On 12 October 2026, the United Nations Development Programme (UNDP) released the report titled “No Time to Recover: Compounding Crises, Depleted Fiscal Buffers, and What It Means for Developing Economies.” The report examines the socio-economic effects of the military escalation in the Middle East, drawing on how renewed energy price shocks, record El Niño and rising global borrowing costs are creating a triple shock for developing economies. It notes that governments have so far cushioned households from the full impact of higher prices, but the fiscal costs are becoming difficult to sustain. With rising poverty risks, debt repayments and another climate shock approaching, the report underlines the expanding gap between the need to protect vulnerable populations and governments’ bandwidth to finance the response.
The following are five key takeaways from the report.
1. Developing economies face a triple shock from surging energy prices, record El Niño and rising borrowing costs
Seven months into the Middle East crisis, the situation has transitioned from a single energy shock into three overlapping global pressures. First, brent crude averaged USD 102 per barrel in September, making it a 22 per cent increase since the US-Iran ceasefire broke down in July. Second, El Niño is on course to become the strongest since 1950, with its effects on harvests, food prices, public health and water supplies expected to continue into 2027. Third, global benchmark interest rates have also reached multi-decade highs. These shocks reinforce one another as energy and food inflation erodes household purchasing power whereas expensive credit limits government spending. The report therefore highlights a crisis wherein developing economies have meagre time to recover from one shock before the next compounds its effects.
2. Rising energy prices are weakening price protection mechanisms and increasing the social costs of the crisis
Governments have relied heavily on subsidies, fuel-tax reductions and price controls to contain the transmission of international energy prices to domestic consumers. However, these measures are becoming difficult to sustain. Since the conflict began, retail gasoline and diesel prices across 130 countries have increased by an average of 26 and 38 per cent respectively. The UNDP estimates that global explicit fossil fuel subsidies could exceed USD 1 trillion in 2026. Governments therefore face a two-sided pressure where sustaining price controls is becoming unsustainable, meanwhile withdrawing them risks increasing public discontent. The report thus highlights the weakening of price cushioning as both a fiscal and a political challenge.
3. Record El Niño threatens harvests, food security and household incomes into 2027
The developing El Niño threatens to worsen food insecurity while households and governments are still absorbing the energy shock. The World Meteorological Organization (WMO) predicts the event to continue into at least till February 2027, with risks including above-normal temperatures, droughts and flooding. With this, agriculture, public health, energy and water supplies stand as the most exposed sectors. As per World Food Programme’s (WFP) estimation, by the end of 2027 the El Niño could push at least 49 million additional people into acute food insecurity across 45 countries already facing food insecurity. For developing economies, this means preparing for climate-related food shocks and managing higher energy costs, both at a time when public resources are already squeezed.
4. Rising borrowing costs deepen fiscal pressures and limit development spending
Higher global interest rates could strain the fiscal capacity of developing economies just when their need for emergency support increases. On 29 September, the yield on the 10-year US Treasury bond reached 5.26 per cent, its highest level since 2002. Such high benchmark yields can raise borrowing costs across developing economies, especially for countries with weaker credit ratings, substantial refinancing needs and limited market access. This pressure is compounded by existing debt-servicing obligations, where, at present, the median developing economy spends about 9.5 per cent of government revenue on interest payments alone.
The UNDP’s September survey of 26 country offices sheds light on how the debt pressure coincides with other crises. 13 offices reported pre-existing economic or fiscal crises, 10 reported El Niño-related responses, and nine quoted ongoing conflict or insecurity. The concurrent nature of these pressures deepen the debt-development trade-off. The countries most exposed to these stacked shocks may consequently have the least capacity to fund their response.
5. Targeted price support, El Niño preparedness and multilateral finance emerge as policy priorities
The report identifies three key policy priorities. First, governments must transition from large untargeted price cushioning towards targeted support as the fiscal costs of containing prices rise. UNDP estimates that compensating all households for their income losses would cost 1.1 per cent of developing-country GDP in 2026, compared with 0.3 per cent for compensating households below the USD 6.85 poverty line, making the case for a targeted approach. Second, El Niño preparedness must be integrated into the response to the energy crisis. This can be done through anticipatory action, protection of agricultural inputs during planting windows, food assistance and ‘adaptive social protection.’ Finally, affordable budget and balance-of-payments support from international financial institutions stands crucial for countries unable to finance even targeted interventions.
