The effects of the Russian-Ukrainian crisis are beginning to affect the fragile “border economies”.

They may be a long way from the fighting in Ukraine, but the massive resignation of the Sri Lankan cabinet on Monday and Pakistani Prime Minister Imran Khan’s drastic maneuvers over the weekend to avoid his sacking show how far the economic fallout is spreading.

In Sri Lanka and Pakistan, long-standing public concerns about economic mismanagement have come to a head, but there is a double-digit list of other countries also in the danger zone.

A handful of them were already on the brink of a debt crisis due to the COVID pandemic, but the war-related soaring energy and food prices have undoubtedly worsened the situation.

Turkey, Tunisia, Egypt, Ghana, Kenya and other countries that import most of their oil and gas, as well as staples like wheat and corn, all of which have risen from 25% to 40% this year, are also under severe pressure.

The rising cost of imports and subsidies for these everyday staples had already prompted Cairo to devalue its currency by 15% in recent weeks and to seek support from the IMF. Tunisia and a long-held Sri Lanka have also asked for help.

Meanwhile, Ghana, which is still reluctant to approach the fund, is seeing its currency plummet, while Pakistan, a country that already has 22 IMF programs under its belt, will almost certainly need more as it moves back into one recession has fallen.

“This energy shock is certainly contributing to political uncertainty in Sri Lanka and Pakistan,” said Charlie Robertson, Renaissance Capital’s chief economist, noting that it was also a key factor for Egypt and Ghana.

“I wouldn’t be surprised if other countries were affected,” he added, also citing Jordan and Morocco, where a relatively large middle class makes them sensitive to political changes.


IMF Managing Director Kristalina Georgieva warned, “The war in Ukraine means hunger in Africa.”

The IMF’s arm, the World Bank, also said a dozen of the world’s poorest countries could default over the next year in “the biggest spate of debt crises in developing countries in a generation.”

Oil, gas, wheat and corn prices have skyrocketed:

According to the Institute of International Finance (IIF), over-indebted “frontier economies”, as the group of least developed countries are known, now have debts of USD 3.5 trillion, around USD 500 billion more than before Pandemic.

Pakistan and Sri Lanka already spent the equivalent of 3.4% and 2.2% of their respective GDP on energy before the pandemic. In Turkey the figure was even higher at 6.5% and with oil prices above $100 a barrel for months the pressure is mounting.

Every additional $10 spent on a barrel of oil increases Turkey’s current account deficit by 0.3%, according to the IIF. For Lebanon it’s 1.3%, while rating agency Fitch estimates that the cost of electricity subsidies in Tunisia could rise by 0.8% this year to over 1.8% of GDP.

Exposure of emerging markets to food and energy:


Grocery prices are also a stinging problem. They were already on the rise as countries emerged from lockdowns exacerbated by droughts in some regions.

With Ukraine and Russia accounting for 29% of world wheat exports and 19% of corn shipments, their prices have risen another 25-30% this year.

Egypt buys more than 60% of its wheat from abroad, four-fifths of which comes from Russia and Ukraine. After devaluing its currency and turning to the IMF, President Abdel Fattah al-Sisi’s government just fixed the price of bread to stem rising food costs.

“For many countries, these hikes (in energy and food prices) will have implications for budgets, subsidies and political and social stability,” said Viktor Szabo, London’s emerging markets portfolio manager.

“Those who don’t control prices could get into trouble, just think of the Arab Spring and the role that food prices played in it.”

As borrowing costs around the world are also rising rapidly as major central banks start raising interest rates, Max Castle, fixed income portfolio manager at Mediolanum Irish Operations, said several emerging market commodity importers may have no choice but to ask for help.

“This is the right situation for the IMF to step in and support the most vulnerable countries – especially those with current account deficits,” he said.

Countries with the highest wheat imports from Russia and Ukraine:

Frontier bonds affected by the Russia-Ukraine war:

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