WASHINGTON, April 2 \u2014 The World Bank is \u201cextremely concerned\u201d about the effect the war on Iran will have on inflation, jobs and food security, and is in talks with member states on how to address immediate needs in the crisis, a top official told AFP yesterday.<\/p>\n
Managing Director Paschal Donohoe\u2019s comments came as his organisation announced a new partnership with the International Monetary Fund (IMF) and International Energy Agency (IEA) to coordinate aid responses to the war.<\/p>\n
Donohoe flagged that countries in Asia and Africa were particularly vulnerable to the energy, price and supply-side shocks of the crisis.<\/p>\n
\u201cAt the moment, we are consulting with many governments and countries in relation to what their needs will be, and I would anticipate within the next number of weeks that will become far clearer,\u201d Donohoe said.<\/p>\n
The United States and Israel launched strikes on Iran on February 28, igniting a war that has engulfed the Middle East, snarled key supply chains and sent energy prices soaring.<\/p>\n
The World Bank offers development assistance and immediate budgetary support to member nations in the form of loans and technical assistance.<\/p>\n
Donohoe said the organisation was currently offering both forms of support in talks with countries in need.<\/p>\n
\u201cWe are extremely concerned regarding the effect that this will have on inflation, on jobs and on food security,\u201d he said. \u201cThat is why we will put in place responses that have a financing element and a policy element that can and will be of support.\u201d<\/p>\n
Discussions regarding financial options \u2014 which could take the form of immediate loans \u2014 were \u201cunderway,\u201d but were not expected to conclude for \u201ca number of weeks.\u201d<\/p>\n
On the policy advice front, Donohoe expected talks to wrap up \u201cin a few days\u2019 time.\u201d<\/p>\n
Risks go beyond energy\u00a0<\/p>\n
Since the start of the war, Tehran has virtually blocked the key Strait of Hormuz, through which roughly a fifth of the world\u2019s crude oil and liquefied natural gas \u2014 and one-third of its fertilisers \u2014 pass.<\/p>\n
Much of that is bound for Asian countries, which have seen energy flows abruptly dry up, as prices spike and supplies shrink.<\/p>\n
Several countries \u2014 including top World Bank borrowers Pakistan, Indonesia and Bangladesh \u2014 have implemented widespread fuel-saving measures to address the crisis, saving what they have for use in key industries and sectors.<\/p>\n
Vulnerable countries in Asia and Africa have flagged several issues of concern to the bank.<\/p>\n
\u201cThey\u2019re calling out the income shock that will be created due to rising prices, what that will mean for households and businesses,\u201d said Donohoe.<\/p>\n
In addition to the shock of lower energy availability \u2014 which can lead to a drop in economic output \u2014 there are also concerns about food security related to fertiliser supply chains being frozen.<\/p>\n
Earlier this week, the IMF flagged that the war could have a serious effect on low-income countries if food prices rise significantly.<\/p>\n
\u201cPeople in low-income countries are most at risk when prices rise because food accounts for about 36 per cent of consumption on average, compared with 20 per cent in emerging market economies and nine per cent in advanced economies,\u201d said an IMF report.<\/p>\n
In Africa, South Asia and the Middle East, the IMF warned that a number of countries were already struggling with meagre foreign reserves and \u201climited market access,\u201d making them vulnerable to \u201cdangerous\u201d debt shocks.<\/p>\n
Donohoe, of the World Bank, said the lender was \u201cwell positioned to assist countries in their economic response\u201d and was engaged in \u201cintense\u201d talks with member states.<\/p>\n
\u201cWhile this challenge is going to begin in energy, it really has the ability to have consequences that go across entire economies,\u201d he said. \u2014 AFP<\/p>\n
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