Agricultural Import Dependence: A Macro Vulnerability

The relationship between agricultural imports and external debt sustainability has emerged as a structural macroeconomic concern for developing economies. As global food systems confront intensifying pressures from climate variability, supply chain disruptions, and geopolitical conflict, countries with high food import dependence face amplified balance-of-payments risks. For many low- and middle-income countries (LMICs), food imports constitute a large share of total merchandise imports, making them particularly vulnerable to commodity price spikes and currency depreciation. This review synthesizes theoretical and empirical literature to examine how agricultural import dependence affects debt accumulation, foreign exchange adequacy, and broader macroeconomic stability.

The analytical foundation rests on the two-gap model developed by Chenery and Strout (1966), which posits that developing economies face binding savings and foreign exchange constraints. When domestic savings are insufficient to finance investment (the savings gap), or when export revenues cannot cover required imports (the foreign exchange gap), external borrowing becomes the adjustment mechanism. In food-import-dependent economies, sudden increases in global grain or edible oil prices widen the foreign exchange gap, forcing governments to draw down reserves or accumulate external debt to maintain food security and political stability.

The debt overhang hypothesis (Krugman, 1988; Sachs, 1989) further explains how excessive external borrowing can suppress long-term growth. When debt stocks exceed sustainable thresholds, anticipated servicing obligations deter private investment and constrain fiscal policy. Empirical evidence from Checherita-Westphal and Rother (2012) suggests that debt-to-GDP ratios above 70–90% impair growth in advanced economies, while emerging markets often face lower tolerance thresholds due to weaker institutions and higher risk premiums.

Recent scholarship applies Dynamic Stochastic General Equilibrium (DSGE) models and panel econometric approaches including Autoregressive Distributed Lag (ARDL) and cointegration techniques to quantify how food price shocks transmit through exchange rates, inflation, fiscal balances, and sovereign risk indicators. The evidence increasingly indicates that chronic agricultural import dependence can transform temporary trade shocks into persistent debt vulnerabilities, particularly where export diversification and reserve buffers are limited.

Global Trends and Empirical Evidence

The acceleration of agricultural import dependence has become a defining structural feature of many low- and middle-income economies. According to the Food and Agriculture Organization (FAO), food import bills for low-income food-deficit countries reached approximately $58 billion in 2024 representing a 28% increase compared to 2020 levels. Countries such as Eritrea and Haiti now allocate more than 40% of their merchandise export earnings to food imports. This structural imbalance is driven by stagnant agricultural productivity, climate-induced production volatility, rapid urbanization, and dietary transitions toward import-intensive staples such as wheat and edible oils.

Empirical literature reinforces the macroeconomic implications of this dependence. Mwangi et al. (2020) demonstrate that in Sub-Saharan Africa, a 10% increase in agricultural import volumes is associated with a 3.2% rise in external debt-to-GDP ratios over a five-year horizon. Similarly, Bakari and Tiba (2022) identify a parallel dynamic in China, where agricultural imports contribute to domestic consumption smoothing and growth but increase external liabilities when not offset by export expansion.

The foreign exchange dimension intensifies these vulnerabilities. Between 2021 and 2023, the US dollar appreciated roughly 18%, amplifying import costs for countries with depreciating currencies. Egypt, the world’s largest wheat importer, experienced an estimated $3 billion surge in its wheat import bill in 2022 due to elevated global prices and exchange rate depreciation (CAPMAS, 2023). This “double burden” of high international prices and currency weakness has significantly eroded reserve buffers.

Macroeconomic spillovers are substantial. Research by Falana et al. (2024) in Nigeria indicates that a 10% currency depreciation translates into a 4.2% increase in domestic food prices within three months. Elevated food inflation often compels central banks to tighten monetary policy, raising interest rates and debt servicing costs thereby reinforcing a cycle of fiscal stress and rising sovereign risk.

Regional Case Studies

Country-level evidence illustrates how agricultural import dependence interacts with debt structures, exchange rate regimes, and fiscal capacity to shape macroeconomic vulnerability.

In Pakistan, the food import bill reached $8.3 billion in FY2024, dominated by edible oils ($4.5 billion) and wheat ($1.2 billion), according to the Pakistan Bureau of Statistics. By 2025, external debt had climbed to approximately $130 billion, about 33.8% of GDP, with 58% denominated in US dollars. This currency composition exposes the country to significant exchange rate risk. The International Monetary Fund’s 2025 Debt Sustainability Analysis highlights acute sensitivity to depreciation shocks, estimating that exchange rate movements could raise the debt-to-GDP ratio by 5–7 percentage points, particularly during food price surges.

