In a July 2022 report, the United Nations (UN), said that 71 million people across the globe have been pushed into poverty because of the cost-of-living crisis. Inflation is climbing as the Ukraine conflict drags on and the effects of the COVID-19 pandemic continue to place pressure on supplies of food, energy and other essentials.
Since the war in Ukraine started, the prices of several key commodities have skyrocketed. For instance, the price of natural gas has increased by close to 170 per cent; crude oil by 73.5 per cent; wheat by 64 per cent and certain fertilisers by close to 180 per cent.
While inflation affects everyone, its effects are naturally felt most among those with little to no money to begin with – the poorest. Not only are poor people the most severely impacted, but poor countries are too. As an example, for 2022, the International Monetary Fund (IMF) has predicted developed-world inflation will be 6 per cent, but that of the developing world will be 9 per cent.
What can be done to address the cost-of-living crisis? The UN report notes that debt relief, subsidies and cash transfers are seen as the best means of addressing the immediate impacts on the world’s poorest.
As far as debt relief is concerned, the UN is calling on lenders, such as banks, to help. Among the measures they can take are debt relief programmes – which would see them forgive or delay some credit repayments to give governments of worst-affected countries money to protect their poor. This would require bringing international pressure to bear on lenders, be they private, government or inter-governmental.
The assumption is that by providing temporary relief to governments from their debt obligations, it could help them pay for energy subsidies or offer cash payments which would allow families to buy food.
Regarding subsidies, measures such as price caps or freezes; unemployment insurance; and tax cuts, such as reducing value added and fuel taxes, can bring relief.
The UN report also found that targeted and time-bound cash transfers in the form of in-kind and quasi-cash transfers (such as school feeding and vouchers) and income support measures, are the most effective policy tools to address the impacts of the cost-of living-crisis.
The challenge is that every measure brings with it its own complication. For instance, any subsidy or cash transfer, even temporarily, would require governments to have the fiscal room in the first place to accommodate these types of prescriptions. However, this is where debt relief and international assistance may play a role in offsetting the fiscal challenges that governments may face.
There are also a number of other things that can be done which may not necessarily exact a financial cost from the treasury. For example, improving the efficiency with which certain key agencies operate would be beneficial. Customs is one such agency, bearing in mind that every delay in clearing a good is an additional cost for a business, which is invariably passed on to the consumer. Agencies such as Customs would therefore need to closely review their operations, identify bottlenecks and implement changes to bring about greater efficiencies.
There is also a role for the private sector to determine what it can do to provide price eases. Is there scope among the retailers to hold prices constant for say a period of three months on basic food items? Are banks and other lending institutions in a position to reduce interest rates on loans and mortgages and hold them steady for a period of time?
Finally, in the long term, the current crisis has to serve as an impetus to drive structural change.
There are more crises to come and to prepare, countries must invest more in local food production, renewable and alternative forms of energy and boosting social safety nets.
Joel K Richards is a Vincentian national living and working in Europe in the field of international trade and development.