## ppea2024011 ## Source details **Canonical URL:** [ppea2024011](https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024011.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2024/english/ppea2024011.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2024/english/ppea2024011.pdf.json) --- ### Macroeconomic developments and outlook - Global context and trends: - Global economic growth slowed to 3.1 percent in 2023 from 3.5 percent in 2022. - Global CPI inflation eased from a 2022 peak of 8.9 percent to 6.8 percent in 2023, and is projected to decline to 5.4 percent in 2024 and to 4.0 percent by 2028. - The January 2024 WEO update notes risks to the global outlook have become more balanced. - LIC aggregate performance: - Median GDP growth decelerated to 4.0 percent in 2022 and remained at 4.0 percent in 2023. - Median growth is projected to accelerate to 4.4 percent in 2024 and move toward the pre-COVID average of 4.6 percent over the medium term. - Many LICs face elevated inflation, high debt levels, rising debt service obligations, and declining net financing flows that compress space for development spending. - Key immediate concern: - Liquidity challenges driven by high debt service are putting pressure on space available for development spending. ### Inflation, external sector, and reserve adequacy - Inflation: - Median end-of-period consumer price inflation declined to 6.0 percent in 2023 from 9.1 percent in 2022. - Median CPI inflation is projected to decelerate towards 4.0 percent by 2025 and remain around that level thereafter. - More than a quarter of LICs experienced double-digit inflation in 2023. - Almost a quarter of LICs saw annual domestic food price inflation of more than 15 percent in 2023. - Current accounts and external position: - Median current account deficit improved to 5.1 percent of GDP in 2023 from 6.0 percent of GDP in 2022. - Of 30 assessed LICs in 2023, 15 countries were found to have an external position weaker than justified by fundamentals. - Median current account projected to remain virtually unchanged in 2024 and fall slightly to 4.5 percent of GDP by 2028. - FX reserves and reserve adequacy: - Median FX reserves: peaked at 4.5 months of prospective imports end-2021; dropped to 3.7 months end-2022 and to 3.6 months end-2023. - Median reserve cover projected to rise to 3.7 months in 2024 and to 4.0 months by 2028. - In about one third of LICs—predominantly FCS—international reserves stood below three months of imports in 2023; even by 2028 one quarter of LICs would still have reserves below three months. - Exchange rate regimes and policy responses: - According to IMF AREAER classification (69 LICs): six have floating exchange rate regimes, 55 maintain pegs (10 hard pegs and 45 soft pegs), and 8 have other managed arrangements. - Hard pegs and fully floating regimes were generally associated with better inflation outcomes than crawl-like or other managed arrangements; hard pegs prompted larger reserve losses due to FX interventions. ### Fiscal, monetary, and financial sector trends - Fiscal trends: - Median primary fiscal deficit widened to 3.0 percent of GDP in 2020 from 0.7 percent in 2019; stood at 1.8 percent of GDP in 2023; projected to fall to 0.9 percent of GDP by 2028. - Median tax revenue climbed to 13.9 percent of GDP in 2023; overall revenue largely flat as non-tax revenues slid. - Fiscal consolidation so far has been gradual, incomplete, and expenditure-led (unwinding COVID-related spending and current expenditure restraint). - Monetary policy and transmission: - Monetary tightening often elusive due to fiscal dominance and weak transmission; among countries entering 2023 with a loose or moderately loose monetary stance, only about half tightened policy during the year. - Median 2023 inflation for countries that tightened policy (examples: Kenya, Uganda, Zambia) is projected to be lower than for those keeping a lax stance (examples: Sierra Leone, Lao PDR, Zimbabwe). - Domestic financial markets and sovereign-bank nexus: - Credit to the private sector rebounded to pre-pandemic levels in 2023; slight improvement in NPLs. - Bank profitability declined and capital adequacy ratios remain lower than before the pandemic. - Sovereign-bank nexus has grown; banks in CEMAC and WAEMU increased share of sovereign assets with zero-risk weight, raising crowding-out concerns (example cited: Sierra Leone). - Loss-making SOEs contributed to sovereign risks on bank balance sheets in some cases. ### Diversity across LICs and group-specific performance - Income and institutional heterogeneity: - Two-fifths of LICs with per capita income below the IDA threshold experienced the strongest scarring from COVID-19; Frontier Markets (FM) and higher-income LICs fared better. - Examples: Burundi per capita income barely exceeding US$240; Bangladesh approaching middle income status. - By export structure: - Diversified exporters: medium-term growth projected at about 5 percent; median 2023 current account deficit 4.3 percent of GDP. - Tourism-dependent economies: growth peaked in 2023, expected to cool to 3 percent over the medium term. - Non-fuel commodity exporters: median inflation reduced to 7 percent by 2023; median FX reserves remain below 3 months of imports. - Fuel exporters (all FCS): median GDP growth 3.5 percent in 2023, projected 4.0 percent by 2028; current account surplus declined to 0.2 percent of GDP in 2023 from 6.2 percent in 2022. - Institutional group outcomes: - Frontier Markets (FM): median GDP growth expected to plateau at 5.3 percent over the medium term (down from pre-pandemic 5.9 percent). - Fragile and Conflict-affected States (FCS): average median growth over 2021-23 was 1.7 percentage points lower than before the pandemic; growth 3.0 percent in 2023, expected 3.6 percent in 2024 and 4.0 percent over the medium term. - Small Developing States (SDS): rebounded strongly post-pandemic; significant vulnerability to climate events. ### Debt, liquidity, and financing trends - Debt levels and creditor composition: - Median public debt-to-GDP rose to 52 percent in 2020 from 34 percent in 2010; broadly stable at about 53 percent since 2020 and expected to marginally decline to 50 percent over the medium term. - Both domestic and external borrowing expanded; private and non-Paris Club bilateral creditors significantly increased exposure, concentrated mostly in Frontier Markets. - Debt distress: - Joint WB/IMF DSAs identify about 16 percent of LICs (11 countries) in debt distress and an additional 39 percent (27 countries) at high risk—a combined total representing more than half of LICs. - 73 percent of FCS are in debt distress or at high risk. - Debt service and net flows: - Amortization payments in 2023 estimated at 1.6 percent of LICs’ combined GDP, more than double the 2010-19 average. - LICs’ median external debt service-to-revenue ratio at end-2023: 14 percent compared with 6 percent ten years earlier. - New financing from official bilateral and private creditors nearly halved since 2019; total net flows declined to 1.5 percent of GDP in 2022 (lowest since 2016). - Net flows from multilateral creditors increased to 1.1 percent of GDP in 2022 (from 0.8 percent in 2021), with more than half from IDA. - Domestic debt: - Share of domestic debt in total debt increased to 40 percent in 2022 from 34 percent in 2020. ### Official Development Assistance (ODA) - Net ODA to LICs: - Total ODA to LICs declined to US$72.9 billion in 2022 from US$76.3 billion in 2021 (2.1 percent of LIC GNI in 2022, down from 2.4 percent). - Country programmable aid declined to 66 percent of bilateral ODA to LICs in 2021 versus a 10-year average of 74 percent. - Fall occurred amid surge in ODA used to host refugees and to support Ukraine; bilateral ODA reached an all-time high of US$211 billion. ### Risks, vulnerabilities, and stress tests - Upside risks: - Faster fall in inflation, stronger reform momentum in China, and productivity gains from artificial intelligence (LICs less ready to seize AI advantages). - Downside risks: - Commodity price spikes, persistent inflation, deepening China property sector woes, geopolitical fragmentation. - Regional and domestic vulnerabilities: - Climate shocks, rising political instability and conflict, internally displaced people in LICs rose from 13 million (2016) to 32 million (2023); LICs host 8 million refugees. - Sixteen major elections in LICs during 2024 could raise tensions; Burkina Faso, Mali, Niger announced intent to leave ECOWAS (January 2024) with potential negative effects. - Stress test calibrations and impacts: - One standard deviation oil price increase (~35-percent) would create additional aggregate external financing needs of about US$21 billion (impact range 0.9–2.5 percent of GDP for most countries). - One standard deviation food price increase (12 percent) would raise external financing needs by US$5 billion (impact range 0.0–0.8 percent of GDP for most countries). ### Three long-term