MORE INFLATION, LESS AGRICULTURAL PRODUCTION

MBABANE – The persistence of the Russia-Ukraine crisis could generate more inflation and contribute to a decline in agricultural production and sugar cane exports by -33 per cent.

This was revealed by United Nations Development Programme (UNDP) Senior Economic Advisor in Eswatini and Lesotho Souleman Boukar, who was representing the organisation’s Resident Representative Rose Ssebatindira during the discussions on the impact of Russia-Ukraine conflict on Eswatini. The event, which was hosted by the Economics Association of Eswatini (ECAS), was held at the Mountain View Inn yesterday.

Boukar said this was due to the increase in fertiliser prices (already +76 per cent from last growing season) as well as a decline in public revenues and expenditures and economic growth (forecast of 1.8 per cent in 2022, after 2.1 per cent in 2021). Boukar said this was informed by a policy brief elaborated in June by UNDP which assessed the economic impacts of Ukraine war for the Kingdom of Eswatini through two main canals.

The first canal was the increase of the price of petroleum products, foods, fertilisers and other raw materials and the other one was the impacts on the four macro-economic accounts: government financial operations, monetary sector, external sector and real sector. He stated that, however, in September 2022, the impacts of the Ukraine war were felt more than ever, with an annual inflation rate of 6.6 per cent, an unprecedented level since July 2017. Boukar mentioned that the higher headline inflation was due to increasing annual rates of change reflected in October in the price indices for health (+22 per cent), due to outpatient and medical services prices increase, food and non-alcoholic beverages which increased from 12.1 per cent.

Higher

Food (mainly bread and cereals, fish and seafood, and oils and fats) price increases resulted to the higher index of this category and transport which increased from 11.8 per cent; fuels and lubricants were the main contributors to the increased index of this category. He also stated that since October 2022, there had been a continuous downward trend, with inflation returning to 5.6 per cent annualised in December 2022. “The global fertiliser supply is highly concentrated with Russia as the lead producer, for which many countries rely for over 50 per cent of their fertiliser supply.

According to the Ministry of Agriculture, high price and scarcity of fertiliser and chemicals in Eswatini will result to lower yields as farmers employ rationing strategies which will compromise crop management practices, thus affecting crop yields,” he said. He also highlighted that farmers might be cheated in buying fertilisers without nitrogen, resulting to less production and productivity. However, Boukar revealed that the Ukraine war could present an opportunity for Eswatini’s revenue increase through South Africa palladium exports. “Indeed, out of gas, the world needs palladium to make electronics and automobiles, of which Russia is the top producer. “South Africa is the world’s second largest producer of this metal and sanctions on Russia can push it to the top spot,” he said.

Obtained

The UNDP official stated that in June 2022, Eswatini obtained resources from SDGs fund for the implementation of a project which was aimed at creating an evidence-based and shared understanding of the current and potential impacts of the current global crises of food, energy and finance, their potential interaction with existing vulnerabilities, and their implications for Eswatini, and serve as a basis for accelerated national preparedness and response plan. He shared that the project would have three phases, firstly being a rapid country assessment (RCA) on the food, energy and finance crises, their relevance and interaction with existing risks and vulnerabilities in Eswatini.

Secondly guided by the rapid analysis, national stakeholders including development partners would be engaged to prioritise an inventory of short, medium and long-term gender sensitive interventions for food-energy-finance crisis which builds on existing programmes for deployment by government. Thirdly, the pilot phase would entail the implementation of selected short-term impactful integrated gender responsive interventions addressing the food-energy-finance nexus.

Weakening

Boukar said the rising government debts and debt service costs, limited fiscal space and weakening currencies would severely hamper the ability of the country’s economy to generate growth, employment as well as strengthen social safety nets needed to protect the most vulnerable.
“Additionally, the high debt overhang and the COVID-19 induced impacts will make it more difficult for the country to commit financial investment for stronger climate change action, risking climate action failure.

“The public debt stock in the 2022/23 financial year is estimated to reach 44 per cent of GDP of which about 52 per cent accounts for domestic debt and 48 per cent external debt. “If unmitigated, macro-economic conditions will worsen, food insecurity will increase and hence result in poverty, a recipe for social unrest,” he submitted. He said after the RCA, the UN agencies will engage stakeholders for the development of an inventory of short, medium and long-term interventions which build on existing programmes for deployment by government.

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