UNDP: Cost-of-living crisis has plunged 71 million people into poverty

UNITED NATIONS, July 7 (Xinhua) -- A spike in inflation rates has pushed 71 million people into poverty in developing nations since March 2022, the UN Development Programme (UNDP) alerts in a report released Thursday.

With soaring inflation, interest rates are likely to rise, causing further recession-induced poverty to exacerbate the crisis, 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.

Analysis of 159 developing countries globally indicates 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), according to the UNDP estimates.

The report examines the ripple effects of the conflict in Ukraine as presented in the two briefs from the UN secretary-general's Global Crisis Response Group.

"Unprecedented price surges mean that for many people across the world, the food that they could afford yesterday is no longer attainable today," said 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."

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," said Steiner.

"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 marginalized communities can access affordable food and energy," he added.

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, according to 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 George Gray Molina, UNDP Head of Strategic Policy Engagement. "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 percent of the population, according to the report. By contrast, cash transfers mostly go to the poorest 40 percent 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 said.

"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 COVID-19 responses that developing countries must be supported by the global community to have the fiscal space to fund these schemes."

Molina added 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.

UNDP is the leading UN organization fighting to end the injustice of poverty, inequality, and climate change.