THE International Monetary Fund (IMF) has warned that Russia’s invasion of Ukraine has fuelled geopolitical fragmentation which could affect weaker economies like Zimbabwe amid concerns the world could be on the precipice of trade wars as the states become more balkanised.
BERNARD MPOFU
Russia invaded Ukraine on 24 February last year in a full-scale armed conflict which disrupted the global supply chain of cereal, oil and gas resulting in some economies experiencing unprecedented inflationary pressures.
According to the latest IMF world economic outlook, global growth is projected to fall from an estimated 3.4% in 2022 to 2.9% in 2023, then rise to 3.1% in 2024. The forecast for 2023 is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook (WEO) but below the historical (2000–19) average of 3.8%.
The IMF says the rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. It further says the rapid spread of Covid-19 in China dampened growth in 2022, but the recent re-opening has paved the way for faster-than-expected recovery.
Global inflation, the IMF predicts, is expected to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, still above pre-pandemic (2017–19) levels of about 3.5%.
“The war in Ukraine and the related international sanctions aimed at pressuring Russia to end hostilities are splitting the world economy into blocs and reinforcing earlier geopolitical tensions, such as those associated with the US-China trade dispute,” the IMF reads.
“Fragmentation could intensify — with more restrictions on cross-border movements of capital, workers, and international payments — and could hamper multilateral cooperation on providing global public goods. The costs of such fragmentation are especially high in the short term, as replacing disrupted cross-border flows takes time.”
An escalation of the war in Ukraine, the IMF says, remains a major source of vulnerability, particularly for Europe and lower-income countries.
“Europe is facing lower-than-anticipated gas prices, having stored enough gas to make shortages unlikely this winter. However, refilling storage with much-diminished Russian flows will be challenging ahead of next winter, particularly if it is a very cold one and China’s energy demand picks up, causing price spikes,” the IMF says.
“A possible increase in food prices from a failed extension of the Black Sea grain initiative would put further pressure on lower-income countries that are experiencing food insecurity and have limited budgetary room to cushion the impact on households and businesses. With elevated food and fuel prices, social unrest may increase.”
The report shows that since October, sovereign spreads for emerging market and developing economies have modestly declined on the back of an easing in global financial conditions and dollar depreciation.
“About 15 percent of low-income countries are estimated to be in debt distress, with an additional 45 percent at high risk of debt distress and about 25 percent of emerging market economies also at high risk. The combination of high debt levels from the pandemic, lower growth, and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs,” the report reads.
“Persistent labour market tightness could translate into stronger-than-expected wage growth. Higher-than-expected oil, gas, and food prices from the war in Ukraine or from a faster rebound in China’s growth could again raise headline inflation and pass through into underlying inflation. Such developments could cause inflation expectations to de-anchor and require an even tighter monetary policy.
“A premature easing in financial conditions in response to lower headline inflation data could complicate anti-inflation policies and necessitate additional monetary tightening. For the same reason, unfavourable inflation data releases could trigger sudden re-pricing of assets and increase volatility in financial markets. Such movements could strain liquidity and the functioning of critical markets, with ripple effects on the real economy.”
As reported by The NewsHawks last week, winds of a renewed Cold War between the United States and Russia — thunderously manifesting itself in Ukraine through iron and blood — swept across the southern African region this week as Russian Foreign minister Sergey Lavrov visited South Africa to meet his counterpart Naledi Pandor, five months after his American opposite number Anthony Blinken was in Pretoria.
While Lavrov was in South Africa asserting Russia’s influence in Africa, US ambassador to the United Nations Linda Thomas-Greenfield travelled to Ghana, Mozambique and Kenya this week to advance mutual priorities following December’s US-Africa leaders’ summit in Washington DC. The moves heightened the ongoing geopolitical rivalry and turf wars between Washington and Moscow in southern Africa and across the continent.
Other global powers and small states are also involved in the new scramble for Africa. The US has been trying to muscle out Russia from the region to a point of coming up with a law that would oblige Washington to punish African governments that abet Russian “malign” activities on the continent.
Russia has deep historical roots in the region, only surpassed by former colonial powers in Africa. The Countering Malign Russian Activities in Africa Bill passed in the US House of Representatives on 27 April 2022 by a huge bipartisan 419- 9 majority and was sure to be passed by Senate to become law. The US seems to have put it on ice — at least for now.
If implemented, it would direct the US Secretary of State “to develop and submit to Congress a strategy and implementation plan outlining United States efforts to counter the malign influence and activities of the Russian Federation and its proxies in Africa”.
The bill broadly defines such malign activities as those that “undermine United States objectives and interests”.
The secretary of State would have to monitor the actions of Russia’s government and its “proxies” — including private military companies (clearly Wagner is in the sights) and oligarchs. Russia has significant economic and military ties with Africa.
Washington would have to counter such activities effectively, including through US foreign aid programmes. It would need to “hold accountable the Russian Federation and African governments and their officials who are complicit in aiding such malign influence and activities”.
The bill was introduced to Congress on 31 March 2022 and was clearly a response to Russia’s 24 February 2022 invasion of Ukraine. Several other punitive laws aimed at Russia — including one directing the administration to gather evidence of Russian war crimes in Ukraine — were introduced at about the same time.
Russia was also hit with a wave of new sanctions by the US and its allies around the world. Zimbabwe is also under targeted American sanctions due to policy clashes and a fallout over human rights and electoral disputes. Re-engagements efforts have so far been in vain.
