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ADAPTING TO SURVIVE

27/04/2022 08:04:00 Sanele Sibiya

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The 2022 economic recovery is threatened by inflation, interest rate increases and fuel prices are getting out of control.

The world is fast entering into a precarious situation where the tools we have at our arsenal to combat prevailing problems might likely push the global economy into a soft recession at best and a deep recession at worse. This is purely because an aggressive demand side policy, i.e increases in interest rates, does not have much of an effect on the supply side problems that we are facing in the global economy. If anything, aggressive reduction of a central bank’s balance sheets and aggressive interest rate policy might dampen aggregate demand to levels that will push the economy into a recession, while the supply side problems likely remain unsolved.

The price of Brent Crude will likely remain above US$100, regardless of the monetary policy stance, inflation will remain high because of the supply shocks caused by the war in Russia and Ukraine, and the new wave of lockdowns in China will continue to exacerbate global supply chain disruptions, hence contribute to the inflation problem. Economic indicators point to a persistent inflation problem that is beyond the realm of economic policy. Therefore, we all need to brace ourselves for tough economic times ahead and today I will try and discuss how we can all manage the rough road ahead.

The debt crunch

The aggressive interest rates policy stance taken by central banks including our own Central Bank of Eswatini (CBE) will increase our debt burden as emaSwati. As the CBE increases the repo rate, commercial banks will also increase the prime lending rate. Effectively, repayments on current loan obligations will increase, reducing the disposable incomes of those households who hold such obligations, resulting in reduced consumption scope for households and the inflation problem will eat further into the consumption budget resulting in a limited consumption scope. We need to prepare for this eventuality and start re-prioritising our expenditures so that we are ready to absorb more interest rate increases. We should expect interest rates to rest at pre-COVID-19 levels and debt repayments will increase by the same proportions.

Furthermore, the debt obligations that the country holds will also increase as global interest rates increase, for all obligations with floating interest rates, this will limit the scope for fiscal policy actions to fine-tune the economy and weaken the impact of the ongoing global economic problems. It is prudent that we start being thrift and spending money on commodities that are necessary for the sustenance of households and reduce our expenditures on luxury commodities. This will allow for the accumulation of savings that can be used to cope with the persistent inflation and unforeseen expenses in the future.

Income poverty

Persistent inflation will push a majority of the lower middle class into poverty and food insecurity. The problems of poverty and food insecurity will be amplified for the 58 per cent of the population living below the international poverty line. Increases in the price levels reduce food affordability and access to basic amenities. Inflation results in an increase in the cost of living, the Lilangeni will not stretch as far as it did, and its purchasing power parity will dwindle in comparison with other global currencies, effectively pushing a number of our people into income poverty.

Inflation also affects the affordability of basic items such as food, as a result, if not curbed, a majority of the poor will also plunge into food insecurity. We are already observing increases in the prices of basic consumption bundles and commodities, the persistent inflation will put these out of reach for those living below the poverty line. This happens in the background of persistent rains and relatively warm winter temperatures, therefore, it is possible for the nation to survive this problem through farming. Growing the food that we need to sustain ourselves reduces our dependency on market purchased commodities, allowing us to substitute market commodities for farm commodities in our consumption. The surplus that would have otherwise been used to purchase market commodities can be used to supplement our purchases for commodities that we cannot purchase in the market. Let us revamp our backyard gardens and use those fields to grow some food, heavens are blessing us with favourable weather these days.

Cost of living

Overall, all indicators point to an increasing cost-of-living across the spectrum, we are seeing the price of bread, fuel, transport and a number of commodities on the rise. This will result in very stern negotiations for cost-of-living adjustments as the negotiation talks resume. However, we need to explore flexible work arrangements so we avoid travelling, explore car-pooling, revert to public transport, walking to work where possible. We can even begin the ride to work culture for those of us who live within the urban periphery. It is prudent that we begin adjusting our consumption patterns to ensure that we are able to survive the tough economic times that lie ahead. An adjustment is better managed if it is pre-emptive and anticipated than when it is adaptive.