A SPIKE in inflation rates pushed 71 million people into poverty in developing nations since March 2022, according to a UN Development Programme report released on Thursday (July 7).
The report revealed that interest rates are likely to rise following soaring inflation, resulting in further recession-induced poverty to exacerbate the crisis, thus accelerating and deepening poverty worldwide.
With depleted fiscal reserves, high levels of sovereign debt, and rising interest rates on global financial markets, developing countries face challenges that require urgent international attention, national news agency Bernama reported.
Further, according to UNDP estimates, an analysis of 159 developing countries globally further had indicated that price spikes in key commodities are 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).
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“Unprecedented price surges mean that for many people across the world, the food that they could afford yesterday is no longer attainable today,” Bernama reported UNDP Administrator Achim Steiner as saying.
“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.”
Meanwhile, cost-of-living crises pose difficult choices to policymakers, particularly in poorer nations.
While most developing countries are grappling with shrinking fiscal space and ballooning debt, the challenge is how to provide meaningful short-term relief for poor and vulnerable households.
“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 to contend with the continuing COVID-19 pandemic, crushing debt levels and now an accelerating food and energy crisis,” Steiner remarked.
“Yet new international efforts can take the wind out of this vicious economic cycle, saving lives and livelihoods that includes decisive debt relief measures; keeping international supply chains open; and coordinated action to ensure that some of the world’s most marginalised communities can access affordable food and energy.”
It was also revealed that a number of countries have tried to mitigate the worst effects of the current crisis by implementing trade restrictions, tax rebates, blanket energy subsidies, and targeted cash transfers.
A targeted cash transfer is more equitable and cost-effective than a blanket subsidy, said the report.
“While blanket energy subsidies may help in the short term, in the longer term they drive inequality, further exacerbate the climate crisis, and do not soften the immediate blow of the cost-of-living increase as much as targeted cash transfers do,” said report author UNDP Head of Strategic Policy Engagement George Gray Molina.
“They offer some relief as an immediate band-aid, but risk causing worse injury over time.”
More than half of the benefits of a universal energy subsidy go to the richest 20% of the population, according to the report.
By contrast, cash transfers mostly go to the poorest 40% of the population.
“Cash in the hands of the people who are reeling from the astronomical price increases to food and fuel will have a widespread impact in positive ways,” Molina noted.
“Our modelling shows that even very modest cash transfers can have dramatic and stabilising effects for the poorest and most vulnerable in this crisis.
“And we know from COVID-19 responses that developing countries must be supported by the global community to have the fiscal space to fund these schemes.”
Molina acknowledged that to free up those needed funds, a moratorium on official debt for two years should be considered to assist all developing countries – regardless of GDP per capita – to bounce back from these shocks. – July 8, 2022
