Developing countries hit by overlapping crises

The confluence of factors, including the Iran war's impact on energy prices and the strongest El Niño since 1950, is creating a difficult environment for developing economies. The UNDP warns that this could trigger a "domino effect" of financial distress across approximately 100 countries. This situation mirrors the fiscal strain experienced during the pandemic, although the UNDP has not yet called for new debt relief measures.

Governments had initially used subsidies and tax relief to shield citizens from rising costs. However, these fiscal buffers are now largely depleted, leading some to allow higher energy prices to flow through to consumers. This shift indicates that many governments are finding it unsustainable to fiscally contain the burden of these overlapping crises, even for middle-income countries. UNDP chief economist George Gray Molina noted a major shift in September as governments began rolling back these measures.

The immediate future appears challenging, with 22 of 26 nations surveyed by the UNDP rating the crisis as a high or medium priority, and all 26 anticipating further deterioration. The next 60 days, particularly regarding bond market and oil price developments, are considered crucial. The UNDP also reported that rising prices had already contributed to protests and social unrest in 10 countries in September, underscoring the immediate human and political consequences of these economic pressures.