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The far-reaching economic effects of the Russian war in Ukraine - new analysis ranks the most economically vulnerable countries

The combined shocks of rising energy and food prices are biting globally, particularly in most low and middle-income countries

A new analysis by ODI, published today, has examined the economic vulnerability of 118 low- and middle-income countries to the impact of the Russian war in Ukraine – the first attempt to quantify this in a rapidly evolving situation.

ODI researchers have developed a vulnerability index which suggests that the top six most vulnerable countries to the economic effects of the war are: Belarus, Armenia, Kyrgyz Republic, Lebanon, Maldives and Montenegro. The index is based on the combination of three factors:

1) Direct economic links with Russia and Ukraine

The economic impact of the war will be most evident in countries with direct links to Russia and Ukraine through trade, investment or migration. Based on this measure, countries at greatest risk are Russia’s neighbours - Belarus, Armenia, Kyrgyzstan, Uzbekistan and Moldova. For example, Belarus has a total trade with Russia and Ukraine worth 62% of its GDP and has 62% of its total migrants in the two warring countries.

2) Global integration

Low and middle-income countries that are remotely situated from Russia and Ukraine can still be affected through global effects of the war through sharp global price increases of oil, wheat, metals--products of which Russia and/or Ukraine are global major suppliers, as well as disrupted global financial and investment flows. The authors’ estimate of first round of effects through trade indicates that countries in East Asia and the Pacific and South Asia may face higher import costs of at least $44bn in 2022.

On aggregate, Sub-Saharan Africa may gain by at least $6 billion through the region’s net commodity exports. However, the gain would be mainly for oil exporting countries such as Congo Republic, Ghana and Nigeria, while commodity importers and remittance-dependent countries such as Cabo Verde, Comoros and The Gambia would be hurt the most. The second round of effects of the war on inflation and food security should also be monitored.

3) Resilience

Countries with limited government resources, high level of debt and weak governance, combined with poor capacity to transition towards non-fossil energy or to increase food security, are less resilient and will face challenges in mitigating the direct and indirect effects of the war on their economies. Our index show that the least economically resilient countries are Lebanon, Syria and Yemen - all fragile and conflict-affected countries, with pre-existing weak economic fundamentals and dependence on food imports and oil energy consumption.

The channels of impact of the war to L&MICs highlight the need for targeted and coordinated domestic policy and international donor interventions to increase the resilience of growth and economic transformation in L&MICs against future crises. There is also a need to address limited adoption of climate and sustainability policy considerations, which can compound L&MICs’ vulnerabilities in times of economic shocks.

Report author Laetitia Pettinotti said:

“Russia and Ukraine are major global commodity suppliers – of wheat, food, energy (oil and gas) and metals. As a result, trade is likely to be the main transmission channel of economic impacts of the war on the global economy and for L&MICs. But the short-term impact of the war will vary among countries as well as within countries with risk of food insecurity in African countries that rely on the two countries at war for their wheat imports, such as Somalia or Benin. The economic shock the war has created comes on top of the Covid pandemic, undermining the modest global recovery from this.”

Report author Sherillyn Raga said:

“Our paper highlights the short-term risks and impacts of the Russia-Ukraine war, but we should also start thinking about the second round of effects and long-term implications of this conflict on low and middle-income countries. This includes issues around the link of rising global prices on inflationary pressures and food security, the implications of global uncertainty on capital, investment and financial flows, the limited fiscal space to absorb further external shocks, as well as the impact of changing energy policies in the US, EU and UK on the future of commodity exports, production networks and value chains in the poorest countries.”

The new analysis is evidenced in Sherillyn Raga and Laetitia Pettinotti’s ODI paper Economic Vulnerabilities to the Russia-Ukraine War: Which low and middle income countries are the most vulnerable

Notes to editors:

  1. The analysis and rankings are based on 27 indicators, brought together for the first time, and used as proxies for direct and indirect economic exposure and economic resilience of each country.
  2. At-a-glance bar graphs showing the economic vulnerability rankings for all LMIC, LDC only and African countries are part of this report (see Executive Summary).
  3. Find the full report and bar graphs here.
  4. For further information – [email protected]