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EDITORIAL

Currency Depreciations Risk Intensifying Food, Energy Crisis in Developing Economies

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The shrinking value of the currencies of most developing economies is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face, according to the World Bank’s latest Commodity Markets Outlook report.

In U.S. dollar terms, the prices of most commodities have declined from their recent peaks amid concerns of an impending global recession, the report documents. From the Russian invasion of Ukraine in February 2022 through the end of last month, the price of Brent crude oil in U.S. dollars fell nearly 6 percent. Yet, because of currency depreciations, almost 60 percent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this period. Nearly 90 percent of these economies also saw a larger increase in wheat prices in local-currency terms compared to the rise in U.S. dollars.

Elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices. During the first three quarters of 2022, food-price inflation in South Asia averaged more than 20 percent. Food price inflation in other regions, including Latin America and the Caribbean, the Middle East and North Africa, Sub-Saharan Africa, and Eastern Europe and Central Asia, averaged between 12 and 15 percent. East Asia and the Pacific has been the only region with low food-price inflation, partly because of broadly stable prices of rice, the region’s key staple.

“Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years,” said Pablo Saavedra, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions. “A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes.”

Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline. After surging by about 60 percent in 2022, energy prices are projected to decline 11 percent in 2023. Despite this moderation, energy prices next year will still be 75 percent above their average over the past five years.

The price of Brent crude oil is expected to average $92 a barrel in 2023—well above the five-year average of $60 a barrel. Both natural gas and coal prices are projected to ease in 2023 from record highs in 2022. However, by 2024, Australian coal and U.S. natural-gas prices are still expected to be double their average over the past five years, while European natural gas prices could be nearly four times higher. Coal production is projected to significantly increase as several major exporters boost output, putting climate-change goals at risk.

“The combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries,” said Ayhan Kose, Director of the World Bank’s Prospects Group and EFI Chief Economist,which produces the Outlook report. “Policymakers in emerging market and developing economies have limited room to manage the most pronounced global inflation cycle in decades. They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets.”

Agricultural prices are expected to decline 5 percent next year. Wheat prices in the third quarter of 2022 fell nearly 20 percent but remain 24 percent higher than a year ago. The decline in agricultural prices in 2023 reflects a better-than-projected global wheat crop, stable supplies in the rice market, and the resumption of grain exports from Ukraine. Metal prices are projected to decline 15 percent in 2023, largely because of weaker global growth and concerns about a slowdown in China.

The outlook for commodity prices is subject to many risks. Energy markets face significant supply concerns as worries about the availability of energy during the upcoming winter will intensify in Europe. Higher-than-expected energy prices could feed through to non-energy prices, especially food, prolonging challenges associated with food insecurity. A sharper slowdown in global growth also presents a key risk, especially for crude oil and metals prices.

The forecast of a decline in agricultural prices is subject to an array of risks,” said John Baffes, Senior Economist in the World Bank’s Prospects Group. “First, export disruptions by Ukraine or Russia could again interrupt global grain supplies. Second, additional increases in energy prices could exert upward pressure on grain and edible oil prices. Third, adverse weather patterns can reduce yields; 2023 is likely to be the third La Niña year in a row, potentially reducing yields of key crops in South America and Southern Africa.”

Special Focus: Decline in Copper and Aluminum Prices and the Impact on Developing Economies

Concerns about a possible global recession next year have already contributed to a sharp decline in copper and aluminum prices. A Special Focus section of the report examines the drivers of aluminum and copper prices and explores implications for emerging market and developing economies that export these commodities. Prices will likely remain volatile as the energy transition unfolds and demand shifts from fossil fuels to renewables, which will benefit some metal producers. Metal exporters can make the most of the resulting opportunities for growth over the medium term while limiting the impact of price volatility by ensuring they have well-designed fiscal and monetary policy frameworks, the report highlights.


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EDITORIAL

Saudi Summit in Riyadh – A Call for Unity and Justice in the Face of Crisis

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The Saudi Summit in Riyadh brings together Arab and Muslim leaders to face a historic challenge: the mounting crises in Gaza and Lebanon. At a time of escalating violence and polarized geopolitics, this summit is not just a diplomatic gathering—it is a rallying cry for a unified stance on peace, justice, and humanitarian rights. Saudi Arabia’s hosting of this summit reflects a deepening commitment to peace, underscoring its Vision 2030 ambition to become a pillar of stability in a region where conflict has too often prevailed.