challenges - Growth: - As of end-2023, LICs’ combined real GDP remained 10 percent below pre-pandemic trend; exceeds estimates for emerging (6 percent) and advanced (2 percent) economies. - At end-2023, LICs’ average real GDP per capita represented less than one-tenth of the advanced economy average. - Inclusiveness: - Pre-pandemic gains in poverty reduction, female labor force participation, and informality reduction reversed; global shocks since 2020 erased at least three years of prior progress. - Estimated 238 million people in 48 countries faced acute food insecurity in 2023, up 10 percent from a year earlier. - Resilience: - Need for stronger external and fiscal buffers, improved infrastructure and capacity to prepare for and respond to large-scale disasters. ### Policy priorities and recommended domestic actions - Fiscal and macroeconomic policy: - Further policy tightening where needed; accelerate domestic revenue mobilization; more efficient fiscal spending to create space for urgent development spending. - Stronger public financial management, including governance and transparency improvements. - Structural and resilience-enhancing reforms: - Structural reforms to support growth, inclusion, and resilience; strengthen social safety nets; improve policy adaptability and digitalization. - Monetary policy: - Data-driven approach; LICs with high inflation need continued policy tightening; those near target should analyze drivers to avoid premature loosening. - Tight monetary policy can help strengthen international reserve cover under fixed and floating exchange rates. - Public financial management: - Priorities: single treasury accounts, medium-term fiscal frameworks, publication and debate of budget documents, better incorporation of donor support into budgets. - Differentiated country advice (high-level): - FCS: fiscal tightening, strengthen monetary frameworks, avoid central bank financing of deficits. - Frontier markets: further fiscal tightening for many; targeted macroprudential tightening where vulnerabilities exist. - SDS: reduce high debt levels; consider lenient fiscal stance where revenue growth allows, use space for climate adaptation. - Oil exporters: further fiscal adjustment as revenues decline. - Non-fuel commodity and diversified exporters: continue fiscal consolidation, rebuild buffers, support disinflation. ### External support, debt relief, and IMF role - External partner actions: - Step up policy advice, technical assistance, financial support, especially grants and highly concessional financing. - Improve debt restructuring processes for timely relief. - IMF support and instruments: - Total Fund credit outstanding to LICs: SDR 24.4 billion at end-2023 (SDR 18.3 billion concessional). - Resilience and Sustainability Facility (RSF): used by 9 LICs for total access SDR 2.5 billion as of end-2023. - Temporary increase of annual and cumulative access limits under GRA and PRGT through end-2024. - Food Shock Window (FSW) under RCF/RFI approved September 2022; the window expires end-March 2024 with measures to ensure continued support. - PRGT review underway to ensure adequate concessional support, self-sustained nature, and better targeting. ### Financing gaps to meet SDGs and macro stabilization (2024–28) - Baseline Gross Financing Needs (GFN) (WEO CA deficit + external amortization): US$817 billion for 2024-28. - Best estimate for additional public-sector financing needs to progress towards the SDGs (constrained model, public sector): US$527 billion over 2024-28. - Required median annual additional expenditure for all LICs: 4.3 percent of GDP. - Total Additional Needs including SDG-related spending and reserves (Approach B): US$557 billion over 2024-28. - Total Additional Needs Approach A (reserves accumulation + investment/convergence): US$439 billion for 2024-28. - Unconstrained (no absorptive-capacity limits) estimate: US$2.2 trillion for 2024-28 (noted unrealistic). - Annual SDG-related spending table values (presented in source): - 2024: 375; 2025: 408; 2026: 439; 2027: 470; 2028: 476; Total: 2,168 (as presented). - Distribution of needs (2024-28) by institutional category: - Frontier markets: US$167 billion (32 percent of total LIC additional needs), median US$9.5 billion. - FCS: US$187 billion, median US$3.3 billion; Ethiopia ~US$58 billion (about one-third of FCS total). - Small states: median needs around US$300 million. - Other LICs: US$169 billion, median US$3.8 billion; Bangladesh accounts for around 60 percent of that total. - Financing mix and residual gaps: - Domestic revenue mobilization (DRM) could cover as much as US$292 billion over 2024-28 (assumes about a 5.0 percentage point increase in tax-to-GDP for the median LIC over 5 years). - Private sector would need to close a residual gap of US$258 billion over 2024-28. - Meeting even part of the US$500 billion plausible additional financing needs would require major effort (these needs represent up to 26 percent of LICs’ 2023 GDP and come on top of US$800 billion in gross inflows assumed in baseline over 2024-28). ### Capacity development, Fund lending, and PRGT review - Capacity Development (CD): - CD spending for LICs increased by over 40 percent between FY22 and FY23. - Engagement grown especially with FCS; focus on statistics, fiscal, monetary and financial sector management, macro frameworks, debt management, governance, and climate adaptation/mitigation. - Fund lending to LICs: - Total Fund credit outstanding to LICs: SDR 24.4 billion at end-2023 (SDR 7.4 billion at end-2019). - Only SDR 6.1 billion of SDR 24.4 billion outstanding to LICs at end-2023 involved non-concessional financing. - PRGT review objectives: - Ensure adequate concessional financing support consistent with Fund mandate; ensure PRGT self-sustainability; consider targeting concessional financing to those most in need; mobilize additional financing and enhance coordination with World Bank and other donors. ### Social Safety Nets (SSNs): coverage, design, and reform options - Coverage and benefit adequacy: - Share of population covered by SSN programs low in LICs; under 20 percent coverage in Sub-Saharan Africa. - On average, about a quarter of households in the first consumption quintile receive some SSN support in Sub-Saharan Africa. - Benefit adequacy: a few countries provide average benefits over 10 percent of average consumption (Cote d'Ivoire, DRC, Uzbekistan, Zimbabwe). - Spending incidence and targeting: - On average, only about one-third of SSN spending (about 0.3 percent of GDP on average) goes to the poorest quintile. - Significant leakage: in several countries over 80 percent of SSN spending received by households outside poorest quintile (Burkina Faso, Chad, Niger, Senegal, Tajikistan, Uganda, Zambia). - Efficiency example: reducing share of SSN benefits going to top quintile in Sub-Saharan Africa from 25 to 10 percent and redirecting to bottom quintile would increase bottom-quintile coverage from 24 to 40 percent without increasing total SSN spending. - Administrative costs and financing: - Administrative costs average about 15 percent of SSN spending in LICs; 5–10 percent in cash transfer programs; 22 percent for in-kind benefits. - Development partners critical financiers; FCS particularly dependent on external support (Cameroon, Republic of Congo, Guinea-Bissau, Sao Tome). - Innovations and shock responsiveness: - During COVID-19 average emergency benefits were 80 percent higher than pre-pandemic transfers but reached less than 10 percent of the population. - Digital measures used to simplify design and expand support (examples: Benin, DRC, Ethiopia, Haiti, Malawi, Mozambique, Rwanda, Sierra Leone, Togo). - Rapid-response examples: DRC STEP-KIN paid 100,000+ vulnerable individuals within three months; Togo Novissi reached ~550,000 individuals (12 percent of population) with mobile-based distribution in roughly five days. - Evidence on growth, SSN spending, and poverty (regression findings): - Pooled OLS (LICs): a $1,000 increase in GDP per capita associated with a decline in poverty rate of 3.2 percentage points; a one percentage point increase in SSN spending (percent of GDP) associated with a decline in poverty rates of 4.1 percentage points. - Interpretation: every $1,000 of per capita GDP growth has same impact as an increase in SSN spending of about 0.8 percentage points of GDP. - Inequality matters: every percentage point increase in Gini associated with increase in poverty of about 1 percent, controlling for income per capita and SSN spending. - Policy options to strengthen SSNs: - Improve targeting efficiency to reduce leakages. - Where SSN spending low but well-directed, consider horizontal expansion (coverage) or vertical expansion (benefit levels). - In contexts of limited administrative capacity and high informality, use simpler identification methods (categorical, community, geographical) to reduce exclusion errors. - Enhance systems for rapid response to shocks: pre-defined