Business EconomyPosted at: Oct 2 2026 5:03PM


Energy price shock puts governments under growing fiscal pressure: UN Report

New Delhi, Oct 2 (UNI) Governments across the world are facing mounting difficulty in protecting households from soaring energy and food costs as the economic fallout from the Iran war, high borrowing costs and extreme weather puts pressure on public finances, according to a new United Nations Development Programme (UNDP) report.
The UNDP said government spending on fuel subsidies could exceed $1 trillion this year as countries expand measures such as price controls, subsidies and tax rebates to limit the impact of higher energy prices on consumers.
The report warned that governments could find it increasingly difficult to sustain such support, particularly as crude oil prices approach USD 100 a barrel and elevated interest rates raise the cost of servicing public debt.
“The horizon over the next few weeks and months is uncertain because we don’t see a very clear pathway out of the three-pronged crisis,” UNDP Chief Economist George Gray Molina said, referring to the conflict involving Iran, elevated borrowing costs and the El Niño weather phenomenon.
The UNDP analysis, based on data from the World Bank, International Monetary Fund and International Energy Agency, found that the number of countries introducing measures to cushion consumers from rising prices nearly doubled between April and September.
Such interventions have helped prevent a significant increase in poverty, the report said. Without the relief measures introduced by governments, an estimated 130 million additional people could have fallen below the USD 6.85-a-day poverty threshold this year.
However, the UNDP cautioned that the pressure on governments is likely to intensify in the coming months. The combined effects of the economic and geopolitical shocks are expected to reach their peak in early 2027, with weather-related disruptions adding to concerns over food security.
The anticipated impact of El Niño could further complicate the situation. The climate pattern is associated with unusually warm ocean temperatures and can trigger extreme weather, including floods and droughts, potentially disrupting agricultural production and pushing food prices higher.
The strain is already showing signs of spilling into the social sphere. According to the UNDP, higher energy costs were linked to protests and social unrest in at least 10 countries in September, including Syria, Guatemala, the Philippines, France and Portugal.
With governments facing tighter fiscal conditions, the report highlighted the difficult balance between protecting vulnerable households from price shocks and maintaining sustainable public finances. UNI VK SAS
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