Number of people who could fall below different monetary thresholds as a result of soaring food and energy prices vis-à-vis the benchmark scenario (million people). Panel b plots the percentage increase in the poverty gaps estimated in the cost-of-living scenario vis-à-vis those estimated in the benchmark scenario. The projected number of people falling into poverty at $1.90 a day reaches 51.6 million after the short-term impact of soaring food and energy prices, and up to 71 million people if poverty is measured with higher poverty lines. The cost-of-living crisis could also worsen the conditions of the existing poor population. The poverty gap is defined as the average shortfall in per capita income as a proportion of the corresponding monetary threshold. The gaps estimated for the $1.90, $3.20, $5.50, and $13-a-day thresholds are, respectively: 0.028, 0.077, 0.181, and 0.405 in the benchmark scenario, and 0.031, 0.082, 0.188, and 0.414 in the cost-of-living scenario. Data: Authors’ own elaboration based on the sources described in the text. Graphic: UNDP
Number of people who could fall below different monetary thresholds as a result of soaring food and energy prices vis-à-vis the benchmark scenario (million people). Panel b plots the percentage increase in the poverty gaps estimated in the cost-of-living scenario vis-à-vis those estimated in the benchmark scenario. The projected number of people falling into poverty at $1.90 a day reaches 51.6 million after the short-term impact of soaring food and energy prices, and up to 71 million people if poverty is measured with higher poverty lines. The cost-of-living crisis could also worsen the conditions of the existing poor population. The poverty gap is defined as the average shortfall in per capita income as a proportion of the corresponding monetary threshold. The gaps estimated for the $1.90, $3.20, $5.50, and $13-a-day thresholds are, respectively: 0.028, 0.077, 0.181, and 0.405 in the benchmark scenario, and 0.031, 0.082, 0.188, and 0.414 in the cost-of-living scenario. Data: Authors’ own elaboration based on the sources described in the text. Graphic: UNDP

By Marc Jones
7 July 2022

LONDON (Reuters) – The global cost-of-living crisis is pushing an additional 71 million people in the world’s poorest countries into extreme poverty, a new report published by the U.N. Development Programme (UNDP) on Thursday has warned.

Achim Steiner, UNDP administrator, said an analysis of 159 developing countries showed that the surge in key commodity prices this year was already slamming parts of Sub-Saharan Africa, the Balkans, Asia, and elsewhere.

The UNDP called for tailored action. It was seeking direct cash handouts to the most vulnerable and wanted richer nations to extend and widen out the Debt Service Suspension Initiative (DSSI) they set up to help poor countries during the COVID-19 pandemic.

“This cost-of-living crisis is tipping millions of people into poverty and even starvation at breathtaking speed,” Steiner said. “With that, the threat of increased social unrest grows by the day.”

Tackling the Global Cost-of-Living Crisis: Driving Forward Development During Emergencies. Video: UNDP

Institutions like the UN, World Bank and International Monetary Fund have a number of ‘poverty lines’ – one for the poorest countries were people live on $1.90 or less a day. A $3.20-a-day line for lower middle-income economies and a $5.50-a-day line in upper middle-income countries.

“We project that the current cost-of-living crisis may have pushed over 51 million more people into extreme poverty at $1.90 a day, and an additional 20 million at $3.20 a day,” the report said, estimating it would push the total globally to just over 1.7 billion people.

It added that targeted cash transfers by governments would be more “equitable and cost-effective” than blanket subsidies on things like energy and food prices that richer parts of society tend to benefit more from.

Poverty impacts per country under different monetary thresholds. The poverty impact is measured as the proportion of each country’s population falling into poverty as a result of soaring food and energy prices vis-à-vis the benchmark scenario. The table at the bottom shows the average poverty impact for each poverty line and impact magnitude. The group of countries facing the largest poverty impacts at $1.90 or $3.20 a day tends to be concentrated in Sub-Saharan Africa, particularly in the Sahel, whereas at $5.50 a day the concentration occurs in the Caspian Basin and the Balkans. Data: Authors’ own elaboration based on the sources described in the text. Graphic: UNDP
Poverty impacts per country under different monetary thresholds. The poverty impact is measured as the proportion of each country’s population falling into poverty as a result of soaring food and energy prices vis-à-vis the benchmark scenario. The table at the bottom shows the average poverty impact for each poverty line and impact magnitude. The group of countries facing the largest poverty impacts at $1.90 or $3.20 a day tends to be concentrated in Sub-Saharan Africa, particularly in the Sahel, whereas at $5.50 a day the concentration occurs in the Caspian Basin and the Balkans. Data: Authors’ own elaboration based on the sources described in the text. Graphic: UNDP

“In the longer term they drive inequality, further exacerbate the climate crisis, and do not soften the immediate blow,” the UNDP’s Head of Strategic Policy Engagement, George Gray Molina, said.