Advocacy for the Two-State Solution: A Path Forward for Peace

At the heart of the summit is the advocacy for a two-state solution, which has long been regarded as the most feasible framework to end the Israeli-Palestinian conflict. For decades, the two-state solution has been supported by international consensus, seen as essential for preserving Palestinian sovereignty and securing a peaceful coexistence. As the violence continues, it is increasingly clear that peace cannot be achieved without respecting the rights of Palestinians and ensuring they have a state of their own.

The Islamic Economist strongly supports Saudi Arabia’s efforts to re-energize the two-state dialogue, calling on all member nations of the summit to stand firmly behind this solution. The two-state framework is not only a vision for peace but a necessary strategy to prevent further destabilization. It is a plea to the international community: recognize and uphold Palestinian rights as essential to any peace framework, and resist actions that jeopardize this core principle of coexistence.

The Case for a United Islamic Defense Alliance

The ongoing crises in Gaza and Lebanon underscore a painful reality: the Muslim world lacks a unified mechanism for protecting its people and enforcing peace across regions marred by recurring violence. Unlike NATO, which has the mandate and resources to protect its member nations, the Islamic world has no unified defense alliance capable of responding to such crises. This summit offers an opportunity to consider the establishment of a standing military alliance among Muslim nations, one that could act as a force for peace, human rights, and stability in the region. Such an alliance could serve as a deterrent to aggression, a protector of vulnerable populations, and a mechanism to enforce peace initiatives in collaboration with international bodies like the United Nations.

The Islamic Economist advocates for an alliance of this kind, urging leaders gathered at the Riyadh summit to explore concrete steps toward its formation. A military alliance for peace could stand as a powerful symbol of Muslim solidarity and an operational force capable of defending justice and humanitarian rights in times of crisis. The Islamic world has a responsibility not only to condemn injustices but to act decisively when lives and rights are endangered. A united Islamic defense alliance could mark a critical step in transforming words into action.

Riyadh as a Crucial Player in Middle Eastern Diplomacy

Under the guidance of Crown Prince Mohammed bin Salman, Saudi Arabia’s approach to foreign policy reflects a dynamic vision for regional diplomacy. The Kingdom has sought to bridge divides by maintaining traditional support for the Palestinian cause while exploring new diplomatic channels, even with nations that may historically have been seen as adversarial. This pragmatic approach acknowledges the need for strategic alliances while upholding fundamental values. By positioning itself as a mediator, Saudi Arabia has a unique opportunity to lead the charge toward a two-state solution and peace across the Muslim world.

A United Front for Justice and Human Rights

The Riyadh summit is a momentous occasion, providing the Muslim world with a unified platform to advocate for the protection of civilian lives, demand accountability for human rights violations, and push for international adherence to humanitarian law. With notable leaders from across the Muslim world, including Nigeria’s President Tinubu, Pakistan’s Prime Minister Sharif, and Lebanon’s Prime Minister Mikati, this summit signals a collective commitment to addressing Palestinian suffering and supporting Lebanon’s sovereignty amid rising external threats.

However, it is crucial that this gathering goes beyond statements of condemnation. Leaders must seize this moment to advocate for real, enforceable solutions. This includes calls for international accountability, humanitarian aid pledges, and concrete frameworks for negotiations. The Islamic Economist calls on the summit’s participants to transform their collective voice into unified action that ensures peace and justice for Palestinians, and protects other vulnerable communities in the region.

The Road Ahead

While the Saudi Summit represents an unprecedented opportunity, the road to peace remains long and uncertain. The distrust between Israel and Hamas, coupled with Hezbollah’s involvement in Lebanon, highlights the complex realities of a region entangled in ideological and military conflict. Still, this summit offers a pathway for renewed negotiations, humanitarian intervention, and potentially the establishment of a lasting peace.

The Islamic Economist urges the Muslim world to recognize this summit as a potential turning point and encourages Saudi Arabia and other leaders to emerge from Riyadh with a unified vision. This summit marks a critical moment for the Islamic world, and it holds the potential to initiate a new era of proactive diplomacy and security that could transform the lives of millions.