triggers, beneficiary ID procedures, financing plans; donors play major role in LICs. - Continue to expand existing SSNs and use program tweaks during shocks (relax targeting, raise benefits, improve timeliness). ### Country case studies and reform simulations (selected outcomes under a 0.5 percent of GDP spending envelope) - Ghana — LEAP: - LEAP current spending: 0.05 percent of GDP (2022); total Ghana SSN spending covered in annex: 0.3 percent of GDP. - Baseline LEAP: coverage Q1 = 21.71 percent; LEAP share to Q1 = 57.48 percent. - Reform scenarios to budget 0.5 percent of GDP: - Benefit increase: poverty rate reduction 2.88 percentage points; poverty gap reduction 2.07. - Coverage expansion: poverty rate reduction 4.09 percentage points; poverty gap reduction 2.19. - Trade-off: coverage expansion increases poverty reduction more but reduces percent of total benefit received by Q1 from 57.48 to 35.56 percent (higher leakage). - Mozambique — BSSP: - Baseline spending: 0.4 percent of GDP; benefits reach 492 thousand households. - Baseline poverty rate: 47.49 percent; BSSP reduces poverty rate by 0.5 percentage points. - Reform scenarios to 0.5 percent of GDP: - 25 percent benefit increase or expand coverage to eligible non-recipients produce modest poverty reductions due to high baseline poverty and limited fiscal space. - Tanzania — PSSN: - Baseline spending: 0.14 percent of GDP; coverage ~6 percent of households. - Baseline poverty rate: 25.62 percent; PSSN reduces poverty rate by 0.62 percentage points. - Reform scenarios to 0.5 percent of GDP: - Benefit increase (173 percent): poverty rate reduction 3.16 percentage points; transfer would represent 37.5 percent of consumption for Q1 beneficiaries. - Coverage expansion to eligible non-recipients: poverty gap reduction 1.92 percentage points; coverage Q1 rises to 84.3 percent. - Uganda — Senior Citizens Grant (SCG): - Baseline spending: 0.12 percent of GDP; coverage about 645,000 individuals (42 percent of those over 65). - Baseline poverty rate: 20.37 percent; SCG reduces poverty rate by 0.57 percentage points. - Reform scenarios to 0.5 percent of GDP: - Increase benefits: poverty rate reduction 1.72 percentage points. - Expand coverage to all seniors and newborns (benefit unchanged): poverty rate reduction 2.1 percentage points; drawback: increased leakage without targeting. - Zambia — SCT and other programs: - SCT baseline: ~0.44 percent of GDP; SCT reduces poverty rate by 2.05 percentage points. - Reform scenarios to 0.5 percent of GDP: - Increase benefit (unchanged coverage): additional poverty drop 0.39 percentage points. - Expand coverage (unchanged benefit): coverage Q1 rises to 65.46 percent; poverty headcount reduction up to 3.52 percentage points. ### Prioritization, implementation, and political economy - Implementation challenges: - Ownership by authorities, policy consistency, and sequencing matter; about one third of LICs should further tighten monetary and fiscal policies; more than half could recalibrate policy mix. - Sequencing reforms amid capacity constraints: prioritize first-generation reforms (governance, anti-corruption, external sector, business regulation) before second-generation reforms (fiscal institutions, labor market, financial sector). - Building broad buy-in: communicate objectives and compensate vulnerable groups (e.g., via targeted safety nets when withdrawing subsidies). - Political and technical enablers for SSNs: - Technical capacity, public awareness, stakeholder engagement, and perceived fairness are essential for reform acceptance and success. - Digitalization is key for adaptability and shock responsiveness but requires infrastructure investments and regulatory considerations. ### Policy financing and international coordination imperatives - Mobilizing financing: - Immediate priority: maximize domestic resource mobilization (DRM) — boosting LICs’ revenue-to-GDP ratio by 5 points could yield at least half of additional needs (online supplement estimate). - Stepped-up official concessional and grant financing needed; multilateral and official bilateral creditors to play key roles (e.g., IDA 21 replenishment; PRGT review). - Crowding in private finance: deepen work on risk-sharing instruments and strengthen transparency/governance to attract private investors. - Debt resolution and creditor coordination: - Improve speed and efficiency of debt treatments; G-20 Common Framework helped but implementation challenging. - 2023 milestones: Somalia HIPC Completion Point unlocked US$4.5 billion; progress in Ghana, Zambia, Chad, Ethiopia, Malawi, Djibouti, Lao PDR, Zimbabwe noted. - Historical timelines show lengthy processes; learning curve among creditors with new Global Sovereign Debt Roundtable and protocols under development. _International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024 (selected excerpts and annexes)._ ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Macroeconomic developments and outlook - Global context and trends: - Global economic growth slowed to 3.1 percent in 2023 from 3.5 percent in 2022. - Global CPI inflation eased from a 2022 peak of 8.9 percent to 6.8 percent in 2023, and is projected to decline to 5.4 percent in 2024 and to 4.0 percent by 2028. - The January 2024 WEO update notes risks to the global outlook have become more balanced. - LIC aggregate performance: - Median GDP growth decelerated to 4.0 percent in 2022 and remained at 4.0 percent in 2023. - Median growth is projected to accelerate to 4.4 percent in 2024 and move toward the pre-COVID average of 4.6 percent over the medium term. - Many LICs continue to face elevated inflation, high debt levels, rising debt service obligations, and declining net financing flows that compress space for development spending. - Key immediate concern: - Liquidity challenges driven by high debt service are putting pressure on space available for development spending. ### Heterogeneity across LICs and distributional outcomes - Variation by country type: - The two-fifths of LICs with per capita income below the IDA threshold experienced the strongest scarring from the COVID-19 pandemic and struggle most to regain stronger growth. - Frontier Markets and LICs with more diversified economies and higher per capita incomes have generally fared better. - Persistent social challenges: - Poverty in Sub-Saharan Africa LICs hovers around 40 percent. - The aggregate poverty gap in Sub-Saharan Africa LICs is about 10 percent of GDP, or about $50 billion per year. ### Policy priorities and recommended domestic actions - Fiscal and macroeconomic policy: - Further policy tightening where needed. - Accelerated domestic revenue mobilization. - More efficient fiscal spending to create space for urgent development spending. - Stronger public financial management, including progress on governance and transparency. - Structural and resilience-enhancing reforms: - Structural reforms to support growth, inclusion, and resilience. - Strengthening social safety nets (see next section). - Improving adaptability of policies to respond to shocks, including via digitalization. - Political economy and implementation: - Political support, perceptions of fairness, effective communication, public awareness, and stakeholder engagement are central to successful reforms and SSN implementation. ### External support, debt relief, and IMF role - External partner actions: - External partners should step up policy advice, technical assistance, and financial support, especially through grants and highly concessional financing. - Debt restructuring processes should be further improved to ensure timely debt relief where needed. - IMF support: - Total Fund credit outstanding to LICs reached a record SDR 24.4 billion at the end of 2023, the bulk of which (SDR 18.3 billion) is on concessional terms. - The upcoming review of the Fund’s Poverty Reduction and Growth Trust (PRGT) is cited as an opportunity to revisit concessional support to ensure adequate resources and targeting. ### Strengthening social safety nets (SSNs) in LICs - Role and financing: - SSNs can be funded through domestic revenue mobilization and spending re-prioritization and are crucial for poverty alleviation, human and physical capital accumulation, and resilience building. - Current shortcomings: - LIC SSN coverage and benefits remain generally low, and a significant portion of spending goes to the better-off. - Efficiency and design recommendations: - Both economic growth and increased SSN spending are necessary for substantial poverty reduction. - Redirecting resources within existing SSN spending can improve targeting: cutting in half the share of SSN benefits that go to top quintile households and redirecting these resources to the bottom quintile would nearly double coverage of the bottom quintile without increasing SSN spending. - Tailored SSN design is important, including choices for expanding coverage and benefits under existing programs and capacity constraints. - Enhancing