The United Nations Development Programme (UNDP) has warned that the impact of soaring inflation is drastically faster than the shock of the COVID-19 pandemic and that 71 million people in the developing world have fallen into poverty in just three months as a direct consequence of the global food and energy price surge.
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The UNDP in a new study released on Thursday says that as interest rates rise in response to soaring inflation, there is a risk of triggering further recession-induced poverty that will exacerbate the crisis even more, accelerating and deepening poverty worldwide.
The report, “Addressing the Cost of Living Crisis in Developing Countriesâ€, says the projected number of people falling into poverty at $1.90 a day reaches 51.6m after the short-term impact of soaring food and energy prices, and up to 71m people if poverty is measured with higher poverty lines. The cost-of-living crisis could also worsen the conditions of the existing poor population.
Developing countries, grappling with depleted fiscal reserves and high levels of sovereign debt as well as rising interest rates on global financial markets, face challenges that cannot be solved without urgent attention by the global community.
Analysis of 159 developing countries globally indicate that price spikes in key commodities is already having immediate and devastating impacts on the poorest households, with clear hotspots in the Balkans, countries in the Caspian Sea region and Sub-Saharan Africa in particular the Sahel region, according to the UNDP estimates.
Countries facing the most drastic impacts 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 hard at the lowest poverty lines, whereas in Albania, Kyrgyz Republic, Moldova, Mongolia and Tajikistan the hits could be hardest.
“Unprecedented price surges mean that for many people across the world, the food that they could afford yesterday is no longer attainable today,†says UNDP Administrator Achim Steiner. “This cost-of-living crisis is tipping millions of people into poverty and even starvation at breathtaking speed and with that, the threat of increased social unrest grows by the day.â€
Policymakers responding to the cost-of-living crisis, particularly in poorer nations, face difficult choices. The challenge is how to balance meaningful short-term relief to poor and vulnerable households, at a moment when most developing countries are struggling with shrinking fiscal space and ballooning debt.
The report shows that energy subsidies disproportionately benefit wealthier people, with more than half of the benefits of a universal energy subsidy favoring the richest 20 per cent of the population. By contrast, cash transfers mostly go to the poorest 40pc of the population.
The report notes that multilateral and bilateral actors face an additional challenge, which is to refrain from repurposing fiscal resources from one set of development challenges to another set of challenges. Resources for both humanitarian and development assistance are needed.
The bridge that links cash transfers to compensate for food and energy price spikes in the short run to the labour markets, social protection systems and small and medium businesses needed to reactivate supply chains and catalyse inclusive growth in the medium run is a quintessential development challenge. ■