In Riyadh, the future of peace in the Middle East hangs in the balance. A commitment to the two-state solution and the formation of a united Islamic defense alliance are essential steps forward. The Islamic Economist stands firmly with the voices at the Saudi Summit and calls for a collective resolve to uphold peace, defend justice, and secure a future of stability for all.


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EDITORIAL

The Escalation of Conflict in the Middle East

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The recent flare-up of violence between Israel, Gaza, and Lebanon marks another dark chapter in the long-standing conflict that has gripped the Middle East. The latest round of hostilities, characterized by Israel’s military operations and Iran’s aggressive missile response, underscores a tragic cycle of violence driven by deep-seated geopolitical tensions, territorial disputes, and the plight of civilian populations caught in the crossfire.

Context of the Iranian Attack on Israel

The ballistic missile assault by Iran on October 2nd represents a significant escalation in hostilities. This action was a direct retaliation for Israel’s targeted strikes against key leaders of Hezbollah and Hamas, including the controversial killing of Hezbollah chief Hassan Nasrallah. Iranian officials have characterized this attack not only as a defensive measure but also as a necessary response to what they perceive as escalating Israeli aggression across the region. Supreme Leader Ayatollah Ali Khamenei’s authorization of the strike illustrates Iran’s frustration and determination to project military strength amid perceived threats.

Previously, Iranian responses to Israeli provocations had been measured, often aiming to avoid further escalation. However, the accumulation of Israeli attacks and the rhetoric from Prime Minister Benjamin Netanyahu suggesting a desire to shift the regional balance of power has pushed Iran’s leadership towards a more aggressive posture. The shift from symbolic to tangible military retaliation indicates a critical turning point, marking Iran’s readiness to engage in military conflict if deemed necessary.

Motivations Behind Iran’s Retaliation

Iran’s decision to retaliate stems from several intertwined factors. The assassinations of prominent Hamas and Hezbollah leaders have stirred sentiments of urgency and frustration within Iran. The Iranian leadership, particularly hardliners, viewed previous restraint as a miscalculation that only emboldened Israeli actions. The latest military strike signals not only a reaction to immediate threats but also an assertion of Iran’s role as a leader within the so-called “axis of resistance” against perceived Western and Israeli hegemony.

This changing dynamic indicates a broader willingness within Tehran to adopt more confrontational tactics, demonstrating that the previous deterrent effect of potential broader conflict no longer holds the same sway. As Iran solidifies its position in the region, it risks further alienating itself from diplomatic avenues and exacerbating the already tense atmosphere.

The Role of the United States and Geopolitical Dynamics

Amid these developments, the unwavering support of the United States for Israel plays a critical role. The US response to Iran’s missile strikes, characterized by missile interceptions and dismissive rhetoric from President Joe Biden, further illustrates the complexities of US-Israel relations. This alliance, often viewed through the lens of Western double standards, feeds into the narrative of oppression felt by many in the Muslim world, where US actions are seen as part of a broader pattern of destabilization.

Moreover, the historical context of NATO’s military interventions in Muslim-majority countries adds another layer of animosity toward Western powers. Iran’s increasing hostility is partly fueled by perceptions of bias and injustice perpetuated by the West, particularly in its support of Israeli military operations.

The Challenge of Unity in the Muslim World

In the face of escalating violence, the question arises: why has the Muslim world not formed a unified military response to counter Israeli actions? The Organization of Islamic Cooperation (OIC), a body with the potential to marshal considerable resources and manpower, has historically been unable to overcome internal divisions and differing national interests to create an effective military coalition.

Fragmentation, ideological differences, and varying degrees of alignment with Western powers have hindered the formation of a cohesive response to Israeli aggression. The absence of a robust defense mechanism leaves Muslim populations vulnerable to external threats while Israel continues to benefit from military superiority and diplomatic backing from Western nations.

Toward a Path of Peace

For any hope of achieving lasting peace in the region, a re-evaluation of global power dynamics is crucial, especially regarding the US’s role and its steadfast support for Israel. Additionally, Muslim countries must confront their internal divisions and prioritize collective action over individual national interests to effectively safeguard their rights and address external aggressions.