In Ghana, external debt reached 59.3% of GDP in 2022, while debt servicing absorbed over half of government revenues, as reported by the Bank of Ghana. Although earlier borrowing supported agricultural modernization, rising servicing costs have increasingly crowded out capital expenditure in the sector. Empirical work by Sogah et al. (2024) and Appiah Agyei Sylvester (2019) confirms a positive association between imports, inflation, GDP growth, and external debt accumulation.

In Nigeria, exchange rate liberalization in 2023 triggered sharp depreciation, pushing food inflation above 40% in 2024 according to the National Bureau of Statistics. Imported food items exhibit markedly higher exchange rate pass-through than domestically produced goods, intensifying inflationary pressures.

Similarly, Egypt saw its debt-to-GDP ratio rise from 32% in 2020 to 37.5% in 2023 amid global food price shocks. In Argentina, a severe 2022–2023 drought cut agricultural exports by an estimated $20 billion, eroding reserves and deepening debt stress in an economy heavily exposed to foreign currency liabilities.

The Role of Agricultural Finance and Policy

Agricultural finance and policy architecture play a decisive role in shaping a country’s capacity to reduce structural food import dependence and enhance macroeconomic resilience. Access to affordable agricultural credit remains a foundational constraint. Khan et al. (2024) identify high interest rates, stringent collateral requirements, limited financial literacy, and complex application procedures as persistent barriers to smallholder farmers across 31 developing economies. These constraints suppress on-farm investment in productivity-enhancing inputs such as certified seeds, mechanization, and irrigation technologies. The Asian Development Bank (2025) underscores the transformative potential of digital financial services, noting that mobile-based credit platforms in pilot districts in India increased crop yields by 15–20%. By lowering transaction costs and improving credit scoring through alternative data, fintech solutions can expand inclusion while mitigating default risk.

Public investment is equally pivotal. The African Union’s Maputo Declaration sets a benchmark of allocating 10% of national budgets to agriculture; however, most member states remain below this threshold (AU, 2023). Chronic underinvestment in irrigation infrastructure, agricultural research and development, rural roads, and storage facilities perpetuates low productivity and post-harvest losses, thereby reinforcing import reliance. Empirical evidence consistently links sustained public capital formation in agriculture to long-term gains in food self-sufficiency and export competitiveness.

Trade policy interventions alone are insufficient. Nugroho et al. (2021) finds that import duties exert limited influence on agricultural value added in developing countries, largely because staple foods are frequently exempt to protect consumers. Strategic import substitution such as oilseed development initiatives in Pakistan can reduce external vulnerability, but success depends on coherent policy sequencing, private sector incentives, and stable macroeconomic conditions.

Conclusion

Agricultural import dependence is not merely a trade phenomenon but a structural macroeconomic vulnerability with direct implications for external debt sustainability. Drawing on the two-gap framework and debt overhang theory, the evidence shows how food import shocks widen foreign exchange gaps, accelerate external borrowing, and elevate sovereign risk particularly in low- and middle-income economies with limited export diversification and shallow reserve buffers. Empirical findings from Africa, South Asia, and Latin America consistently confirm that exchange rate depreciation, global food price spikes, and high import intensity interact to amplify inflationary pressures and fiscal stress.

Country experiences including Pakistan, Ghana, Nigeria, Egypt, and Argentina illustrate how currency composition of debt, weak agricultural productivity, and constrained fiscal space convert temporary commodity shocks into persistent debt overhang risks. The transmission mechanisms are clear: higher import bills deplete reserves, depreciation fuels food inflation, monetary tightening raises debt servicing costs, and public investment is crowded out thereby reinforcing structural dependence.

Policy responses must therefore extend beyond short-term trade management. Expanding agricultural credit access, strengthening digital finance, meeting public investment benchmarks, and promoting productivity-enhancing innovation are central to reducing import reliance. Sustainable debt trajectories ultimately require coordinated macroeconomic stabilization, agricultural transformation, and export diversification. Without such structural reforms, food import dependence will remain a recurrent driver of external debt fragility.

References: Sylvester; Asian Development Bank; Bakari & Tiba; Checherita-Westphal & Rother; Chenery & Strout; Falana et al; FAO; IMF; Khan et al; Mwangi et al; Nugroho et al; Sogah et al; World Bank.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The writer is affiliated with the Institute of Agricultural and Resource Economics, University of Agriculture, Faisalabad. Pakistan and can be reached at minahilimran0408@gmail.com

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