiencing all three shocks, 25 are in Africa, 25 in Asia, and 19 in Latin America and the Pacific.
"It's a crisis of mega proportions," said Dr Greb. "In 2007/2008 we had food riots in 40 plus countries. I think back then people were talking about a perfect storm, but today we're in an even worse situation… the scale of the crisis really is unprecedented."
The ramifications of Russia's naval blockade of Ukraine's Black Sea ports – where as much as 25 million tonnes of wheat is currently rotting in silos – could also trigger hunger and famine, the head of the WFP said this week. David Beasley told Davos that millions are now "knocking on starvation's door".
While trade disruption will badly impact countries including Egypt, Indonesia, Pakistan, Bangladesh and Lebanon – the largest buyers of Ukrainian wheat in 2020 – it is sub-Saharan Africa that is most at risk of acute food insecurity as a result, according to the Famine Early Warning System.
This includes Somalia and Ethiopia, which are both dependent on imports from Russia and Ukraine and in the midst of the worst drought for 40 years. Across the Horn of Africa, 15m people face acute hunger, while Oxfam and Save the Children estimate that one person is already dying every 48 seconds.
At a health clinic in Garadag – a remote, dusty village in the heart of Somaliland, a stable, de facto state internationally recognised as part of Somalia – women and children shelter from the blistering midday sun. Among them, Khadija cradles her daughter Asma. Aged two, she weighs just 5.4kg.
"I just don't have enough food for her to eat," the 20-year-old Khadija told The Telegraph, glancing down at the toddler nestled in her lap. In February it cost US$7 to buy 15kg of rice from the local market, which Khadija would eke out for a month. Now the price has jumped to US$11.
"It just means we can afford less food, and have less ability to buy clean water and other things we need," Khadjia said last week. "I worry what could happen if the situation doesn't change."
Experts warn that, across the globe, the war in Ukraine could be the domino that pushes millions like Khadjia into an untenable situation. If that happens, expect political and social turmoil to follow in some regions – and the ripple effects to be substantial.
"It's too soon to know where all the dominos may fall… although there are many countries that could suffer because of this, and the way price hikes lead to civil unrest," Prof Tim Benton, director of the Environment and Society Programme at Chatham House, told The Telegraph.
"There's a lot of space for things to go wrong, but it's difficult to predict exactly what will happen."
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