The Ukraine-Russia war has created a sizeable global economic and financial shocks, particularly in commodity markets, where the prices of oil, gas and wheat are recently soaring, says Attorney-General Aiyaz Sayed-Khaiyum.
He said for fuel especially, the conflict had exacerbated the mismatch between global demand and supply, pushing crude oil prices to above $US100 ($F208) a barrel in March, levels not seen since 2008.
He told Parliament that economies reliant on oil imports would see wider fiscal and trade deficits and inflationary pressures because of the conflict.
“Some exporters, such as those in the Middle East, Africa and places like Nigeria, may temporarily benefit from higher prices,” he said.
Mr Sayed-Khaiyum said this elevated inflation along with the lack of fiscal space, has prompted many countries to tighten their fiscal and monetary policies, posing further challenges to their economic recovery.
“If these shocks are sustained over the short term, the Organisation for Economic Co-operation and Development (OECD) expects global GDP growth to reduce by 1.0 percentage point and inflation rise by a further 2.5 percentage points.”
The A-G said the Ukraine-Russia war had delivered a severe and unfortunate blow to the global economy that would hinder growth and raise prices, just as we are starting to bounce back from the pandemic-induced recession.
“Global trade disruptions and inflationary pressures are likely to intensify as the conflict drags on. Fiji has already begun to experience the spillover effects of these trade shocks, with imported inflation pushing up domestic fuel and food prices in recent months.
“Fiji is particularly susceptible to fuel price shocks, given that fuel accounts for roughly one-third of our total import bill.
“Domestic fuel prices depend on three factors — the world market price for refined oil, benchmarked by the Mean of Platts Singapore (MOPS) international freight rates and foreign exchange rates. Moreover, refinery margins distribution costs, insurance freight and transport costs and geopolitical pressures also influence the direction of international fuel prices in any given month.”