adaptability and shock responsiveness of SSNs is crucial, with an emphasis on digitalization. - Political and technical enablers: - Technical and political factors jointly influence SSN design, acceptance, and success; better public awareness and stakeholder engagement are critical. ### Risks and long-term challenges - Risks to the outlook are mostly tilted to the downside due to persistent macroeconomic vulnerabilities and structural and institutional characteristics that increase susceptibility to shocks. - Three long-term challenges identified: - The need for more growth to accelerate convergence and progress toward the SDGs. - The need for more inclusiveness to reverse adverse trends in poverty reduction, food insecurity, and women’s labor force participation. - The need for more resilience in a shock-prone world. _Executive Summary, Macroeconomic Developments and Prospects for Low-Income Countries 2024._ ### 4. Inflation pressures have begun to abate and are expected to ease further, but many ### 4. Inflation pressures have begun to abate and are expected to ease further, but many ### Inflation - Median end-of-period consumer price inflation declined to 6.0 percent in 2023 from 9.1 percent the year before. - Median CPI inflation is projected to decelerate towards 4.0 percent by 2025 and remain around that level thereafter. - More than a quarter of LICs experienced double-digit inflation in 2023. - Persistent inflation pressures often reflected: - exchange rate adjustments, - monetary financing of budget deficits, - relatively long lags in the pass-through of falling international energy and food prices to domestic markets. - Almost a quarter of LICs saw annual domestic food price inflation of more than 15 percent in 2023, in spite of improving global food market conditions. ### External sector and current accounts - Median current account deficit in LICs improved to 5.1 percent of GDP in 2023 from 6.0 percent of GDP in 2022. - Of 30 assessed LICs in 2023, 15 countries were found to have an external position weaker than justified by fundamentals. - LICs’ median current account is projected to remain virtually unchanged in 2024 and then slightly fall to 4.5 percent of GDP by 2028. - The only marginal improvement reflects weak (and volatile) export sectors and in some cases large investments due to development-related import needs. ### FX reserves and reserve adequacy - Median FX reserves peaked at 4.5 months of prospective imports at the end of 2021. - Reserves dropped to 3.7 months of imports at the end of 2022 and further to 3.6 months at the end of 2023. - In about one third of LICs—predominantly Fragile and Conflict-affected States (FCS)—international reserves stood below three months of imports. - Median reserve cover is projected to rise to 3.7 months of imports in 2024 and to 4.0 months by 2028. - Even by 2028, one quarter of LICs would still have reserves below three months of imports. - Formal framework for IMF’s assessments of reserve adequacy is country-specific (see Assessing Reserve Adequacy). ### Exchange rate regimes, reserve losses, and policy responses - A large majority of LICs maintained fixed or strongly managed exchange rate regimes in 2023. - Fixed or strongly managed regimes typically helped to contain inflation but were associated with reserve losses. - Pressures were strongest in countries with highly accommodative monetary and fiscal policies and widened spreads between official and parallel market exchange rates (examples cited: Burundi, Ethiopia, Malawi). - Some countries with crawl-like or stabilized arrangements de facto anchored to the US dollar (examples cited: Burundi, Democratic Republic of Congo, Ghana, Kenya, Lao PDR, Malawi) adjusted their exchange rates, often after significant FX reserve depletion. - Countries with floating exchange rates (examples cited: Madagascar, Moldova, Uganda) used greater exchange rate flexibility and tighter monetary policy to absorb shocks in 2022 and contained depreciation pressures in 2023, experiencing fewer reserve losses. ### Heterogeneity in monetary and exchange rate policy (Box 1) - Relatively hard pegs and fully floating exchange rates were generally associated with better inflation outcomes than crawl-like or other managed arrangements. - Hard pegs required Foreign Exchange Interventions (FXI) and prompted larger losses of reserves in 2022-23. - Loose fiscal policy may lead to excessive money growth and either depreciation or loss of reserves; at least one third of LICs with hard and conventional pegs entered 2023 with a loose or moderately loose fiscal stance. - According to IMF’s AREAER classification (69 LICs): six have floating exchange rate regimes, 55 maintain pegs (10 hard pegs and 45 soft pegs), and 8 have other managed arrangements. ### Domestic financial markets and sovereign-bank nexus - Credit to the private sector rebounded to pre-pandemic levels in 2023 amid a slight improvement in NPLs. - Bank profitability declined somewhat and capital adequacy ratios remain lower than before the pandemic. - The sovereign-bank nexus has grown since the early 2010s and continued in 2023; banks in CEMAC and WAEMU member countries have increased their share of sovereign assets with zero-risk weight. - Growing sovereign exposure raises concerns of potential crowding out of the domestic private sector (example cited: Sierra Leone). - Loss-making SOEs have contributed to increasing sovereign risks on bank balance sheets in some cases. ### Trends in policy implementation - Fiscal adjustment has typically been gradual, incomplete and expenditure-led. - Median primary fiscal deficit widened to 3.0 percent of GDP in 2020 from 0.7 percent of GDP in 2019. - Median primary deficit stood at 1.8 percent of GDP in 2023. - Median primary deficit is projected to fall to 0.9 percent of GDP by 2028. - Fiscal consolidation composition so far: - Unwinding of COVID-related spending, - Current expenditure restraint. - Median tax revenue climbed to 13.9 percent of GDP in 2023, but overall revenue remained largely flat as non-tax revenues slid. - Monetary policy tightening was often elusive due to fiscal dominance, institutional shortcomings, and weak transmission: - Among countries that entered 2023 with a loose or moderately loose monetary stance, only about half tightened policy during the year. - Median 2023 inflation for countries that tightened policy (examples: Kenya, Uganda, Zambia) is projected to be lower than for those keeping a lax stance (examples: Sierra Leone, Lao PDR, Zimbabwe). - Financial sector policies shifted from pandemic-related macroprudential support to containing financial stability risks and strengthening resilience, often within IMF-supported arrangements (examples: Moldova, Somalia). ### Diversity across LICs - The 69 LICs display significant heterogeneity across: - per capita income levels, - export structures, - institutional characteristics. - Examples of diversity: - Burundi: per capita income barely exceeding US$240. - Bangladesh: approaching middle income status. - Small Developing States (SDS) are often tourism-dependent. - Fragile and Conflict-affected States (FCS) are the largest LIC subgroup and face fragility traps. - Frontier Markets (FM) are often diversified exporters with financial structures resembling emerging market economies; grouping includes 17 Frontier Markets based on J. P. Morgan’s Next Generation Market Index and outstanding Eurobonds. - Box 2 classification dimensions: - By per capita income: four groupings relative to the IDA threshold (US$1,315 in 2024). - By export structure: fuel, non-fuel commodity, diversified, tourism dependent, other services. - By institutional characteristics: FCS; SDS (population < 1.5 million); FM; all other LICs. - Note: Afghanistan, Eritrea, and Sudan are outliers. *International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024 (excerpts).