As the cycle of violence continues to unfold, the humanitarian impact on civilians in Gaza, Lebanon, and Israel grows increasingly dire. A commitment to dialogue, diplomacy, and a genuine reassessment of strategies is essential if the region is to break free from the tragic cycle of conflict and move toward a more stable and just future for all its inhabitants.


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EDITORIAL

Fuel Subsidy Removal in Nigeria – A Misguided Approach?

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The recent removal of fuel subsidies in Nigeria and the accompanying surge in fuel prices has become a subject of intense debate. The policy, prescribed by the World Bank and the International Monetary Fund (IMF), was introduced as a means of curbing government spending and stimulating economic reform. However, the consequences have been severe, leading to an immediate increase in inflation, a rise in the cost of living, and a deepening of the poverty crisis. Nigeria, already grappling with significant economic challenges, now finds itself on a path that many other nations have treaded, often to disastrous outcomes.

The Double Standard of Bretton Woods Institutions

What strikes many as glaring hypocrisy is the fact that while Nigeria, and much of the developing world, is pressured by Western institutions to remove subsidies, those same Western economies continue to subsidize their industries in one form or another. Take the U.S., for example: both Republican and Democratic administrations have historically ramped up spending and subsidies, especially during times of crisis. According to the Committee for a Responsible Federal Budget, President Trump approved $8.4 trillion of new ten-year borrowing during his term, with significant portions directed toward COVID relief, and President Biden has so far approved $4.3 trillion in new borrowing. The lesson here is simple: even the wealthiest nations find ways to subsidize their economies to ensure growth and stability, recognizing that austerity measures are often counterproductive.

In China and Russia—two countries that have experienced tremendous growth—state subsidies have played a key role in economic expansion. Infrastructure, education, healthcare, and energy are all areas that have seen significant state investment, leading to improvements in productivity and economic growth. These subsidies are not mere giveaways but strategic investments that propel national development and enhance global competitiveness. So why, then, are developing countries like Nigeria told that subsidy removal is the only path forward?

Nigeria’s Path to Growth: Subsidies and Economic Expansion

Rather than relying on austerity and subsidy removal to balance the budget, Nigeria must pursue an alternative strategy focused on economic growth and boosting productivity. Removing subsidies, especially in a country where the majority of people live below the poverty line, is akin to pulling the rug out from under the feet of the most vulnerable.

The key to a prosperous Nigerian economy lies in stimulating growth, not in imposing cuts. The IMF and World Bank often fail to recognize that austerity measures shrink economies, reduce demand, and cripple productivity. When fuel prices are artificially inflated, the cost of transportation, goods, and services also rises. This creates a vicious cycle where businesses struggle to operate, unemployment increases, and poverty deepens.

Instead of shrinking the economy through austerity, Nigeria should focus on boosting its productive sectors. This can be achieved through a robust infrastructure investment plan, aimed at improving the agricultural, manufacturing, and technology sectors. Nigeria boasts vast arable land, abundant natural resources, and a youthful population with untapped potential. Investing in these areas can generate jobs, spur innovation, and stimulate sustainable economic growth.

In this regard, Nigeria can learn from the United States, particularly from the policies enacted in Democratic-controlled cities. Most of the top-ranked universities and largest cities in the U.S. are run by Democrats, whose policies focus on building public infrastructure, expanding opportunities, and creating value through strategic government spending. High taxes are imposed, but the returns in public services and infrastructure improvements help drive economic growth. The same principles can apply in Nigeria: public investments in infrastructure and human capital development can yield long-term dividends that far outweigh the short-term savings from subsidy removal.

A Case Study: Argentina’s Failed Austerity Experiment

Argentina offers a cautionary tale. The recent removal of critical subsidies in Argentina has plunged more than half of the country’s 46 million people into poverty. The new right-wing government’s austerity measures, aimed at reining in deficits, have worsened living conditions for the poor and undermined social stability. The parallels to Nigeria’s current situation are clear: removing subsidies without addressing underlying economic issues such as corruption and inefficiency leads to a greater divide between the rich and the poor, and the destruction of what little social safety nets remain.

