The Hindu : Front Page : Surging prices will affect 50 countries in 2009: IMF

Online edition of India's National Newspaper
Saturday, Sep 27, 2008
ePaper | Mobile/PDA Version

Front Page

Front Page

Surging prices will affect 50 countries in 2009: IMF

Special Correspondent

‘Significant shock’ forecast to many countries, particularly in Africa
Average inflation rate for poor countries to cross 13 p.c. by year-end

NEW DELHI: The International Monetary Fund (IMF) has projected that some 50 developing countries will remain at risk of being affected through 2009 as a result of hikes in food and fuel prices.

In its updated assessment of the global economic scenario, IMF Managing Director Dominique Strauss-Kahn said that while the international community is currently focused on the ongoing financial crisis in advanced economies, “it is important not to lose sight of the ‘other crisis’ — the continued debilitating impact of food and fuel hikes on some of the world’s poorest countries.”

Call for ‘bolder action’

“While food and fuel prices have eased somewhat in recent months, they remain well above their levels at the onset of the recent price surges…What this means for a large number of countries — particularly in Africa — is a significant shock,” he said while calling for “bolder action” from the international community in terms of additional aid to help vulnerable countries.

IMF’s updated assessment shows that the impact of food and fuel price increases on developing countries, far from diminishing, has continued to mount since its previous report last June. As of mid-September, oil prices at some 40 per cent below their mid-July peaks were still double the levels recorded in end-2006. Similarly, food prices have eased by eight per cent from their June peak but are still above end-2006 levels.

As a result, the IMF has projected that net fuel-importing low-income countries are facing an increase in their fuel bill equivalent to 3.2 per cent of their GDP (gross domestic product), or $60 billion. For the 43 net food-importing countries, the rise in their food bill is 0.8 per cent of GDP, or $7.2 billion.

Weakening BoPs

“From a macroeconomic perspective, we see the effects in weakening balance-of-payments positions and national budgets, and acceleration of inflation,” Mr. Strauss-Kahn said. The average inflation rate for low-income countries increased by almost three percentage points during the second quarter of 2008 and is expected to exceed 13 per cent by the end of this year. “As we all know, inflation hurts everyone, but it especially hurts the poor,” he said.

The costs of the fiscal policy responses to the food and fuel crisis also have continued to increase. Countries have responded to rising prices, primarily by reducing taxes and tariffs, increasing universal subsidies, expanding transfer programmes and increasing public sector wages. The updated assessment shows that in 24 countries, the combined fiscal cost from rising food and fuel subsidies is expected to exceed two per cent of GDP. The report also points out that these subsidies are almost always poorly targeted in terms of reaching those people most in need.

‘World must do more’

Mr. Strauss-Kahn said: “Faced with these dire statistics, the world must do more. We need to combine forces on the domestic and international level to guard against excessive inflationary and budget pressures, while at the same time, helping the poor.”

The IMF study points to two priorities for the affected countries: First, to bring inflation back under control. This will require a robust monetary policy stance — tightening where necessary — and the avoidance of unsustainable wage increase.

Second, a shift to better-targeted social safety net programmes to protect the poor in a more cost-effective manner.

Printer friendly page
Send this article to Friends by E-Mail

Front Page