Rising inflation has seen the number of poor people in developing countries rise by 71 million in the three months to March 2022, the United Nations Development Program (UNDP) warned today.As interest rates rise in response to soaring inflation, there is a risk of triggering another poverty-induced recession that will further deepen the crisis and accelerate and deepen poverty around the world.Struggling with depleted fiscal reserves and high levels of national debt, as well as rising interest rates in global financial markets, developing countries face challenges that cannot be resolved without the urgent attention of the global community.
An analysis of 159 developing countries around the world shows that price spikes in key commodities are already having an immediate and devastating impact on the poorest households, with clear hotspots in the Balkans, Caspian countries and sub-Saharan Africa (especially the Sahel). according to UNDP estimates. This report brings together the insights provided by two reports of the UN Secretary-General’s Global Crisis Response on the knock-on effects of the war in Ukraine.”Unprecedented price increases mean that for many people around the world the food they could afford yesterday is no longer attainable,” says UNDP Administrator Achim Steiner. “This cost of living crisis is plunging millions into poverty and even starvation at a breathtaking rate, and with it the threat of increased social unrest grows every day.
Policymakers responding to the cost-of-living crisis, especially in poorer countries, face difficult decisions. The challenge is how to balance meaningful short-term assistance to poor and vulnerable households at a time when most developing countries are struggling with shrinking fiscal space and mounting debt.”We are witnessing an alarming growing divergence in the global economy as entire developing countries face the threat of being left behind as they struggle with the ongoing COVID-19 pandemic, crushing debt levels and now accelerating food and energy crises,” says Steiner. “However, new international efforts can take the wind out of this vicious economic cycle and save lives and livelihoods which includes decisive debt relief measures; maintaining open international supply chains; and coordinated action to ensure that some of the world’s most marginalized communities have access to affordable food and energy.”
Countries have tried to mitigate the worst effects of the current crisis with trade restrictions, tax breaks, blanket energy subsidies and targeted cash transfers. The report says targeted cash transfers are fairer and more cost-effective than blanket subsidies.”While blanket energy subsidies may help in the short term, in the long term they create inequality, further exacerbate the climate crisis, and do not mitigate the immediate blow of rising living costs in the way that targeted cash transfers do,” says report author George Gray Molina, head of UNDP’s strategic policy department. “They offer some relief as an immediate band-aid, but they run the risk of causing worse injury over time.”
The report shows that energy subsidies disproportionately benefit wealthier people, with more than half of the benefits of universal energy subsidies going to the richest 20% of the population. In contrast, cash transfers mostly go to the poorest 40% of the population.”Money in the hands of people reeling from astronomical increases in food and fuel prices will have a broad positive impact,” says Molina. “Our modeling shows that even very modest cash transfers can have dramatic and stabilizing effects for the poorest and most vulnerable in this crisis. And we know from the responses to COVID-19 that developing countries must be supported by the global community to have the fiscal space to fund these programs.”
He added that a two-year moratorium on official debt should be considered to free up the necessary funds to help all developing countries – regardless of GDP per capita – bounce back from these shocks. This reflects recent calls by international financial institutions for increased liquidity for developing countries.
The COVID-19 pandemic alone has pushed debt in developing countries to a 50-year high, equivalent to more than two and a half times their income, according to the World Bank. The countries facing the most drastic effects of the crisis across all poverty lines are Armenia and Uzbekistan in Central Asia; Burkina Faso, Ghana, Kenya, Rwanda and Sudan in sub-Saharan Africa; Haiti in Latin America; and Pakistan and Sri Lanka in South Asia. In Ethiopia, Mali, Nigeria, Sierra Leone, Tanzania and Yemen, the impacts could be particularly severe at the lowest poverty lines, while in Albania, the Kyrgyz Republic, Moldova, Mongolia and Tajikistan the impacts could be hardest.