The Islamic economist, in reviewing such a scenario, asks a fundamental question: How can we promote equity and justice in the economy if the most vulnerable bear the brunt of economic restructuring? In Islamic economic philosophy, justice (‘adl) is paramount, and policies that exacerbate poverty and inequality are inherently flawed.

The Flawed Premise of Austerity in Africa

Nigeria’s removal of fuel subsidies is a textbook example of Western-style austerity being applied in an African context, with little regard for the socioeconomic realities on the ground. The argument that subsidy removal will free up funds for infrastructure and other public goods is misleading, given the deeply entrenched corruption in the system. The real issue is not subsidies themselves but the corruption and inefficiency that distort their implementation.

For decades, fuel subsidies in Nigeria have served as a lifeline for the majority of the population. While critics argue that these subsidies have fostered corruption and inefficiency, their removal without adequate reforms to address systemic issues has led to more harm than good. Prices for essential goods and services have skyrocketed, placing an unbearable burden on ordinary Nigerians.

It is important to note that subsidy removal has not worked as a standalone policy in any country. Argentina’s economic collapse, as highlighted earlier, is a clear example. There is no historical record of any country that successfully eradicated poverty and stimulated sustainable economic growth by simply removing critical subsidies. What is needed instead is a balanced approach that focuses on tackling the underlying corruption and inefficiencies in subsidy administration while maintaining a safety net for the most vulnerable segments of society.

Islamic economics promotes the idea of a welfare state—one in which the government plays an active role in ensuring that the basic needs of all citizens are met. This includes providing subsidies for essential goods and services like fuel, healthcare, and education. The role of the state in this model is to facilitate equitable distribution of resources, ensuring that the poor and vulnerable are not left behind in the pursuit of economic growth.

Indeed, subsidies are not inherently bad. In fact, they can be powerful tools for poverty alleviation, economic stability, and growth if managed transparently. What is bad is the corruption that skews the benefits of these subsidies toward the elite, leaving the masses with little to no relief. This is where the Islamic perspective emphasizes accountability (muhasabah) and good governance (al-hukm al-salih).

A Path Forward for Nigeria:

  1. Reforming Subsidy Management, Not Abolishing It: Nigeria must focus on fixing the corrupt mechanisms that allow subsidies to benefit a few at the expense of the many. A transparent and accountable subsidy system that targets the most vulnerable can serve as a buffer against the rising cost of living and stimulate economic growth. Islamic principles of governance call for honesty, transparency, and the eradication of corruption. If these values are applied, subsidies could be restructured rather than eliminated.
  2. Diversifying Revenue Streams: The reliance on petroleum as Nigeria’s primary source of revenue is unsustainable. The Islamic economist advocates for risk-sharing and diversification, encouraging investments in agriculture, technology, and other productive sectors. This approach aligns with the Islamic economic principle of tawazun (balance), where multiple sectors contribute to economic prosperity, reducing dependency on any one sector and providing stability in times of crisis.
  3. Investing in Human Capital: Instead of burdening citizens with higher fuel prices, the government should prioritize investments in education, healthcare, and job creation. This will enable individuals to lift themselves out of poverty and contribute to the economy. The principle of maslahah (public interest) in Islamic economics stresses the importance of policies that benefit the wider society.
  4. Islamic Financing Alternatives: Islamic finance offers alternatives to the traditional interest-based borrowing that often leads to crippling debt. Instruments like sukuk (Islamic bonds) and waqf (endowments) can be used to fund infrastructure projects and social services without placing undue financial burdens on future generations.

Growth, Not Austerity, Is the Solution

The removal of fuel subsidies in Nigeria is a shortsighted policy that fails to address the core issues plaguing the economy. While the government may believe that it is balancing the budget, it is, in fact, deepening poverty and stifling economic growth. The lesson from Argentina and other countries that have implemented similar policies is clear: austerity measures do not work.

Nigeria must pursue a growth-oriented strategy that focuses on boosting productivity, improving infrastructure, and investing in human capital. By tackling corruption in the subsidy system and adopting Islamic economic principles of justice and equity, Nigeria can create a more prosperous and inclusive economy. The Bretton Woods institutions’ one-size-fits-all approach to economic reform is flawed, and Nigeria must chart its own path—one that prioritizes the welfare of its people above all else.


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