Debt Boils Over

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One of the hidden drivers behind Europe’s financial turmoil is the dramatic increase in resource prices over the last 10 years. Historically, cheap resources have helped fuel economic growth, but the situation has now changed. Increasing costs impose a burden on economic performance that, in some cases, is reflected in rising debt levels. This, at a time when the ability of many countries to service this debt is being called into question.  

The increase in resource prices in the past decade has been the most sustained and broadest ever recorded, affecting nearly all commodities across agricultural products, minerals, and fuels.  Between 2001 and 2011, the price of commodities increased by nearly three times in nominal U.S. dollar terms, reversing more than two decades of stable or falling prices. 


Figure 1: Average commodity prices for energy, food, raw materials, and metals and minerals, as indexed by the World Bank (relative movements in constant U.S. dollars;  100 = year 2000).

Since the year 2000, there has been a significant upward swing in commodity prices. Source: World Bank

While the drivers of these price increases are complex, one of them is a global supply crunch. The supply of ecosystem products (such as food and fibre) and more easily exploitable fossil fuel and hydro energy no longer matches the growing demand.

An increasing number of countries are running biocapacity deficits, consuming more resources and emitting more waste than their own ecosystems can regenerate or absorb. To make up their deficits, countries must either deplete their own stocks or become net-importers of ecological services.

Trade can be key to a country’s ability to cover its resource deficit. However, not all countries can become net importers of ecological services and resources.  Instead, the growing global competition for limited resources, coupled with rising global demand, will likely tighten the market for both biological and fossil resources even further.

Low historical commodity prices made resource-intensive economic growth models viable in many countries. These models are now being challenged by physical constraints. Countries are seeing their import bills for both biological resources and fossil fuels rise. At the same time, higher energy prices are affecting households and industrial production, with negative consequences for economic performance and fiscal revenue.

These burdens on performance are occurring at a time of global economic and financial turbulence and, indeed, may be a factor exacerbating the turmoil. In many countries, rising costs and sluggish economic performance might lead to heightened government deficits and growing sovereign debt.

This precarious situation makes the call for advanced assessment tools—that is, tools that can help establish whether investments are producing or eroding net present value—even more imperative. The consequences of natural resource deficits in terms of financial instability can be severe at a time when global financial markets are intolerant of imbalances in public finances.

Further information:

  • UNCTAD statistics
  • UNCTAD Commodities and Development Report 2012
  • World Bank
  • IMF Data and Statistics
  • “Resource Constraints and Economic Performance in Eastern Europe and Central Asia” December 2011 UNDP and Global Footprint Network
  • Competitiveness 2.0