As the global economic conditions begin to normalize after years marked by COVID-19, a global food crisis, surging inflation, and high interest rates, low-income countries—which suffered the most from these shocks—are at an important juncture.
How can low-income countries overcome their current challenges? What are the potential opportunities on the horizon?
Join Kristalina Georgieva and Ajay Banga for a live discussion on what low-income countries can do to foster macroeconomic stability, promote sustainable and inclusive growth, and unlock progress toward the sustainable development goals.
Also hear from senior policy makers and experts on what role the international community can play to support these countries—from mobilizing financing and calibrating their support through strengthening debt resolution frameworks.
For more details, see AGENDA.
Read our latest report on Macroeconomic Developments and Prospects for Low-Income Countries.
The IMF has acted with unprecedented speed and scale to support low-income countries during the pandemic. The Fund provided financial support to 53 of 69 eligible low-income countries in 2020 and in the first half of 2021, with about US$14 billion disbursed as zero percent interest rate loans from the Poverty Reduction and Growth Trust.
Most of this support was through the Fund’s emergency financing instruments—the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI)—which provide immediate, one-time disbursements to countries facing urgent balance of payments needs. The Fund was able to respond to a record number of requests for financial assistance through a series of temporary access limit increases to the RCF and RFI, and temporary increases in the Poverty Reduction and Growth Trust (PRGT) overall access limits.
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The negative impact of ‘de-risking’ strategies by major economies would be felt beyond China, while comprehensive reforms in China could generate significant positive spillovers
The economic gains from $272 billion in pandemic support for 94 countries were strongest in the poorest and more vulnerable recipients of IMF concessional financing
Smart fiscal policy can help restore price stability and lessen the impact of the cost-of-living crisis.
Low-income countries face huge economic challenges and financing needs. They rely on international institutions, including the IMF’s Poverty Reduction and Growth Trust, for vital policy and financial support. Economically stronger countries have a responsibility to contribute to the funding of this support.
Despite decades of rapid growth, regional inequalities in sub-Saharan Africa persist.
On March 20, 2024, the IMF’s Executive Board reviewed the adequacy of the Fund’s precautionary balances. The review took place somewhat ahead of the standard two-year cycle, in view of the imminent attainment of the current indicative medium-term indicative target of SDR 25 billion for the first time. Precautionary balances comprise the Fund’s general and special reserves. They are a key element of the IMF’s multi-layered framework for managing financial risks. Precautionary balances provide a buffer to protect the Fund against potential losses, resulting from credit, income, and other financial risks. The review was based on the assessment framework established in 2010, which uses an indicative range for precautionary balances, linked to a forward-looking measure of total IMF non-concessional credit, to guide decisions on adjusting the medium-term target over time. While financial risks remain high, they are broadly unchanged from the last review, taking into account the further accumulation of reserves and strengthening of some risk mitigants. Against this background, Executive Directors broadly supported staff’s proposal to retain the current medium-term target of SDR 25 billion and increase the minimum floor from SDR 15 billion to SDR 20 billion. The Board also supported maintaining the biennial review cycle, with earlier reviews if warranted by developments that could materially affect the adequacy of precautionary balances.
This paper reports on the Fund’s income position for FY 2023 following the closing of the Fund’s accounts for the financial year and completion of the external audit. Overall net income of the General Department was SDR 1.7 billion, SDR 0.1 billion lower than estimated in April, mainly reflecting a decrease in the remeasurement gain reported under IAS 19 (the accounting standard for employee benefits) offset partly by higher-than-anticipated returns from the investment subaccounts compared with earlier projections.
This paper updates the projections of the Fund’s income position for FY 2023 and FY 2024 and proposes related decisions for the current and next financial year. The paper also includes a proposed decision to keep the margin for the rate of charge unchanged for financial year 2024. The Fund’s overall net income for FY 2023 is projected at about SDR 1.8 billion, slightly lower than the April 2022 estimate.
On December 12, 2022, the IMF’s Executive Board reviewed the adequacy of the Fund’s precautionary balances. The review took place on the standard two-year cycle, after an interim review in December 2021. Precautionary balances comprise the Fund’s general and special reserves. They are a key element of the IMF’s multi-layered framework for managing financial risks. Precautionary balances provide a buffer to protect the Fund against potential losses, resulting from credit, income, and other financial risks. In conducting the review, the Executive Board applied the rules-based framework agreed in 2010. Precautionary balances have risen further since the 2021 interim review and coverage metrics have strengthened. At the same, credit and other financial risks have also increased. The pace of reserve accumulation is expected to remain adequate. Against this background, Executive Directors endorsed staff’s proposal to retain the current medium-term target of SDR 25 billion and the minimum floor of SDR 15 billion. The Board also discussed the role of surcharges, which are primarily a component of the Fund’s risk management framework but also contribute to reserves accumulation.
This paper reports on the Fund’s income position for FY 2022 following the closing of the Fund’s accounts for the financial year and completion of the external audit.
Russia’s war in Ukraine and the related fallout have created a challenging external environment for the post-pandemic recovery of low-income countries (LICs). Food and commodity prices linger at elevated level with worsening food security. Global financial conditions tighten as major economies are fighting against inflation. The delay in LICs’ income per capita convergence to that of advanced economies (AEs) is expected to last into the medium term.