* ### Box 2. Low-Income Countries: Three Dimensions to Capture Their Diversity (concluded) ### Box 2. Low-Income Countries: Three Dimensions to Capture Their Diversity (concluded) ### Macroeconomic performance across income levels - Important divide between (relatively) rich and poor LICs: - Many LICs with the highest per capita income experienced a sharp recession in the direct aftermath of the COVID-19 outbreak but recovered rapidly over 2021-23; FX reserves stand at relatively comfortable levels. - Poorer LICs: post-pandemic recovery was much weaker, with growth averaging almost one percentage point less over 2021-23 compared with the average over 2003-19. - Growth is expected to pick up in 2024 and return to pre-pandemic trends over the medium term, but FX buffers are expected to stay weak. ### Export structure and economic diversification - Degree of economic diversification is a key driver of outcomes. - Diversified exporters (many are FMs): - Typically enjoyed relatively stronger economic performance before and during the pandemic and registered a robust recovery. - Median 2023 current account deficit was contained at 4.3 percent of GDP. - Reserve levels remained at comfortable levels. - Experienced lower economic volatility in real GDP growth and current accounts relative to other LICs. - Medium-term growth projected at about 5 percent. - Tourism-dependent economies: - Benefitted from post-pandemic global recovery in tourism after a severe initial shock. - Rebounded with strong GDP growth, relatively low inflation (under their hard currency pegs), and declining—albeit still elevated—current account deficits. - Growth peaked in 2023 and would cool off to 3 percent over the medium term, in line with expected tourism trends. - Can rely on stronger reserve buffers than other LICs; important given vulnerability to swings in global demand and climate change. - Non-fuel commodity exporters: - Generally experienced weaker growth and stronger vulnerabilities than diversified LICs. - Saw higher inflation during the COVID-19 pandemic and amid subsequent oil and food price shocks, but reduced median inflation to 7 percent by 2023. - Median FX reserve levels remain below 3 months of prospective imports. - Fuel-exporting economies (all FCS): - Performed relatively poorly and missed opportunity to capitalize on oil windfalls. - Growth and current account balances largely followed international energy prices. - Median GDP growth remained well below the LIC average; it reached only 3.5 percent in 2023 and would marginally improve to 4.0 percent by 2028. - Strong post-pandemic export proceeds supported exchange rate pegs and helped keep inflation low; these proceeds are now under pressure as international energy prices fell. - Current account surpluses declined to 0.2 percent of GDP in 2023 from 6.2 percent in 2022. ### Institutional characteristics and outcomes - Higher institutional quality is generally associated with better performance. - FMs: - Grew more than other LICs before the pandemic and were the only LIC grouping to avoid a recession in 2020. - Rebounded strongly over the past three years. - Median GDP growth is expected to plateau at 5.3 percent over the medium term, down from an average 5.9 percent before the pandemic. - Exhibit more stability in GDP and current account outcomes, reflecting ability to tap international capital markets and stronger policy frameworks. - FCS: - Experienced the strongest scarring (output loss from previous trends) from the COVID-19 pandemic and the weakest recoveries. - Average median FCS growth over 2021-23 was 1.7 percentage point lower than before the pandemic. - Growth reached 3.0 percent in 2023; median international reserves remained below 3 months of imports. - Structural factors (large informal sectors, weak institutions, governance challenges, conflicts) limit policy tools and smooth economic fluctuations. - Growth expected to gradually improve to 3.6 percent in 2024 and 4 percent over the medium term. - SDS (including three PICs): - Hit particularly hard by the pandemic due to strong reliance on tourism, before rebounding strongly. - Face significant vulnerabilities to negative climate events. ### Fiscal policy differences - Fiscal responses mirrored economic and institutional characteristics. - FM fiscal dynamics: - Median primary deficit increased by 2.4 points of GDP in 2020 to reach 3.6 percent of GDP in response to COVID-19. - When oil and food price shock hit in 2022, the deficit increased by 0.5 percent of GDP. - 2023 saw withdrawal of support: median primary deficit consolidated to 1.7 percent of GDP. - FCS fiscal dynamics: - Had little policy space to react to shocks; median primary deficit increased only 0.7 percent of GDP in 2020. - First consolidation effort of 0.4 percent of GDP occurred only in 2023. - Oil-exporting LICs (a special case among FCS): primary surpluses increased to 6.6 percent of GDP in 2023 from 0.8 percent of GDP in 2019 on the back of higher international energy prices; a concomitant boost in non-oil spending will require procyclical policy tightening as oil prices decline. ### Debt levels and rising debt service pressures - Public debt evolution: - LICs’ median public debt-to-GDP ratio rose to 52 percent in 2020 from 34 percent in 2010. - Since 2020, the median debt-to-GDP ratio has been broadly stable at about 53 percent and is expected to marginally decline to 50 percent over the medium-term. - These levels remain significantly below those that prompted large debt relief initiatives (HIPC and MDRI) in the mid-1990s and mid-2000s. - Creditor composition and borrowing: - Both domestic and external borrowing expanded quickly; private and non-Paris Club bilateral creditors significantly increased exposure. - Increase in private sector debt limited to frontier markets, making their debt profile more similar to EMs; other LICs did not significantly increase sovereign attractiveness to private investors. - Debt distress and risk: - Joint WB/IMF DSAs identify about 16 percent of LICs (11 countries) as being in debt distress and an additional 39 percent of LICs (27 countries) at high risk of debt distress. - Together, these countries represent more than half of all LICs. - Over 60 percent of these countries have concentrated rather than diversified export structures and are typically either below the IDA cut-off or part of the SDS grouping. - 73 percent of FCS are in debt distress or at high risk thereof. ### Liquidity, financing conditions, and external debt service - Debt service and repayments: - Amortization payments in 2023—including to private and non-Paris Club creditors—are estimated to have reached 1.6 percent of LICs’ combined GDP, more than double the average level over 2010-19. - LICs’ median external debt service-to-revenue ratio at end-2023 stood at 14 percent compared with 6 percent ten years earlier. - Sizeable amortization, including large bond repayments, will add to existing pressures in coming years. - New financing and net flows: - New financing from official bilateral and private creditors nearly halved since 2019 as key creditors reassess exposure. - Flows from non-Paris Club creditors declined to 0.3 percent of GDP in 2022, half their 2019 level and well below the 2014 peak of 1 percent of GDP. - Paris Club flows dipped to 0.4 percent of GDP in 2022; private flows dropped by a third to 0.3 percent of GDP. - Net flows from official bilateral and private creditors represented only 0.4 percent of LICs’ GDP in 2022, a third less than in 2021. - Total net flows declined to 1.5 percent of GDP in 2022, the lowest since 2016, down from 2.0 percent in 2021 and 2.4 percent in 2019. - Net flows from multilateral creditors increased to 1.1 percent of GDP in 2022 (from 0.8 percent in 2021), with more than half coming from IDA. - Market access and spreads: - LICs have largely been priced out of international bond markets due to tight global financial conditions and, in some cases, domestic challenges. - Sovereign spreads for most LICs peaked in 2022 and remained prohibitively high in 2023. - Recent sovereign issuances may signal potential trend reversal (examples noted in the source), but it remains to be seen whether these reopen a broader path for LICs to regain access to international finance. - Principal repayments and maturing marketable debt: - Principal repayments on external PPG debt and marketable debt maturing for LICs present additional near-term pressures (figures and timelines reported in source). ### Official Development Assistance (ODA) evolution - Net ODA to LICs from official donors fell: - Total ODA to LICs declined to US$72.9 billion in 2022 from US$76.3 billion in 2021. - This represents a decline to 2.1 percent of LIC GNI from 2.4 percent the previous year. - Context and composition: - Fall occurred amid a surge in ODA used to host refugees in donor countries and to support Ukraine, pushing total bilateral ODA to an all-time high of US$211 billion. - Country programmable aid declined to 66 percent of bilateral ODA to LICs in 2021 compared to a 10 year average of 74 percent. - Outlook: - Data not yet available, but situation for LICs may have improved in 2023 as foreshadowed by higher grant financing assumptions in their fiscal revenue. - Absent a major increase in overall ODA resources, future ODA to LICs will likely remain strongly affected by flows dedicated to hosting refugees in donor countries and development and humanitarian needs from conflicts in non-LIC countries. *International Monetary Fund* ### Box 3. Evolution of Official Development Assistance (concluded) ### Box 3. Evolution of Official Development Assistance (concluded) ### Domestic market financing and public debt composition - The share of domestic debt in total debt increased significantly to 40 percent in 2022 from 34 percent in 2020. - This record level was only matched in 2016, when domestic debt also replaced declining external debt flows. - Further scope to increase domestic borrowing may be limited for LICs without access to international markets (e.g., Malawi, Sierra