Global action needed to prevent food crisis in Middle East and North Africa, warns IMF

Gathering international co-operation will be necessary to help prevent a food crisis in the Middle East and North Africa this year as the war in Ukraine drives prices higher and risks supply, the IMF’s regional director said.

On Wednesday, the fund released its Middle East and Central Asia Regional Economic Outlook, which shows a divergent picture in 2022 for the region, with oil exporters such as the UAE and Saudi Arabia set to earn higher revenue this year compared with 2021, thanks to higher oil prices.

Uncertainty is also increasing with the duration of the war in Ukraine, a significant factor in how the rest of Mena will fare amid rising inflation and growing food insecurity.

Jihad Azour, director of the Middle East and Central Asia Department at the IMF, told the Business Extra podcast that co-operation is required at both the regional and global levels to increase access to food supply, especially for the most vulnerable nations such as Yemen, Sudan and Afghanistan.

“[Co-operation] should be at both levels; global in order to secure that supply is not constrained and allow those who are food-dependent countries to remain able to have access to these basic commodities. Co-operation is also very useful to reduce the impact of uncertainty on prices of those basic commodities,” said Mr Azour.

The IMF said higher wheat prices alone could increase external financing needs in the Middle East and Central Asia by up to $10 billion this year. Supply shortages originating in Russia and Ukraine – together accounting for about a quarter of global wheat exports – would endanger food security, particularly for low-income countries, which may also suffer from aid diversion, the fund said.

The UN Food and Agriculture Organisation’s food price index shows sharp increases for grains, oils and other foodstuffs as exports from both Ukraine and Russia are affected.

It is crucial that all countries “fight inflation, because inflation is a tax that affects more the poor than the high-income people”, said Mr Azour. Last year, inflation ran at 14.8 per cent in Mena, the IMF said.

Low-income countries have very limited reserves of staple items, in terms of both duration and quantity, he said, which adds to the risk in these countries that rising prices will create social instability.

“Therefore, it’s very important to maintain global co-operation. And the role of institutions is important. It’s very important to provide also support to countries who need it,” Mr Azour said.

Throughout the region, this is also a moment “to improve social protection mechanisms, make them more targeted [and] allow the low-income groups to have at least the floor of social protection”.

In contrast, oil and gas exporters in the Middle East will benefit from higher energy prices, and their growth this year was projected by the IMF at 5.4 per cent versus 4.4 per cent and 1.1 per cent for middle and low-income countries, respectively.

Crude prices, which advanced to $140 per barrel last month after western sanctions were imposed on Russia over the war in Ukraine, remain at about $100 a barrel.

The successful Covid-19 vaccination programmes, labour market reforms and direct government support have helped put Gulf economies, including the UAE, on a very stable footing over the past year, Mr Azour said.

The IMF forecasts that in the next three to four years, reserves for oil and gas exporters will increase by more than $1 trillion.

“What is important going forward is to understand that this windfall is a very precious one that needs to be well invested,” said Mr Azour. “Those reserves need to be used to accelerate the diversification of the economy, reduce dependence on oil, become less procyclical [and] allow the private sector to lead growth.”

Iraq, as a large regional exporter that has also faced economic crises in recent years that have diminished opportunities and living standards for its citizens, has a unique opportunity, Mr Azour said.

“There is no moment to lose … it’s important to use this windfall to accelerate and to foster an economic transformation that Iraq needs,” he said. The country needs to maintain progress on two tracks: wisely using the resources that come with increasing oil prices but also making the necessary structural reforms for the medium term to diminish the impact of any volatility in oil prices, he said.

“It’s very important to improve the social infrastructure in Iraq, by having a better targeting of the social protection mechanisms by reforming the state, to provide better quality of services, including the social services that Covid-19 put under strain and under pressure,” Mr Azour said.

Uncertainty will remain a factor affecting the outlook for the region this year, amid inflation, conflict in Ukraine and rising unemployment, he said.

“Uncertainty brings volatility, the volatility in oil price, but also the volatility that we see, in the mood of investors. We saw, in the beginning of the year, some outflows from important emerging markets in the region, like, for example, in Egypt, and those are issues that we need to watch,” Mr Azour said.

Policymakers in Mena will be required to take decisive action as vulnerable groups experience another crisis after “the huge impact” of the pandemic, he added.

“There is a risk of social unrest that calls for adapting or changing or improving the way fiscal policies are conducted, both on the expenditure side, to focus more on social protection, and also on the revenue side, to increase equity, and also to have the capacity to get additional resources to redistribute better [the] government resources,” he said.

“Transformative reforms” such as those in energy transformation, investing in climate issues, investing in technology and reducing the level of informality in economies are “steps in the right direction”, Mr Azour said.

“The priorities should be very clear: reduce the level of unemployment, especially at the youth, and allow the state to provide protection to those who need it.

“This requires good co-ordination of public policies … also to strengthen the quality of public services, especially education and health, and increase the level of trust in the private sector, who is able in the region to lead the growth.”