The effects of war and Corona are driving more and more people into poverty. The UN Development Program now says that direct cash transfers to those affected work better than blanket subsidies.
According to the United Nations, the explosion in food and energy prices has pushed an additional 71 million people into poverty in just three months.
They have to make do with less than four euros per day and person. The United Nations Development Program (UNDP) reported that ‘spread-aid’ aid – through tax cuts or blanket energy subsidies – is less effective than direct payments to those most affected to keep people out of poverty.
“The report concludes that targeted cash transfers are fairer and more cost-effective than blanket subsidies,” the UNDP said. Flat-rate subsidies include a temporary reduction in energy taxes to make petrol cheaper, as in Germany. Although this helps in the short term, it worsens inequality and, in the case of energy subsidies, also exacerbates the climate crisis in the long term, because people who can afford it drive more cars when petrol prices are cheaper. According to the UNDP, it is primarily the richest 20 percent of the population who benefit from energy subsidies. Targeted financial support, on the other hand, would primarily benefit the 40 percent of the poorest.
Causes of increasing poverty
According to UNDP information, the causes of the current crisis include the devastating economic effects of the corona pandemic as well as the Russian war against Ukraine and the Russian blockade of Ukrainian ports, through which no grain can be exported. The poorest households in countries in the western Balkans, on the Caspian Sea and south of the Sahara are badly affected.
According to the UNDP, as interest rates rise due to inflation, dozens of developing countries are at risk of becoming insolvent. If they could no longer pay for food or energy imports, there would be a risk of unrest, as the situation in Sri Lanka recently showed, said UNDP chief Achim Steiner. UNDP calls for developing countries to suspend interest payments on government debt for two years.