UN development chief sounds alarm on growing poverty after Iran war shock

UN Development Programme chief Alexander de Croo has warned that millions of people could be pushed into poverty due to surging energy costs, the effects of a powerful El Nino phenomenon, and higher interest rates triggered by the US-led war on Iran. Speaking at the IMF-World Bank Annual Meetings in Bangkok, de Croo expressed concern over governments' efforts to address the current energy price spike by implementing blanket subsidies, but acknowledged that these measures have left many developing nations with limited resources to cope with repeated crises.

De Croo highlighted that governments worldwide, still recovering from the aftermath of the 2008 global financial crisis, are grappling with ballooning fiscal deficits and debt-to-GDP ratios. In a bid to combat multiple shocks, including the pandemic and conflicts in Ukraine and the Middle East, many developing countries have resorted to providing subsidies, but have been unable to sustain these efforts due to limited resources.

The IMF warned that while global growth remains resilient in the face of the energy crisis, the resilience is heavily dependent on investments in artificial intelligence technology. Poorer countries, not benefiting from this AI boom, continue to struggle. IMF chief Kristalina Georgieva warned that "winter is coming," an allusion to the popular fantasy book series Game of Thrones, suggesting a looming catastrophe unless the world prepares for it.

De Croo emphasized the stark disparity between countries with well-insulated financial situations and those without any financial cushion. He stressed the need for advanced economies and multilateral agencies to invest in economic growth, resilience, and job creation in developing nations, providing them with more space, time, and access to financing.

The UNDP's new report cautioned that around 130 million people might be pushed into poverty this year if energy and food price increases are fully passed on without subsidies, particularly affecting South and East Asia and sub-Saharan Africa.

De Croo also pointed out that advanced economies are currently facing surging bond yields due to elevated inflation expectations, ballooning debt ratios, and private capital inflows aimed at AI capital-raising activities. This has tightened the financial space for developing countries to secure the capital needed to address crises, with rising interest rates leading to increased debt payments.

The median developing country now dedicates approximately 9.5% of government revenue to interest payments, a level not seen in a quarter of a century and more than three times that of high-income countries.

De Croo cautioned that the situation is becoming increasingly difficult to manage, further straining countries' policy-making capabilities. He also noted that recent reductions in international aid are exacerbating the challenges faced by developing nations. De Croo plans to spend the week in Bangkok urging advanced economies and multilateral agencies to invest in economic growth, resilience, and job creation in developing countries, stressing that recent severe cuts in international aid are worsening the situation for these nations.