The last two years of the pandemic have also shown that these cash-strapped countries would need support from the global community to fund these schemes.

They could do so, Molina said, by extending the G20-led Debt Service Suspension Initiative (DSSI) by two more year and expand it to at least 85 countries from a currently-eligible 73.

Cost-of-living crisis driving ‘breathtaking’ surge in extreme poverty -UNDP

Maps showing poverty impact hotspots as percentages of countries’ population that could fall into poverty as a result of soaring food and energy prices. Among those countries likely facing high poverty impacts across all poverty lines are Armenia and Uzbekistan in the Caspian Basin; Burkina Faso, Ghana, Kenya, Rwanda and Sudan in Sub-Saharan Africa; Haiti in Latin America; and Pakistan and Sri Lanka in South Asia. In these countries, around 3 percent of the population, on average, could fall into poverty. In Ethiopia, Mali, Nigeria, Sierra Leone, Tanzania and Yemen, the impacts could be particularly hard at the lowest poverty lines, whereas in Albania, Kyrgyz Republic, Moldova, Mongolia, Tajikistan, and Ukraine, the hits could be hardest at $5.50 a day.7 Clear geographical hotspots, depending on the poverty line, emerge in Sub-Saharan Africa, mainly in the Sahel region, the Balkans and the Caspian Basin. Graphic: UNDP
Maps showing poverty impact hotspots as percentages of countries’ population that could fall into poverty as a result of soaring food and energy prices. Among those countries likely facing high poverty impacts across all poverty lines are Armenia and Uzbekistan in the Caspian Basin; Burkina Faso, Ghana, Kenya, Rwanda and Sudan in Sub-Saharan Africa; Haiti in Latin America; and Pakistan and Sri Lanka in South Asia. In these countries, around 3 percent of the population, on average, could fall into poverty. In Ethiopia, Mali, Nigeria, Sierra Leone, Tanzania and Yemen, the impacts could be particularly hard at the lowest poverty lines, whereas in Albania, Kyrgyz Republic, Moldova, Mongolia, Tajikistan, and Ukraine, the hits could be hardest at $5.50 a day.7 Clear geographical hotspots, depending on the poverty line, emerge in Sub-Saharan Africa, mainly in the Sahel region, the Balkans and the Caspian Basin. Graphic: UNDP

Addressing the cost-of-living crisis in developing countries: Poverty and vulnerability projections and policy responses

By George Gray Molina, María Montoya-Aguirre, and Eduardo Ortiz-Juarez
7 July 2022

(UNDP) – The ripple effects of the war in Ukraine have disrupted energy and food markets. Among many other factors, supply chain disruptions and price spikes in key commodities have been pushing the world towards a precarious inflationary surge. This will have immediate and devastating effects on household welfare—with those in poverty and near-poverty typically hit hardest due to their higher energy and food budget share— posing significant policy challenges to governments during the response. This paper estimates the potential effects of food and energy inflation on global poverty and vulnerability and simulates the welfare loss mitigation potential of two policy options: blanket energy subsidies and targeted cash transfers. The results suggest that soaring food and energy prices could push up to 71 million people into poverty, with clear hotspots in the Caspian Basin, the Balkans, and Sub-Saharan Africa (particularly in the Sahel). We find that targeted and time-bound cash transfers are the most effective policy tool to address the impacts. [Video presentation and panel discussions: Tackling the Global Cost-of-Living Crisis: The importance of driving forward development during emergencies –Des]

Soaring food and energy prices

The war in Ukraine has severely disrupted global markets for food and energy due to both countries’
large global market shares. Before the war, Russia was the world’s largest and second biggest exporter
of natural gas and crude oil, respectively, while Russia and Ukraine together accounted for almost a
quarter of global wheat exports, 14 percent of corn exports, and more than half of sunflower oil exports
(United Nations Comtrade Database).

A consequence of global market disruptions has been a further increase in energy and food prices—
already on an upward trend after the first year of the pandemic and mainly driven by a recovering global
demand with supply restrictions. More than two thirds of the 166.8 percent increase in natural gas over
the twelve-month period ending on 31 May 2022 has been recorded since the start of the war on 24
February 2022. In the case of crude oil and its two main refined products, i.e., gasoline and heating oil,
the post-invasion subperiod accounts for between half and 60 percent of the annual price increases and
is also responsible for almost 40 percent of the annual price increase of wheat and for 60 to 75 percent
of the annual price increases of corn and sunflower seed oil (Figure 1).

