Weathering the ‘perfect long storm’: How countries can address the world’s 5 fragilities

Amongst these challenges include the consequences of the Russia-Ukraine war.

Monetary Authority of Singapore (MAS) Chairman Tharman Shanmugaratnam said the world is currently in a perfect long storm, faced with five major fragilities: consequences of the Russia-Ukraine war, macroeconomic risks, climate crisis, global health security, and enhanced fragility.

Shanmugaratnam, however, said there are ways countries can weather through this “perfect long storm,” and address the confluence of challenges clouding the world.

For one, the MAS chairman advised countries to “address a broader set of shocks, that go beyond even what we saw in 1973 with the oil price shock.”

Shanmugaratnam said the macroeconomic risk has been heightened due to the Ukraine-Russia war, given that there has been an exodus of investors from Russia, and indications of a desire on the part of many in the younger Russian population to emigrate.

“The combination of weaker investments, weaker access to technologies and a brain drain is a powerful negative for any economy, and coming to an economy that was already weak for some time, the outlook is not good. But beyond Ukraine itself, it is the ramifications for the world that we should be most concerned about,” the chairman said.

“Higher-for-longer inflation is now a near uncertainty. It complicates what was already an extremely difficult task for central banks, particularly in the advanced world – the task of balancing growth and inflation considerations,” he added.

As the war is an unprecedented situation, countries must likewise plan for “a range of scenarios, but tilted very much towards the downside: higher and more persistent inflation and slower growth,” Shanmugaratnam said.

More than inflation risks, the war will also affect the world’s climate crisis.

“It is no longer possible to make the adjustments needed to tackle the climate crisis without ensuring energy security. The Ukraine war has forced that thinking,” the MAS official said.

The unpalatable fact is that in the short term, Europe and the world are going to require increased reliance on fossil fuels to provide for energy security. In the short term, to prevent the lights from going out in Europe and to preserve social stability, new sources of oil, gas, and coal are going to be necessary,” he added.

To address this challenge, Shanmugaratnam said countries must redouble their efforts “to make the longer-term transition to cleaner energy and a sustainable future.”

“We do have to redouble our efforts in the medium- to long-term–to innovate and strengthen the supply of renewables, invest in energy storage, and move towards cleaner fossil fuel energy generation in the transition,” he said.

Over the medium to long term, the two objectives move in the same direction–tackling the climate crisis and preserving energy security. But we need clarity of fiscal and regulatory frameworks to achieve that,” he added.

Shanmugaratnam said there’s also a need for clear carbon tax and carbon pricing frameworks to “not risk a sudden loss of energy security or loss of political capital, while encouraging and strong incentivising investments in sustainable energies.”

On the fourth challenge—global health security—Shanmugaratnam said preparing for it “requires a massive collective effort, within societies as well as globally.”

"It requires a new sense of enlightened self-interest on the part of every country, including the better-off countries, to recognise that it's in their interests – even if they're not motivated by the ethics and morality of the matter, which should be strong enough motivation, even if that's not the key motivation, enlightened self-interest dictates that we invest in global public goods, and we help the world at large to be better prepared for the next pandemic,” he said.

“Everything from R&D of new vaccines, drugs and diagnostics, to strengthening surveillance systems, to developing manufacturing capacity so that the next time around, we can roll out vaccines much faster and at scale around the world,” he added.

Shanmugaratnam said all these challenges, including less inclusive growth within and across nations, can be addressed by “new international rules of the game or much harder norms, and more effective systems of deterrence, to preserve geopolitical stability.”

More importantly, the MAS chairman said the world needs to have a “new era of investment,” adding the countries need to invest in energy security and climate and pandemic security, and the developing world.

“It's a massive opportunity, but it requires new public-private sector compacts, globally as well as nationally,” he said.

Shanmugaratnam said countries should also invest in the global commons.

“Today's governments, corporate leaders and investors have to now mainstream investing in the global commons–investing in sustainability, inclusivity and health security,” he said.

“For climate change – in storage and new renewable sources, in nature-based solutions, and in more efficient fossil fuel energy generation in the transition to 2050,” he added.

Overall, Shanmugaratnam said countries must “fortify multilateralism, and the rules of the game to ensure that global stability is preserved.”

“The global order is going through a major rupture and we do not yet have a solution. What we have to avoid is today’s fragilities leading to polarisation–alternative payment and financial systems, alternative technological ecosystems, alternative trade and economic systems,” he said.

“We need arrangements for a durable system of multipolarity. We’ve moved past the world of unquestioned US dominance. It is a multipolar world. But multipolarity does not mean polarisation. It does not mean alternative systems competing with each other. That's what we have to avoid,” he added.