Leone) and for those with shallow domestic debt markets, large rollover requirements, and high interest rates amid elevated inflation. ### Elevated risks ahead (mostly tilted to the downside) - Upside risks: - A faster fall in inflation could allow central banks to ease monetary policy sooner-than-expected. - Stronger reform momentum in China could bolster private demand and generate positive cross-border spillovers. - Artificial intelligence could boost productivity and incomes over the medium term (but LICs are less ready to seize AI’s advantages). - Downside risks: - New commodity price spikes from geopolitical shocks and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions and higher financing costs for LICs. - Deepening property sector woes in China could undermine export demand. - Geopolitical fragmentation could harm LICs, which are particularly vulnerable given prevalent non-alignment and slowing trade between political blocks. ### Regional and domestic vulnerabilities - Climate shocks: LICs are particularly vulnerable due to dependence on agriculture, geographic context, limited buffers, and capacity constraints. - Political instability and conflict: intensity has been rising over the past decade with prominent episodes of irregular changes in government (e.g., Burkina Faso, Chad, Gabon, Guinea, Mali, Myanmar, Niger, and Sudan) and large-scale violence (e.g., Sahel region, Central African Republic, Ethiopia, Haiti, Myanmar, and Sudan). - Internally displaced people and refugees: - The number of internally displaced people in LICs more than doubled between 2016 and 2023 from 13 million to 32 million. - LICs host a further 8 million refugees. - Political calendar and regional developments: - Sixteen major elections in LICs during 2024 (a record) could spawn additional political and social tensions. - The January 2024 announcement that Burkina Faso, Mali and Niger intend to leave ECOWAS may negatively affect economic performance in the Sahel region. ### Vulnerability to shocks — stress test findings - Negative oil price shocks are particularly harmful to LICs; shocks to food prices, tourism, and advanced-country exchange rates also carry negative impacts. - Example calibrations and impacts: - A one standard deviation increase in global oil prices—roughly corresponding to a 35-percent increase relative to their current level—would create additional aggregate external financing needs for LICs of about US$21 billion (with the specific impact ranging between 0.9 and 2.5 percent GDP for most countries). - A similarly calibrated shock to global food prices (a 12 percent increase) would raise external financing needs by US$5 billion (ranging from 0.0 to 0.8 percent of GDP for most countries). - Heterogeneity in vulnerability: - SDS and many FCS often have concentrated export structures and strong dependence on imports, reinforcing exposure to terms-of-trade shocks. - FCS with inadequate FX reserves and weak policy frameworks are particularly difficult to cope with shocks. - Frontier markets, with more diversified economic structures and better institutions, appear more resilient. ### Three long-term challenges: growth, inclusiveness, resilience - Long-term scarring and convergence: - As of the end of 2023, LICs’ combined real GDP remained 10 percent below the level implied by a simple extrapolation of its pre-pandemic trend. - This output loss exceeds estimates for emerging and advanced economies (6 percent and 2 percent, respectively). - At the end of 2023, LICs’ average real GDP per capita represented less than one-tenth of the advanced economy average, broadly unchanged from 2019. - The projected medium-term convergence path would move at a slower rate than that expected before the pandemic. - Inclusiveness setbacks: - Before the COVID pandemic, many LICs made progress on poverty reduction, female labor force participation, and informality reduction; many of these gains have been reversed during and after the pandemic. - Studies suggest the series of global shocks since 2020 erased at least three years of previous progress with poverty reduction. - Informality and food insecurity: - Recent growth in informality cannot be reversed quickly, hindering revenue mobilization, social spending, and investment. - An estimated 238 million people in 48 countries faced acute food insecurity in 2023 (up ten percent from a year before). - Funding levels for the World Food Programme (WFP) are under pressure. - LICs with acute food insecurity also have low external and fiscal buffers; food insecurity acts as a fragility multiplier. ### Box 4 — The Global Food Shock: recent trends and policy agenda - Recent trends and risks: - As of September 2023, IMF staff estimates that 45 countries, most of which are LICs, remain strongly affected by the food shock, only slightly down from a year earlier. - Elevated food inflation in LICs persisted and exceeded 15 percent in about a quarter of them. - Risks to food security remain high given the expiration of the Black Sea Grain Initiative in July 2023, the ongoing El Niño weather pattern, and likely incidence of other negative climate events. - Updated data as of August 2023 from the Food Security Information Network suggest that 238 million people in 48 countries are facing acute food insecurity, a 10 percent increase from a year earlier. - Macroeconomic consequences: - In the most affected countries, median real GDP growth has weakened, headline inflation remains elevated, external imbalances have widened, and fiscal positions remain weak. - These pressures have led to a depletion of FX reserves; with elevated debt levels and rising interest payments, capacity to respond to future shocks is limited. - Policy agenda (concerted efforts): - Strengthen social safety nets to protect vulnerable households from the impact of the food shock. - Maintain open trade to ensure a steady flow of food staples to vulnerable countries. - Continue financial support from the international community. - Advance long-term efforts to address food insecurity, including by transforming food production and distribution. *International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024 (Box 3 concluded and Box 4)* ### 25. Taking an even broader perspective, moving close to reaching the UN’s Sustainable ### ppea2024011 - 25. Taking an even broader perspective, moving close to reaching the UN’s Sustainable ### SDG financing gap and humanitarian funding pressures - Fully achieving the SDGs by 2030 now appears very much at risk, with realized progress delayed for 16 out of the 17 SDG. - The Fund’s Fiscal Affairs Department (FAD) derived an annual financing need of about US$500 billion in 2030 to meet the SDGs across 49 LICs. - World Food Programme (WFP) funding and operational outlook: - Record revenue of US$14.1 billion in 2022; expected receipts of only US$10 billion in 2023 and the same amount in 2024. - WFP planned to reach 177.4 million people in 2023 with projected operational requirements of US$ 23.5 billion. - As a result of funding gaps, almost half of WFP country operations have already reduced, or plan to reduce, the size and scope of assistance. - According to WFP, almost 700 million people are in undernourished situation, way above the pre-crisis level. - Under the current trend, extreme poverty would still affect about 7 percent of the global population by 2030 according to the UN. - Mobilizing the additional resources would also require addressing technical and macroeconomic capacity constraints to ensure sustainable implementation of spending programs at that scale. ### The need for more resilience in a shock-prone world - LICs are particularly vulnerable to a range of shocks due to relatively weak external and fiscal buffers and gaps in infrastructure to prepare for and respond to large-scale disasters (climate shocks, health crises, hunger). - Imperative actions for LICs: - Strengthen external buffers. - Strengthen fiscal buffers. - Make targeted investments to improve preparedness and response capacity. - Acknowledged tradeoffs for the poorest countries between building buffers and urgent investments to improve social outcomes and growth. ### Urgent agenda for LICs and external partners - Global partners need to sustain and step-up engagement; the Fund prioritizes strong support to low-income members. - Domestic policy and reform agenda focuses on fiscal consolidation, further disinflation, and structural reforms to achieve macroeconomic stability, growth, equality, and resilience. - Fiscal consolidation objectives: - Bring down large debt stocks accumulated over the past decade. - Keep financing needs at prudent levels amid liquidity challenges. - Alleviate domestic financial sector risks where sovereign-financial sector nexus is strong. - Support disinflation and strengthen international reserves when combined with monetary tightening. - Note: On average, fiscal deficits account for about one-third of external deficits. ### Policy and reform