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The war in Ukraine: Impacts, exposure and policy issues in Asia and the Pacific

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Summary

This policy brief provides a provisional analysis of the multifaceted socioeconomic implications of the war in Ukraine on Asia-Pacific economies. There are three main messages. First, amid higher commodity prices, weaker global demand and heightened economic uncertainty, early indicators are pointing to notable adverse macroeconomic impacts of the war in Ukraine on the region. Second, the analysis shows that several Asia-Pacific economies are at a relatively greater risk because their economic structure and conditions are more exposed to higher energy and food prices, smaller external financial inflows, rising financing costs and weaker business sentiments. Third, Asia-Pacific policymakers can consider various policy measures to reduce the immediate impacts of the war and increase resilience to future economic and price shocks. ESCAP could support its member States in formulating and implementing such policies related to energy, trade and investment, transport and fiscal sectors.

I. Introduction

The ongoing war in Ukraine, along with sanctions imposed on the Russian Federation, poses yet another major shock to the world economy, merely two years after the COVID-19 outbreak was declared as a global pandemic.
Many economies in Asia and the Pacific were already struggling to recover from the pandemic.
For example, ESCAP (2022) estimates that, since the pandemic began, the cumulative output loss amounts to nearly $2 trillion while 85 million people have been pushed back into extreme poverty. This additional shock will make economic recovery and achievement of the Sustainable Development Goals (SDGs) an even more daunting task for the region.

This policy brief provides a provisional analysis of the multifaceted socioeconomic implications of the war in Ukraine on Asia-Pacific countries.

There are three main messages.

  • First, early indicators are pointing to notable adverse macroeconomic impacts of the war in Ukraine on the region. Surging global energy and food prices are pushing up consumer inflation, which will disproportionately hurt poorer households. Some countries are registering weaker export, tourism and/or remittance receipts and this will likely intensify as global demand softens further. At the same time, rising interest rates amid surging inflation are impairing households’ balance sheets, investor confidence and governments’ debt service ability.

  • Second, several Asia-Pacific economies, many of which are classified as countries in special situations, are deemed more exposed to the war in Ukraine than others. Armenia, Cambodia, Georgia, Kazakhstan, Kiribati,
    Maldives, Pakistan, Samoa, Solomon Islands, Sri Lanka, Tajikistan and Vanuatu could be harder hit because their economic structure and conditions are more exposed to higher energy and food prices, smaller external financial inflows, rising financing costs and/or a sudden shift in business sentiments.

  • Third, Asia-Pacific policymakers can consider various policy measures to reduce the immediate impacts of the war in Ukraine and increase resilience to future economic and price shocks. To shield the poor from rising food prices, governments should step-up provision of subsidies and ensure that existing government assistance and subsidy schemes benefit those in need. This would require, however, strong fiscal positions, which had already deteriorated in many Asia-Pacific economies in the aftermath of the pandemic. To boost fiscal space and to maintain public debt sustainability, various fiscal and financing policy options are available and should be explored on urgent basis. Going forward, accelerating the transition towards renewable energy, exploring additional transport routes and leveraging modern technology for seamless cross-border connectivity could help mitigate adverse implications of such future shocks.

The rest of this policy brief is organized as follows. Section 2 provides a brief overview of the macroeconomic impacts of the war so far.

Section 3 presents a preliminary exposure analysis from the energy, food and debt and financial flows perspectives. Section 4 then highlights selected shortand medium-term policy options and issues to cope with the impacts of the war and increase economic resilience. Finally, section 5 notes how ESCAP could support its member States in formulating and implementing some of these policies.