Russia-Ukraine war affects food and fuel prices: Athy

[Up&running Siaraga]

Already the price of diesel in Vanuatu has increased from VT163 per litre to VT183. The rise in price will likely continue and could reach VT200 per litre: RBV Governor Athy

The Russia-Ukraine war’s impact on global food and fuel prices combined with the continued economic challenge of COVID-19 will elevate domestic inflation, resulting in reduced spending by households, increase in unemployment, production cost and the cost of doing business.

The Governor of the Reserve Bank of Vanuatu (RBV), Simeon Athy, said this when providing a brief overview of the impact of COVID-19 on the country’s economic sector.

He stressed that the Russia-Ukraine war has worsened the already affected global supply chain, a process that involves the production and distribution of goods from source to destination.

“The war, with the current lockdown in the country will cause financial shockwaves on the domestic economy. These two crises will affect the local economy through the rise in prices,” he said.

“Both Russia and Ukraine together are the world’s biggest exporter of wheat and sunflower oil among other products.

“The supply of wheat and fuel to Europe has been disrupted by the war therefore, the spillover effects will be felt by other nations all over the world.

“Already the price of diesel in Vanuatu has increased from VT163 per litre to VT183. The rise in price will likely continue and could reach VT200 per litre.

“We must understand that oil and fuel account for about 17% of the Consumer Price Index (CPI) and food weight 42%. More than 50% of our goods are imported from overseas so definitely, there will be inflation in the rate of prices.”

“Most likely there will be an increase in inflation, unemployment and real Gross Domestic Product (GDP) slows down. If this situation remains, there will likely be stagflation. Stagflation is driven by the rising costs of fuel and food price.”

Governor Athy said the Ministry of Finance and Economic Management (MoFEM) and RBV will meet in the coming weeks to discuss some measures to address the economic impacts of COVID-19.

According to the Governor, Vanuatu has thrived through the COVID-19 crisis since 2020 with a very strong macroeconomic position.

Following the disruption in the tourism sector, the economy has been driven by seasonal work, as part of the external sector variable, he said.

Regarding the current status of commercial banks, Governor Athy stressed there is a decline in credit demand due to the COVID-19 crisis.

This can affect loan repayments and other areas like the fiscal government budget and GDP growth, he said.

RBV as the regulator of banks is looking at the possibility of extending the current moratorium to support those struggling to repay loans, he added.