Read the following passage about the current energy crisis and mark the letter A, B, C or D on your answer sheet to indicate the best answer to each of the following questions from 23 to 32.
ENERGY SHOCK FALLOUT: WHICH ECONOMIES ARE MOST AT RISK?
In many developing countries, the latest Gulf war has set off a scramble for energy. In Nepal, long queues for cooking gas have forced the government to limit supplies. In Sri Lanka, firms have been urged to shut on Wednesdays to conserve fuel. In Pakistan, schools have been closed and universities moved online. Households and governments are preparing for what the head of the IMF, Kristalina Georgieva, has called “the unthinkable”.
When global energy supply is squeezed, poorer countries suffer most. As Europe subsidised energy to shield households, demand held up and prices stayed higher for longer. This, in turn, has shifted the burden onto importers with fewer reserves and less budget flexibility. The result is a crisis. With the Strait of Hormuz all but closed, the latest hit could be worse. (I)
Pakistan and Egypt are among the most affected countries. (II) Pakistan spends some 4% of GDP on oil and gas imports, sourcing nearly 90% from the Middle East. Egypt spends about 3% of GDP and gets nearly half its supplies from the region. Both countries also rely heavily on remittances from the Gulf, which are worth around 5–6% of GDP. These inflows could fall if the war disrupts labour markets or forces migrant workers to return home. (III) A higher fuel bill can eventually tip into a financial crisis.
Bangladesh and Sri Lanka also look vulnerable despite having less direct exposure. Bangladesh’s reserves barely cover three months of imports, and it is already on an IMF programme. Sri Lanka only recently emerged from its debt crisis in 2022, and its financial reserves remain limited. India, by contrast, is better placed to weather the storm. Its reserves cover about seven months’ imports, and it is more flexible in diversifying its energy imports. (IV)
Even if countries avoid a macroeconomic crisis, the human toll could still be severe. Nitrogen fertiliser, made from natural gas, is becoming more expensive, raising the cost of food production across poor countries. The World Food Programme warned this week that the number of people facing hunger could reach record levels in 2026 if the conflict does not end soon. Stabilising currencies and paying for imports may help countries avoid a financial crisis. Keeping food affordable is another matter.
(Adapted from https://www.economist.com)
