NEW YORK CITY – Higher energy prices, an unprecedented El Niño, and higher borrowing costs could leave millions more in poverty as developing countries struggle to sustain support for households, warned the United Nations Development Programme (UNDP) in a report published today.

UNDP’s latest analysis of the global economic impact of the Middle East conflict, No Time to Recover: Compounding Crises, Depleted Fiscal Buffers and What It Means for Developing Economies, finds that efforts to protect vulnerable populations in developing countries are weakening as the high cost of cushioning prices for consumers becomes increasingly unsustainable. 

Debt payments put pressure on budgets

According to the report, the median developing country now spends about 9.5 percent of government revenue on interest payments, the highest share in 25 years and more than three times the share in high-income countries. 

Rising borrowing costs are particularly concerning given current conditions in the bond markets, with US 10-year Treasury yields reaching 5.3 percent, their highest level since 2002.  Higher US Treasury yields ripple through global financial markets, adding pressure on countries already carrying heavy debt burdens.

Ten-year bonds of median weak-credit countries are today already around 9 percent. This burden draws scarce resources away from public health, education, and social safety nets.

Energy prices and El Niño add to the pressure

In addition, oil prices have surged above US$ 100 a barrel for the second time since the conflict in the Middle East began, driving up the costs of fuel and food. Governments are struggling to maintain subsidies that protect households from higher prices. At current energy prices, global fossil fuels subsidies could exceed US$ 1 trillion this year, a fiscal burden that is swiftly overwhelming many low- and middle-income countries.

Meanwhile, the current El Niño is shaping up to be the most powerful on record, threatening harvests and food systems across Africa, Asia, and Latin America. 

130 million more people at risk of poverty without support

To date, developing countries have been able to partially protect their populations from the worst impacts of higher energy and food prices through fossil fuel subsidies, price caps, tax rebates, and demand-management measures.

But these efforts are becoming harder to sustain and have masked the extent and seriousness of the underlying problem. UNDP’s analysis estimates that if energy and food price increases had been fully passed through about 130 million additional people would have been pushed into poverty worldwide this year, with particularly severe consequences in sub-Saharan Africa, South and East Asia.

Impossible choices

“Surging oil and food prices leave millions of families with no safety margin. We are witnessing a perfect storm that could throw tens if not hundreds of millions of people back into poverty,” said UNDP Administrator Alexander De Croo. “Governments of developing countries are left with impossible choices: cut support to their poorest citizens or risk their entire development agenda,” De Croo added.

The report points to the urgent need for governments to phase out broad, untargeted subsidies in favor of temporary, well-targeted support for vulnerable households. It also highlights the critical importance for the international community to provide rapid access to financing for countries that can no longer afford these defensive measures on their own.

“Ahead of the annual meetings of the International Monetary Fund and World Bank in Bangkok this week, we urge the international community – multilateral lenders, donors, and partners – to step up access to affordable finance so countries can sustain support for their most vulnerable households,” De Croo said. “This is a moment for solidarity and global action.”

Full report

The full report is available online at https://www.undp.org/publications/no-time-recover-compounding-crises-depleted-fiscal-buffers-and-what-it-means-developing-economies

Media Contacts

For more information or to request an interview, please contact:

In New York City, USA – dylan.lowthian@undp.org

In Bonn, Germany – victor.garrido.delgado@undp.org

In Bangkok, Thailand - aminath.mihdha@undp.org