UN Warns 130 Million Could Fall Into Poverty As Energy Costs And Debt Rise

Around 130 million people could be pushed into poverty this year as soaring energy and food prices, rising borrowing costs and an intense El Niño phenomenon threaten to deepen economic hardship in vulnerable countries, the United Nations Development Programme (UNDP) has warned.

UNDP chief Alexander de Croo told AFP that repeated global crises were leaving developing countries with dwindling resources to protect their populations, as governments struggle to cope with rising energy costs, mounting debt and climate-related disasters.

Global fuel prices have surged since the United States launched its war on Iran in late February, with Tehran’s retaliatory attacks against Washington’s Gulf allies disrupting major oil and natural gas supplies.

Speaking on the sidelines of the IMF-World Bank Annual Meetings in Bangkok, de Croo said many developing countries had responded to higher energy prices by introducing broad-based subsidies. However, repeated economic shocks have left governments with limited capacity to sustain such measures.

“You have to repair your roof while at the same time your home is on fire,” he told AFP, describing the pressure on governments that have little time to recover from one crisis before another emerges.

UN Warns Of Deepening Poverty In Developing Countries

The UNDP warned in a new report that approximately 130 million people could fall into poverty this year if increases in energy and food prices are fully passed on to consumers without subsidies.

People in South and East Asia and sub-Saharan Africa face particular risks, the agency said.

De Croo compared the situation of developing countries with that of wealthier nations, which have greater financial resources to absorb economic shocks.

“Some countries have a well-insulated house with money in the bank. Other countries have a house without a roof and no money in the bank,” he said.

“We’re stumbling from one crisis into the other, and what countries need is some space, and some time, and access to financing.”

The International Monetary Fund (IMF) said this week that global economic growth had remained resilient despite the energy crisis. However, the institution warned that this resilience depended heavily on investment in artificial intelligence, leaving poorer countries without exposure to the technology boom struggling to keep pace.

IMF chief Kristalina Georgieva also warned that “winter is coming”, invoking the Game of Thrones phrase to underline the risks of failing to prepare for further economic shocks.

Rising Interest Rates Add To Debt Pressure

Higher global borrowing costs are creating additional difficulties for developing economies, as elevated inflation expectations, rising government debt and capital-raising for AI investments push up bond yields in advanced economies.

The resulting increase in interest payments is reducing the funds available to developing countries for public services, economic recovery and social protection.

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

“It starts to be a difficult situation to manage, and it takes away all their margin for policy,” de Croo said.

Government deficits and debt-to-GDP ratios have expanded significantly since the 2008 global financial crisis, as countries have struggled to manage successive shocks, including the Covid-19 pandemic and wars in Ukraine and the Middle East.

De Croo, a former Belgian prime minister, said he would use the meetings in Bangkok to urge advanced economies and multilateral institutions to invest in economic growth, resilience and job creation in developing countries.

He also warned that recent cuts to international aid were worsening the pressure on vulnerable economies.

Strong El Niño Could Bring Further Economic Shocks

The UNDP warned that the expected El Niño climate phenomenon could intensify the economic challenges facing developing countries, with potentially severe consequences for food security and livelihoods.

The climate pattern is forecast to bring widespread effects, including flooding, droughts and other extreme weather events, with impacts expected to peak in early 2027.

Such disasters could increase food prices, damage infrastructure and deepen poverty in countries that lack sufficient resources to prepare for and recover from climate shocks.

De Croo said private investment would also be needed to limit the economic consequences of climate change.

“We see that the impact of climate has an economic cost. Avoiding that cost has a business case,” he said.

The UNDP’s warning highlights how the combination of energy price shocks, rising debt-servicing costs and climate risks could leave millions more people vulnerable to poverty unless governments and international financial institutions provide sufficient support.