Social protection programs are crucial for stabilizing household income, especially during crises. Brazil's response to the pandemic, the Auxilio Emergencial (AE) program, demonstrated the value of a resilient social safety net and digital tools. This study assesses AE's effectiveness in income stabilization, poverty reduction, and inequality. Results show that the pre-pandemic social protection system would have only buffered about a quarter of income loss, with unemployment insurance more significant for higher-income households, and social safety net transfers crucial for lower-income households, especially those in informal employment. AE successfully supported lower-income households during the pandemic, but its generosity went beyond the stabilization of income, resulting in large fiscal costs.
This paper estimates the impact of external demand shocks on real income. We utilize a first order approximation to a wide class of small open economy models that feature sector-level gravity in trade flows, which allows us to measure foreign shocks and characterize their welfare impact in terms of reducedform elasticities. We use machine learning techniques to group 4-digit manufacturing sectors into a smaller number of clusters, and show that the cluster-level elasticities of income with respect to foreign shocks can be estimated using high-dimensional statistical techniques. Foreign demand shocks in complex intermediate and capital goods have large positive impacts on real income, whereas impacts in other sectors are negligible. We showthat the estimates imply that countries that specialize in these sectors enjoy greater gains from increased openness, and that (small) export subsidies to these sectors are welfare-improving. Finally, a calibrated multisector production and trade model with input-output linkages and external economies of scale can match the empirical estimates.
We explore the role of sectoral debt dynamics in shaping business cycles in a sample of 52 Emerging Market Economies (EMEs) and Frontier Market Economies (FMEs) from 2005 to 2021. Higher household debt levels and growth are associated with significantly slower GDP growth in more developed EMEs but not in less developed EMEs and FMEs. We also examine the relationship between US dollar cycles, sectoral debt levels and growth, and economic activity. Among developed EMEs, higher expected household debt growth magnifies the impact of US dollar fluctuations on economic activity, with significant but less persistent effects on consumption and more persistent effects on investment. Our empirical findings highlight the important role of household debt dynamics in relatively developed EMEs.
The paper explores the drivers of political fragility by focusing on coups d’état as symptomatic of such fragility. It uses event studies to identify factors that exhibit significantly different dynamics in the runup to coups, and machine learning to identify these stressors and more structural determinants of fragility—as well as their nonlinear interactions—that create an environment propitious to coups. The paper finds that the destabilization of a country’s economic, political or security environment—such as low growth, high inflation, weak external positions, political instability and conflict—set the stage for a higher likelihood of coups, with overlapping stressors amplifying each other. These stressors are more likely to lead to breakdowns in political systems when demographic pressures and underlying structural weaknesses (especially poverty, exclusion, and weak governance) are present or when policies are weaker, through complex interactions. Conversely, strengthened fundamentals and macropolicies have higher returns in structurally fragile environments in terms of staving off political breakdowns, suggesting that continued engagement by multilateral institutions and donors in fragile situations is likely to yield particularly high dividends. The model performs well in predicting coups out of sample, having predicted a high probability of most 2020-23 coups, including in the Sahel region.
This paper studies how and why inflation expectations have changed since the emergence of Covid-19. Using micro-level data from the University of Michigan Survey of Consumers, we show that the distribution of consumer expectations at one-year and five-ten year horizons has widened since the surge of inflation during 2021, along with the mean. Persistently high and heterogeneous expectations of consumers with less education and lower income are mainly responsible. A simple model of adaptive learning is able to mimic the change in inflation expectations over time for different demographic groups. The inflation expectations of low income and female consumers are consistent with using less complex forecasting models and are more backward-looking. A medium-scale DSGE model with adaptive learning, estimated during 1965-2022, has a time-varying solution that produces lower forecast errors for inflation than a variant with rational expectations. The estimated model interprets the surge of inflation in 2021 mainly as the result of a price markup shock, which is more persistent and requires a larger and more persistent monetary policy response than under rational expectations.
This paper analyzes the distributional impacts of inflation in Thailand. For that aim, the paper uses rich micro-survey data on 46,000 Thai households to study the effect of the recent elevated inflation on poverty, its distributional effects on different income levels, and the fiscal cost to compensate households from real income losses. To study the multidimensional impact of inflation, the paper also studies how inflation differentially affects households through the consumption, income, and wealth channel. The analysis shows that under a baseline scenario, poverty in Thailand could increase by 1.3 percentage points—about 900,000 people—in the absence of government intervention. Targeted fiscal support to only compensate households that are below the national poverty line from rising inflation amount to 0.05 percent of GDP. However, fiscal support to compensate relatively rich households, defined as those above the median of the income distribution, amount to 1.4 percent of GDP. Moreover, due to high levels of debt, richer households benefit from inflation relative to poorer households. Finally, the paper also delves into policy responses undertaken by the Thai government and Asian and emerging economies to mitigate elevated inflation.
A conversation on how sub-Saharan Africa can promote climate-resilient and green development. African Department director Abebe Aemro Selassie hosts the premiere episode of Africa Perspectives.
A discussion with University of Zambia students on how Zambia is making progress in its reform efforts to restore sustainability, invest in youth, combat corruption, and attract investment and the role of the IMF.
The conference provides an opportunity to discuss how South Asia can build on its development success in the aftermath of the COVID-19 pandemic and geopolitical tensions to achieve its potential.
A discussion on how the Resilience and Sustainability Trust fits wider climate objectives at the country and global level.
Jihad Azour, Director of the Middle East and Central Asia Department, presents the IMF’s latest economic outlook and growth projections for the MENA region
A presentation and discussion of the October 2022 Regional Economic Outlook for Sub-Saharan Africa.