Cost of living crisis inflames civil unrest risks

Russia’s invasion of Ukraine is supercharging food and fuel prices and stoking a cost-of-living crisis across the globe. However, the worst effects are yet to kick in, warns Verisk Maplecroft in its Political Risk Outlook 2022.

As rising inflation and government cutbacks bite households harder, we see a rise in civil unrest as inevitable across key emerging economies that will have likely knock-on impacts for political stability and investor confidence.

Middle-income economies struggling with the public purse will be most at risk, it predicts.

“According to our Civil Unrest Index Projections, 10 of these countries – including Brazil, Egypt, Tunisia, Pakistan and Senegal – are in line to take the hardest hit over the next six months.

”Some countries risk falling into a vicious cycle, whereby worsening governance and social indicators make them ESG investment pariahs, impeding the inflows needed to improve economic performance and address societal needs.”

Driving a spike in civil unrest are the lingering effects of the global pandemic, strained supply chains, inflation and war.

Over half of the world experienced an increase in civil unrest risk since the onset of the COVID-19 pandemic. Maplecroft’s Civil Unrest Index shows that 107 out of 198 (54%) assessed countries recorded a deterioration in their score since 2020-Q1.

”The war in Ukraine and its catalysing effect on food and fuel prices is putting balance sheets under further pressure, particularly for countries that are dependent on food and fuel imports and/or maintain a system of subsidies on basic goods,” it continues.

“The middle income countries of Sri Lanka and Kazakhstan have already experienced destabilising unrest this year. In Sri Lanka’s case rising food and fuel prices were a key factor; while Kazakhstan’s attempt to cut fuel subsidies was the spark.”