PARIS (AFP) - Developing countries face a triple shock from the energy crisis, El Niño and surging borrowing costs and need urgent support from the international community, the UN’s development arm warned.
Speaking before the International Monetary Fund (IMF) and World Bank annual meetings in Bangkok this week, the UNDP’s administrator, Alexander De Croo, called for “solidarity and global action”.
“Developing countries, their hands and legs are being pulled in different directions: it’s truly hard for them,” he said.
Before the meetings, the UNDP published a report, No Time to Recover, which lays out the risks of what it calls the “compounding crises” of energy, climate and debt.
The report says that since the war on Iran broke out earlier this year, up to 130 million of the world’s poorest people have been shielded from the full impact of high prices by emergency government measures.
But it warns many of them are now at risk, as governments run out of the resources needed to keep cushioning their populations against soaring costs.
“What we see now is that countries are pivoting their policy and letting the price hikes flow through. They’re pivoting the policy because they have no choice, because their fiscal space is completely eaten up,” De Croo said.
“We are witnessing a perfect storm that could throw tens if not hundreds of millions of people back into poverty,” De Croo added.
Meanwhile, the worst El Niño climate pattern in perhaps 1,000 years is expected to cause widespread crop failures and increase the risk of extreme weather events, while at the same time the global bond sell-off is driving up government borrowing costs.
De Croo said, “The cost today for bond financing for developing countries, it’s 9%. That is really, really high.”
He added that the situation was expected to deteriorate between now and the spring. “For each of the three things that we mentioned – fuel prices, El Niño and the bond markets – unfortunately for each of those at the moment, we don’t see any light at the end of the tunnel,” he added.
His warning chimes with the findings of separate research published on Sunday by the campaign group Debt Justice, underlining the social impact of high debt servicing costs.
It shows that low-income countries classified by the IMF as either in, or at risk of, debt distress have cut their education budgets by an average of 8% since 2019, and wider public spending by 2%.
Heidi Chow, the executive director of Debt Justice, said, “High levels of debt are having a devastating impact on people’s access to healthcare and education.”
Debt Justice is calling for the outright cancellation of some of the most burdensome debts, and overhaul of the IMF-administered common framework for debt restructuring.
Chow said, “We urgently need debt cancellation – especially from the highest interest lenders like banks, hedge funds and oil traders.”
De Croo said the UNDP did not oppose efforts to secure debt relief for some of the hardest-hit countries – but argued it would take many months to negotiate, and instead called for more urgent action.