Developing countries are facing mounting economic pressure from soaring energy prices, the threat of extreme weather caused by El Niño and rising borrowing costs, with the United Nations warning that the combined impact could push tens of millions of people back into poverty.
The United Nations Development Programme (UNDP) has called for urgent international assistance to help vulnerable economies manage the growing crisis, warning that governments are running out of financial resources to protect households from rising living costs.
The warning comes ahead of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Bangkok this week, where global economic challenges and the financial difficulties confronting developing countries are expected to feature prominently.
Alexander De Croo, administrator of the UNDP, said developing economies were struggling to deal with several crises simultaneously and needed coordinated international support. He stressed that the global community must act collectively to prevent the situation from deteriorating further. In a report titled *No Time to Recover*, the UNDP highlighted the combined effects of the energy crisis, climate-related risks and increasing debt burdens.
According to the report, these pressures are limiting the ability of governments to support vulnerable populations and maintain essential public services. Oil prices have climbed above $100 a barrel in recent weeks following renewed hostilities in the Middle East.
The increase has added to the financial strain on countries already struggling with inflation and limited fiscal resources. Since the Iran war began earlier this year, emergency government measures have helped shield up to 130 million people from the full impact of rising energy and food prices.
However, the UNDP warned that these interventions are becoming increasingly difficult to sustain as governments exhaust the funds available for subsidies and other forms of relief. De Croo said some countries were being forced to allow higher prices to pass directly on to consumers because their financial capacity to absorb the additional costs had been depleted.
He warned that the situation could result in tens or even hundreds of millions of people falling back into poverty. The crisis is also being compounded by the threat of an exceptionally severe El Niño climate pattern, which could trigger widespread crop failures and increase the frequency or intensity of extreme weather events.
Agricultural disruption could further threaten food supplies, raise prices and deepen economic hardship, particularly in countries where households spend a significant proportion of their income on essential commodities. At the same time, a global sell-off in bond markets has increased borrowing costs for developing economies.
De Croo said bond financing costs for these countries had reached around 9%, placing additional pressure on governments that must continue servicing existing debts while meeting public spending requirements. The consequences of mounting debt are already visible in government budgets. Research published by the campaign group Debt Justice found that low-income countries classified by the IMF as being in, or at risk of, debt distress had reduced their education budgets by an average of 8% since 2019.
Their broader public expenditure had declined by 2% over the same period. Heidi Chow, executive director of Debt Justice, said high debt levels were undermining people’s access to healthcare and education. The organisation has called for the cancellation of some of the most burdensome debts and reforms to the international framework used to restructure government debt.
The UNDP has also urged multilateral lenders, donor countries and international partners to provide developing economies with faster access to affordable financing. De Croo acknowledged that debt relief could be necessary for countries facing the greatest difficulties, but said negotiations could take months, making immediate financial support essential.
He also called for a coordinated international response rather than leaving vulnerable economies to manage the crisis on their own. Measures could include providing additional liquidity to prevent financial markets from tightening further and drawing lessons from emergency interventions introduced during the Covid-19 pandemic, when G20 countries temporarily suspended debt repayments for developing nations.
With energy prices, climate risks and borrowing costs expected to remain major challenges in the coming months, the UNDP warned that the international community must act quickly to help governments protect vulnerable households and preserve spending on essential development priorities.
