The global economy is still recovering – modestly – from the pandemic and is now facing significant uncertainty over the Russia– Ukraine war. Initial estimates suggest that the war will cost the global economy up to $950 billion in 2022.
Countries remotely situated from Russia and Ukraine are also likely to be affected. Mostly commodity importers in East Asia Pacific can lose up to $29 billion, while most net commodity exporters in Africa may gain $6 billion in the short-term. Costs would be higher and broad-based across regions if second round of effects of the war on inflation, financial flows and energy policy shifts are incorporated.
The vulnerability index developed in this paper quantifies the vulnerabilities of 118 low and middle-income countries (L&MICs) to the impact of the war based on individual countries’ direct economic links to Russia and Ukraine, indirect exposure to global effects of the war, and resilience of macroeconomic fundamentals. The top seven most vulnerable countries are Belarus, Armenia, Kyrgyz Republic, Lebanon, Maldives, Montenegro and Uzbekistan.
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.