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IMF / Ukraine, Argentina, Supply Chain Disruptions

Release Date: 31 Mar 2022

The war in Ukraine will cause negative economic spillovers around the world, with the poor taking the biggest hit, announced the IMF today (Thursday, March 31st) in a press briefing held in Washington, D.C.

Gerry Rice, the Head of the Communications Department at the IMF, exclaimed that the shock will likely be transmitted via worsening supply demand imbalances and further increase commodity prices.

“The poor are most likely to be affected with a large share of expenditure, with a larger share of their expenditure on essential items like food and fuel, the concentration of effects in these categories mean that the cost-of-living squeeze, if you like, hurts the poor most. Agricultural communities will face conflicting effects of these shocks. Higher prices for inputs, think about fuel, think about fertilizers and outputs, agricultural commodities and how these play out, the eventual balance depends on local conditions, but overall, it's going to be the low-income households and producers that will be hurt most. That's within countries. Across countries, higher prices for international food commodities impact countries differently, of course, depending on the food share of households, consumption baskets and the types of food consumed. Again, households in low-income countries are particularly exposed to changes, for example, in the price of staple cereals with their diets often concentrated in just one type of grain. Low-income countries where wheat, corn and sorghum are a large part of the diet have already seen inflation, almost only driven by rising food prices. And some emerging market economies, including in the Middle East and Central Asia, have also been similarly affected by higher global food prices.” Said Rice.  

Last Friday, the IMF board approved a new IMF financing arrangement with Argentina for $44 billion and there was an immediate disbursement related to that of $9.65 billion, roughly. The program designed in conjunction with Argentine’s government provides help with balance of payments and budget support.

“We believe that Argentina's program, now supported by the IMF with this financing, sets pragmatic and realistic objectives along with credible policies, which when implemented will strengthen macroeconomic stability and begin tackling Argentina's deep-seated challenges. The program aims to strengthen public finances and start the process of reducing persistently high inflation through a multi-pronged strategy involving a gradual elimination of monetary financing of the fiscal deficit and an enhanced monetary and exchange rate policy framework. The program also envisages steps to strengthen the domestic peso debt market. The effectiveness of government spending, labor and gender inclusion, and the competitiveness of key sectors,” said Rice.

And the combined effects of the the COVID-19 pandemic and Russian military action in Ukraine have caused a massive disruption in supply chain in global supply chains that is boosting already heightened inflationary pressures.

“Everyone is looking at the disruption in supply chains. The war induced supply disruptions, notably for food and energy, will increase the cost of living, particularly for low-income households, and targeted fiscal support for those households can help cushion the impact. They will add, these war induced supply disruptions, will also add to preexisting inflation pressures and if signs emerge that inflation will be high over the medium term and there is a tangible risk of inflation expectations de-anchoring, I say if, central banks may be forced to react even faster than currently anticipated by raising interest rates. So, policymakers should of course continue to communicate clearly the outlook for inflation and monetary policies,” said Rice.

To watch the full briefing, click here

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