priorities (areas of focus) - Domestic revenue mobilization: - Emphasis due to slowdown in net flows of credit and ODA. - IMF research suggests developing countries could increase their tax-to-GDP ratio by up to 9 percentage points through tax revenue reforms and institutional capacity building. - More than 20 countries registered improvements in their fiscal revenue of more than 5 percent of GDP, but such results often took years or decades. - Strengthening core taxes (closing exemptions/loopholes), removing inefficient tax expenditures, maintaining or improving tax progressivity, and medium-term revenue strategies are highlighted. - Stronger institutions especially important for FCS; revenue diversification important in fuel exporting LICs. - Re-prioritization of fiscal spending: - Re-orient spending toward health, education, well-targeted social safety nets, and growth-enhancing public investment. - Review savings potential in goods and services, public sector wages, and untargeted energy subsidies. - Explicit energy subsidies in LICs were estimated at nearly US$13 billion or more than 0.7 percent of GDP (for 2021), with implicit subsidies much higher. - Examples: Togo and the Republic of Congo used fuel price adjustments in 2023 to reduce subsidy bills; Zambia removed explicit fuel subsidies by reverting to cost-pricing in December 2021 and reinstated VAT and excise duty on petroleum products in September 2022. Fuel and electricity subsidies are projected to have dropped to 0.2 percent in 2023 from 2.4 percent of GDP in 2021. Social spending targets under its ECF have been exceeded. - Public financial management to boost spending efficiency: - Priority improvements: single treasury accounts, medium-term fiscal frameworks, publication and debate of budget documents, better incorporation of donor support into budget processes. - Scope to enhance public investment management (including climate projects) and management of resource wealth in commodity-exporting countries. - Monetary policy to support disinflation and reserve adequacy: - Data-driven approach to setting monetary policy given elevated uncertainty about inflation. - LICs with high inflation need continued policy tightening; those with inflation near target must analyze drivers to avoid premature loosening. - Tight monetary policy can help strengthen international reserve cover under fixed and floating exchange rates. - Continue developing monetary policy operations, deepen domestic markets, reduce fiscal dominance, and ensure consistency of monetary and exchange rate frameworks. ### Differentiated policy advice (Box 5 highlights) - Policy advice should be tailored to country circumstances; recent Fund advice from the Consistent Policy Assessment shows trends by country type: - FCS: Fiscal tightening often remains a key priority; strengthen monetary policy frameworks and avoid central bank financing of budget deficits to support disinflation and reserve increases. - Frontier markets: Many benefit from further fiscal tightening; some that completed consolidation may consider loosening. Focus on mitigating second-round inflation pressures and addressing pockets of domestic financial sector vulnerability with targeted macroprudential tightening. - SDS (small developing states, especially tourism-dependent): Need to reduce high debt levels; some have flexibility for a more lenient fiscal stance if revenue growth is strong, and could use space for urgent climate adaptation investments. - Oil exporters: Facing prospect of declining revenues due to lower global energy prices; further fiscal adjustment remains central as many missed opportunities to rebuild buffers during past windfalls. - Non-fuel commodity exporters and diversified exporters: Continue fiscal consolidation to rebuild buffers, reduce debt vulnerabilities, and support disinflation; some with stronger fiscal positions may use space to address urgent spending priorities. ### Structural reforms to support stability, growth, inclusion, and resilience - Improvements in transparency, governance, and anti-corruption: - Weaknesses discourage economic deepening and efficient allocation of resources and can undermine trust in policy. - Areas for improvement: central bank independence, fiscal governance, business-friendly regulatory environment, effective anti-corruption institutions (including asset declaration systems), and procurement rules. - Corruption effect example: revenue collection among LICs scoring high on control of corruption is 4 percent of GDP higher than in LICs scoring low. - Domestic financial market deepening: - Can reduce dependence on external financing, reduce currency risk, and promote financial development, growth, and inclusion. - Heterogeneity implies no one-size-fits-all; balance measures to foster market development, calibrated public policy interventions, and macroprudential oversight to avoid excessive sovereign-bank nexus. - Historical shift in share of external (FX denominated) debt in total general government debt: decreased from 85 percent in 2000 to 65 percent in 2010, and to 60 percent in 2022. - Other supply-side reforms: - Liberalization of monopoly markets (e.g., energy), labor market reform, enhanced public infrastructure, and improvements in education, health, and vocational training can raise capital, labor, and total factor productivity. - Maintain open trade policies, consider deeper regional integration and cooperation (including AfCFTA and RCEP) to mitigate potential trade fragmentation. - Renewed interest in industrial policy for diversification and higher value-added activities, but measures should be well-targeted, time-bound, cost-effective, transparent, preserve macroeconomic stability and sustainability, and mitigate risks of rent seeking and corruption. - Industrial policy in LICs (Box 6 findings): - As much as 20 percent of LICs are employing industrial policies. - Common objectives: boosting growth, exports, employment, diversification, and import substitution. - Common instruments: special economic zones, subsidies, tax incentives; targets often include primary agriculture and secondary manufacturing sectors. - Digitalization: - Can raise incomes and improve governance, transparency, and accountability. - Mobile-telephony–based technology can expand access to financial services and government transfers for underserved rural populations. - Costs for infrastructure upgrades can be significant; inclusiveness and crypto-related regulatory upgrades should be carefully considered where applicable. - Building resilience, especially to climate-related shocks: - Investing in development priorities helps improve resilience to climate-related disasters and requires close collaboration with international partners, including the World Bank. - Better human capital, improved infrastructure, and fast, effective decision-making protocols improve capacity to mitigate and adapt to disasters. *International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024* ### 30. While the policy and reform agenda for LICs is well established, challenges often occur ### 30. While the policy and reform agenda for LICs is well established, challenges often occur ### Implementation challenges for the policy and reform agenda - Ownership by country authorities is a critical and necessary determinant of success; ownership can be particularly difficult to maintain in election years with heightened interest group pressure. - Ownership alone is not sufficient; policy consistency and sequencing matter. - Policy consistency - A well-calibrated macroeconomic policy mix, with each individual policy lever set on a sustainable course, helps distribute the burden of macroeconomic management more evenly, especially between monetary and fiscal policy, strengthening overall policy credibility and effectiveness. - Evidence from the Fund’s Consistent Policy Assessment suggests scope for further improvements: - about one third of LICs should further tighten monetary and fiscal policies. - more than half of LICs would have scope for recalibrating their policy mix between monetary and fiscal levers. - Sequencing of reforms amid capacity constraints - Adequate sequencing is another challenge, especially where technical and macroeconomic capacity constraints are binding when pursuing too many initiatives at the same time. - Optimal sequencing, flanked by capacity development assistance, depends on a country’s level of development, institutional quality, and technical and administrative capacity. - An IMF study shows that first-generation reforms in governance, anti-corruption, external sector, and business regulation can substantially increase output, especially in countries with large initial structural gaps. - First-generation reforms often focus on (re-)building basic economic institutions, unwinding inefficient and opaque allocation mechanisms and price controls, and delivery of basic public services. - Second-generation reforms could emphasize fiscal