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ENERGY PRICE INCREASE PROJECTED AT 50%

30/05/2022 14:53:00 Mhlengi Magongo

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Mbabane - The World Bank has warned that energy prices, along with other commodities are likely to remain at ‘historically high’ levels through 2024.

Worth noting, energy prices have surged since the Russian invasion of Ukraine and, along with other commodities. World Bank’s Vice President for Equitable Growth, Finance and Institutions (EGFI) Indermit Gill said this amounts to the largest commodity shock we’ve experienced since the 1970s.

Restrictions

The shock which is expected to push energy prices up 50 per cent this year is being aggravated by trade restrictions and rising prices for food, fuel and fertilisers. “These developments have started to raise the spectre of stagflation,” Gill warned in a statement on the World Bank’s Commodity Markets Outlook report. He further urged governments to take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy. The report also mentioned that the increases in energy prices in the past two years had been the largest since the 1973 oil crisis when the OPEC group of oil-producing countries declared an embargo. “Amid the war and Western sanctions on Moscow, the price of Brent crude is expected to average US$100 a barrel this year, the highest since 2013,” the report said. The natural gas prices are expected to double what they were in 2021 along with coal hitting record levels, it added.

Producers

Prices for grain, of which Russia and Ukraine are large producers, and fertilisers have seen the biggest price jumps since 2008, with wheat prices reaching an all-time high this year.
Overall, non-energy commodity prices, including agriculture and metals, are projected to jump 20 per cent this year before easing, but will remain above their five-year average, according to the World Bank. This has resulted in the increase in the price of cooking oil, gas and electricity in the country which may not change for the next two years. The Central Bank of Eswatini (CBE) will soon introduce Retail Bond programme and sovereign debt.

Period

A retail bond issue allows companies to raise extra capital by borrowing from an investor at a fixed rate for a set period. Companies can use these bonds to expand their businesses, pay off debt or finance other projects. CBE Governor Majozi Sithole said retail bonds will allow companies to pay debts at a later stage. “When companies launch retail bond as a debt security, owing the holders a debt, and is obliged to pay them interest or to repay the principal at a later date,” he said. Sithole added that retail bonds can be thought of as an ‘I owe you’, with interest normally payable at fixed intervals. Due dates for interest payments will depend on the details of the bond issue itself and could be semi-annual, annual, quarterly or very occasionally paid out on a monthly basis. He said as with any investment opportunity, there are risks associated with investing in retail bond issues. The governor added that there is an opportunity that the company you invest in finds itself in difficulties, in which case there is potential to lose all the money you invested.

Government’s total domestic debt portfolio, he said, increased by E942 million or 6 per cent from E15 798 million in March 2021 to E16 740 million in March 2022. The increase, he explained, was mainly driven by positive net issuance in Treasury Bonds that increased by E1 218 million or 14 per cent from E8 674 million in March 2021 to E9 892 million in March 2022. The Central Bank Advance to government increased by E189 million or 13 per cent from E1 500 million to E1 689 million.

Source: World Bank.
Note: All prices in nominal US dollar terms. Chart shows the per cent change in monthly price indices over a 23-month period. This facilitates comparison of the April 2020 year end through with the most recent data (April 2022).