World Bank: Net food, fuel importers vulnerable to price increases

TIRANA, April 19 – Countries that are large net food and fuel importers in global markets are particularly vulnerable to world price changes, as are countries where there is high food and fuel price inflation affecting the poor, warns the World Bank in a recently released report on rising food and energy prices in Europe and central Asia.
Some countries could face additional external financing needs or may need to constrain domestic demand to contain external balances.
Among middle income countries, Albania, Belarus, Bosnia-Herzegovina and Montenegro also have double digit food and fuel deficits or double digit current account deficits, or both. These countries may need to find additional external financing for their higher current account deficits or have to reduce domestic demand, for example through tighter fiscal policy, says the World Bank.
Countries with the largest fiscal deficits/debt will be under the greatest strain to rationalize fiscal systems, (for example, by reducing subsidies) when fuel prices rise or if GDP rises less than expected.
“Rising food and energy prices could push 5.3 million more people into poverty across Emerging Europe and Central Asia,” said Theodore Ahlers, Director of Strategy and Operations of the World Bank’s Europe and Central Asia region. “For most countries in the region growth returned in 2010, following sharp declines in 2008 and 2009. However, the region’s annual growth of around 4.5 percent was much lower than that of other regions in 2010, and projections for 2011-13 indicate only slightly stronger performance.”
As global food prices are soaring, Albania, which is net food importer, has not escaped global crisis effects, but has been affected less as a new upper middle income country, managing to keep the food inflation levels in check.
Kseniya Lvovsky, the World Bank country manager for Albania says Albania is less vulnerable than poorer countries, where large shares of the population are below the poverty line and may spend 70 or higher percentage of their income on food, which consist mainly of bread and cereals. In a recent interview with Top Channel TV, the World Bank official suggests that Albania needs to modernize agriculture and develop new business models.
“While Albania is a net food importer, it has potential for increasing agricultural productivity and output. Yields per hectare have increased over the past decade, yet still lag behind Europe for many crops,” said Lvovsky. According to her, in Albania, the poorest 20 percent of households spend about 20 percent of their budgets on bread and cereals, which constitutes about 30 percent of their total food budget. “These households can feel the impact of price shocks. To compare, the richest 20 percent spend 5 percent of total expenditures and 11 percent of the food budget on bread and cereals. What really counts is the effectiveness of measures to protect the poor.”
According to the latest edition of Food Price Watch, the World Bank’s food price index rose by 15 percent between October 2010 and January 2011, is 29 percent above its level a year earlier, and is only 3 percent below its 2008 peak.