In countries that are already far ahead of the valley of death curve, like Argentina, special “food FX rates” are being created to help combat unrelenting inflation. For example, the Tuesday street market in the densely populated El Talbia neighbourhood, one of Cairo’s poorest, is growing in popularity and attracting new shoppers every week who come from all over the Cairo area, for cheap prices. To complicate matters, global bond markets have tightened, making it difficult for the country to refinance some of its debt by issuing Eurobonds.Īll of this economic mumbo-jumbo is most accurately expressed at food stalls and grocery shops.Īs Egypt clearly understands, ahead of the Ramadan fast, the country’s national leadership opened Egypt’s annual Ramadan food drives three months ahead of schedule to help combat rising food prices, courtesy of a shortage in the supply of food and, more importantly, a shortage of the foreign currency needed to release food that has already arrived from Egyptian ports.Īs the economic crisis bites, it is strengthening informal retail markets. Kenya has major debt repayments due next year, in 20, even as public debt sustainability indicators like the debt service costs as a fraction of exports, have deteriorated. In 2022, Kenya’s food import bill hit a 5-year high, according to data from the Kenya National Bureau of Statistics (KNBS). At the same time, years of severe drought have contributed to a rising food import bill. Several currency traders and importers say banks have imposed a daily cap on dollar purchases of as little as $5,000.
Last week, Kenyan punditry went ballistic as the Central Bank of Kenya directed commercial banks to ration USD, following a worsening foreign exchange shortage. The most visible manifestation of this chain of crises is in food. In a deeply financialised world, financial sector troubles mean that the real economy will have to live through waves of economic hardship as the government and finance wonks attempt to recalibrate the default. I am simply pointing out that in an environment where risks of national debt crises are elevated, the financial sector will be prudent to prepare to bite the bullet.
For singular entities, the concern is contained, but for connected systems, a kick from a well-heeled boot can cause one too many dominoes to fall. It doesn’t matter whether you are a full-blown UN-recognised sovereign state or a tiny 10-person startup that just raised $5 million on the eve of the collapse of a long-running tech bubble.īut the leading benefits of credit-no equity dilution and leverage to expand the business, or for governments to stimulate an economy-collapse when the cost of issuing credit loses its lustre. Debt financing is one of the rare artefacts of modern economics that is simultaneously attractive and unappealing.
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