Total percentage price increase of selected commodities over the 12-month period ending on 31 May 2022 (figures at the top of each bar) and its breakdown by subperiods before and after Russia’s invasion of Ukraine on 24 February 2022. Between half and two thirds of the 12-month international price increase in energy, sunflower seed oil and corn has occurred since Russia’s invasion of Ukraine, whereas for wheat and some of the main fertilizers, the contribution of the post-invasion subperiod ranges from 30 to 40 percent. Graphic: UNDP
Total percentage price increase of selected commodities over the 12-month period ending on 31 May 2022 (figures at the top of each bar) and its breakdown by subperiods before and after Russia’s invasion of Ukraine on 24 February 2022. Between half and two thirds of the 12-month international price increase in energy, sunflower seed oil and corn has occurred since Russia’s invasion of Ukraine, whereas for wheat and some of the main fertilizers, the contribution of the post-invasion subperiod ranges from 30 to 40
percent. Graphic: UNDP

These price spikes have been sounding the alarm of a global inflationary surge not seen in years—
partially because of feedback loop pressures (e.g., food production is highly energy-intensive) and
soaring prices in other key commodities such as fertilizer (Figure 1), for which Russia is the world’s
biggest player, accounting for more than 15 percent of global exports (United Nations Comtrade
Database). The International Monetary Fund (IMF 2022) has projected an inflation rate in 2022 of almost
6 percent in advanced economies, the highest in four decades, and close to 9 percent in developing
countries and emerging economies, the highest since the Great Recession. For the 103 countries for
which information is available up to February 2022 in the latest version of the Global Database of
Inflation (Ha, Kose and Ohnsorge 2021), the median annual inflation rate had reached 7 percent.

This global context exerts negative direct and indirect effects on developing countries’ economies and
peoples. The global economy is expected to expand at a lower rate than previously forecast in the
absence of the war—in 2022, 3.6 percent instead of 4.4 percent according to IMF (2022), or 2.9 percent
instead of 4.1 percent according to World Bank (2022). In terms of people, the adverse effects tend to
hit individuals’ livelihoods in the short- and medium-term. Recent estimates suggest that the current
context has contributed to the world still having at least 75 million more people in poverty than what
was expected had the pandemic, war, and food inflation not occurred (Mahler et al. 2022). Finally, such effects seriously threaten people’s lives. The intersection of pre-existing inflationary pressures and war-induced disruption of production and distribution of food can exacerbate food insecurity and the risk
of famines (UN 2022)—mostly driven by drought, an estimated 49 million people in 46 countries
currently live in near-famine-like conditions, with 750,000 people at immediate risk of starvation, of
whom about 75 percent are concentrated in Ethiopia and Yemen (FAO and WFP 2022).

Projections of the number of people living in poverty and vulnerability to poverty under different monetary thresholds for both benchmark and cost-of-living scenarios (million people and percentages of the global population atop each bar). The increase in poverty at $1.90 a day could push the global headcount rate upwards from 8.3 percent to 9 percent after the impact of soaring food and energy prices—at higher poverty lines, the global headcount could increase by about one percentage point. The figures within each bar’s portions correspond to the population living either under $1.90 a day or within the indicated intervals above $1.90. Data: Authors’ own elaboration based on the sources described in the text. Graphic: UNDP
Projections of the number of people living in poverty and vulnerability to poverty under different monetary thresholds for both benchmark and cost-of-living scenarios (million people and percentages of the global population atop each bar). The increase in poverty at $1.90 a day could push the global headcount rate upwards from 8.3 percent to 9 percent after the impact of soaring food and energy prices—at higher poverty lines, the global headcount could increase by about one percentage point. The figures within each bar’s portions correspond to the population living either under $1.90 a day or within the indicated intervals above $1.90. Data: Authors’ own elaboration based on the sources described in the text. Graphic: UNDP

The magnitude of these adverse effects, however, is not homogeneous and greatly depends on
countries’ exposure to shocks and coping capacity. Based on several indicators of direct and indirect
economic exposure (e.g., trade, migration and financial and investment flows) and resilience (e.g., fiscal
space, foreign reserves or debt), Raga and Pettinotti (2022) constructed an index of vulnerability to the
economic effects of the war for 118 low- and middle-income countries that are home to about 80
percent of the world’s population. As expected, the index reveals that some of the most vulnerable
countries are located in Europe and Central Asia due to their bilateral exposure to both Russia and
Ukraine, though a large number of countries with medium-to-high vulnerability are found in the Middle
East and North Africa and in Sub-Saharan Africa—especially those that are commodity importers and
those with a high dependency on tourism and remittance flows.

What were poor and vulnerable households’ expected trajectories for 2022, had the war not occurred,
and how has the war changed that counterfactual picture? The analysis below quantifies the potential
short-term impacts that soaring food and energy prices recorded up to April 2022 could have had on
poverty and vulnerability to poverty. [more]

Addressing the cost-of-living crisis in developing countries: Poverty and vulnerability projections and policy responses