Energy shock risks worsening poverty, warns Alexander De Croo (UNDP)

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Energy prices, El Niño and tighter credit could push millions of people into poverty in developing countries already battered by repeated shocks, the head of the United Nations Development Programme (UNDP), former Belgian prime minister Alexander De Croo, tells AFP.

Soaring hydrocarbon prices following the conflict in the Middle East have led most countries to introduce extensive subsidies to protect their populations — at the risk of further shrinking their already limited fiscal headroom.

"Countries have never had the chance to recover from the Covid pandemic. We are moving from one crisis to another, and the succession of shocks is making things worse: it's like having to repair your roof while your house is on fire," UNDP head Alexander De Croo tells AFP in an interview.

Developing countries have had "no respite" to rebuild their reserves or resolve previous crises, he says on the sidelines of the International Monetary Fund (IMF) and World Bank meetings in Bangkok.

This year, "countries have done a fairly good job of shielding their populations from fuel prices" through broad-based subsidies, "but at an exorbitant cost. Many have had to rethink their policies and cut their support", risking "major social unrest", De Croo says.

Worse still, vulnerable countries are providing this support at the expense of investment in development — "an impossible dilemma".

"They are losing all their room for manoeuvre in public policy, whether in healthcare, education or investment in renewable energy: all of that is evaporating," the UNDP chief says.

Better-targeted subsidies, as the IMF recommends, are difficult to implement without the necessary governance or tax systems.

And countries' resources are being depleted, with no let-up in the Middle East or energy markets. "Some countries have a well-insulated house and money in the bank, while others have a house with no roof and no money in the bank," De Croo says.

On top of the energy shock, the El Niño climate phenomenon threatens harvests in Asia, Africa and Latin America.

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