Russia-Ukraine war to hurt South Asian economies

Further escalation in the Russia-Ukraine war will have an adverse economic impact on South Asian countries, cautioned South Asian Association for Regional Cooperation (Saarc) Chamber of Commerce and Industry President Iftikhar Ali Malik.

Talking to a delegation of traders on Monday, he noted that the outlook of 2022 for the global economy “seems bleak and South Asia will also be affected”. “Russia and Ukraine combined have a significant share in global supplies of oil, gas and other commodities, so the invasion has increased commodity prices,” he pointed out.

He emphasised that the direct impact on South Asia would mainly occur through trade linkages, particularly through rising commodity prices “as the region is a net importer of commodities”.

He said that even before the invasion, inflation in South Asian economies was rising compared to its competitors in the global market.

Any additional shock in commodity prices would further widen the gap, increasing relative cost of production in the region and eroding the competitiveness of cheap labour and energy-intensive industries, he underscored.

“Reliance on fossil fuels for energy generation is higher in South Asia than elsewhere in Asia.” Malik noted that the direct impact would be an immediate increase in inflation reading, while indirectly the conflict would lower economic growth, leading to stagflation in the region.

The extent of the hit on South Asian countries would depend on the duration of the conflict, the severity of western sanctions on Russia and the Russian response, he added.

“The impact on South Asian countries will vary depending on their economic linkages with Russia and Ukraine, and the growth and financial market linkages to the rest of the world.”

He was of the view that tough western sanctions against Russia for a longer period would cause a persistent rise in commodity prices and global inflation.

“This will have adverse implications for global growth, leading to lower external demand for South Asian exports,” he added.

Malik noted that the inflation in South Asian countries rose in the aftermath of the Covid-19 pandemic, increasing income inequalities and pushing more people into poverty.

He underlined that a persistent conflict could have a more lasting and more drastic effect on South Asia and feared that the situation may deteriorate further “as Russia is putting its nuclear forces on high alert”.

Published in The Express Tribune, May 3^rd, 2022.

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