institutions, the labor market, and the financial sector. - For higher and more inclusive growth, emphasis can be placed on facilitating competition and strengthening the business climate. - For LICs moving toward middle-income status, attention should shift to ensuring stability of increasingly sophisticated financial systems, managing integration with global capital markets, and measures supporting diversification, the green transition, and gender equality. - Building broad buy-in - Assembling and maintaining broad coalitions for ambitious reforms is difficult because reforms typically imply short-term concentrated pain for longer-term dispersed gains. - To avoid backlash, it is important to communicate reform objectives and expected benefits to key stakeholders and the general public, both in broad strategy and specific measures. - Mechanisms should exist to compensate vulnerable groups for excessive losses, for example through well-targeted safety nets when withdrawing energy subsidies. ### Maintaining strong external support for LICs - Decisive policy and reform implementation is critical for macroeconomic stability and development, but LICs continue to depend on strong external support beyond financing, including predictable market access for exports and imports (energy and food staples), well-targeted policy advice, and capacity building assistance in traditional and new areas such as climate mitigation. - Adequate external financing is particularly important in tight global liquidity conditions to reduce economic, political, and social pain associated with urgent and deep macroeconomic adjustment. - Mobilizing adequate financing is a daunting challenge given the orders of magnitude involved: - Baseline needs (bottom-up aggregation of gross needs underlying medium-term projections in the IMF’s WEO database): these financing needs are expected to amount to some US$820 billion for the period 2024-28. - Macroeconomic stabilization: an additional US$30 billion over the 2024-28 window would be needed to bring international reserve cover for all LICs to a minimum of 3 months of import cover. - More developmental ambition: - First approach (income convergence with advanced countries): about US$450 billion over five years (2024-28), up from an estimate of US$267 billion in the last report. - Second approach (progress toward the SDGs calibrated on reaching the SDGs by 2040 using an endogenous growth model and realistic absorptive capacity constraints): an additional need of some US$500 billion over the period 2024-28. - Shocks and stress tests: terms-of-trade shocks assumed in respective stress tests could increase financing needs by up to US$20 billion across LICs; the 2022 LIC report estimated the COVID-19 pandemic economic toll at US$150 billion. - Even meeting only part of the plausible additional financing needs of some US$500 billion would require major effort: - These needs represent up to 26 percent of LICs’ 2023 GDP and would come on top of the US$800 billion in gross inflows already assumed in the baseline over 2024-28. - Urgent priorities to mobilize financing: - Maximizing domestic resource mobilization within LICs: - Boosting LICs’ revenue-to-GDP ratio by 5 points of GDP could yield at least half of the additional needs (online supplement estimate). - Stepped-up engagement by external official creditors, especially through highly concessional and grant financing: - Multilateral and official bilateral creditors will maintain a key role; the World Bank and the IMF will review concessional financing envelopes and programmatic priorities (e.g., IDA 21 replenishment; upcoming PRGT review). - Regional Development Banks could explore leveraging balance sheets to maximize concessional and grant support. - Official bilateral donors, traditional ODA providers, and non-Paris Club creditors could explore strengthening financial engagement; focusing scarce concessional and grant resources on the poorest LICs appears desirable. - IDA increased commitments to US$36 billion per year since the pandemic by bringing projects forward in time; the next IDA Replenishment (IDA 21) is expected to be completed by end 2024. - Crowding in private finance to LICs: - Official sector resources will not be sufficient by a large margin; private finance must play a strong role. - The international community should deepen work on risk-sharing instruments to crowd-in private finance; LICs should strengthen fundamentals (transparency, governance) to attract investors. - LICs with market access should ensure private debt is incurred at a pace consistent with absorptive capacity and debt sustainability. - Improving international coordination on debt resolution: - Diverse creditor composition increases the need for effective coordination. - The G-20 Common Framework for Debt Treatment (CF) has bridged gaps but implementation has been challenging and would benefit from improved speed and efficiency. - 2023 milestones: Somalia reached the HIPC Completion Point unlocking US$4.5 billion in debt relief; debt treatments under the CF advanced for Ghana and Zambia; Chad completed its CF debt restructuring in December 2022; Ethiopia had debt service suspension during negotiation; Malawi advanced bilateral debt restructuring outside the CF; Djibouti, Lao PDR, Zimbabwe indicated intention to restructure debt. - There is an observed learning curve among creditors and ongoing efforts to establish protocols on best practices, including through the new Global Sovereign Debt Roundtable. - Past timelines: Chad took 11 months from staff-level agreement to IMF Executive Board approval in 2021 and another 12 months for agreement in principle on detailed debt restructuring; Zambia took 9 and 10 months in 2022-23; Ghana took 5 and 8 months—longer than historical averages of 2-3 months and 5-6 months respectively. ### The IMF’s commitment to supporting LICs - Since the 2022 LIC report, the Fund has strengthened support to LICs with a focus on well-tailored support reflecting LICs’ susceptibility to climate-related shocks and food insecurity. - The IMF stepped up engagement with FCS through implementation of a comprehensive FCS Strategy approved in 2022, providing an operating framework and priorities to better support FCS in achieving macroeconomic stability, resilience, and inclusive growth to exit fragility. - Fund policy advice has focused on helping LICs navigate challenges from the Covid pandemic, the war in Ukraine, and global monetary tightening: - Advice has emphasized calibration of macroeconomic tightening to reduce debt-related vulnerabilities and address high inflation. - The Fund emphasized consistent policy mixes and organizing adjustment in a growth-friendly and socially cohesive way with strong emphasis on strengthening social safety nets. - The Fund has underscored the importance of maintaining open trade for food staples and expanded its knowledge base in areas such as economic impact of climate change, gender, inequality, and industrial policy to provide well-tailored recommendations grounded in cross-country experience. *International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024* ### 36. Capacity Development (CD) continues to provide highly valued and flexible technical ### Capacity Development (CD) continues to provide highly valued and flexible technical assistance and training in LICs closely integrated with surveillance and programs ### Capacity Development: activities and impact - CD spending for LICs increased by over 40 percent between FY22 and FY23. - Engagement has grown especially with FCS, reflecting the importance of CD in the Country Engagement Strategies (CES) prepared in line with the Fund’s new FCS strategy. - Technical assistance has focused on core areas of macroeconomic management: statistics, fiscal, monetary and financial sector management, macroeconomic frameworks, and debt management. - Fund CD has grown on governance and climate adaptation and mitigation. - Regional Capacity Development Centers, with local presence especially in LICs, have been instrumental in securing traction and impact. - Training activities have complemented TA, including on macroeconomic programming, tax policy, revenue administration, and debt management. ### Fund lending to LICs: recent trends and composition - Total Fund credit outstanding to LICs increased to SDR 24.4 billion at the end of 2023, compared with SDR 7.4 billion at the end of 2019. - After a peak in emergency financing in 2020, most commitments since involved upper-credit tranche programs in the form of ECF or blended ECF/EFF arrangements. - A few countries drew on the temporary food shock window under the RCF/RFI in 2022 and 2023. - Only SDR 6.1 billion out of the total credit of SDR 24.4 billion outstanding to LICs at the end of 2023 involved non-concessional financing. - The Fund expects lending activities to continue strongly into 2024. ### Box 7 — Recent IMF policy changes affecting LICs (summary of instruments and usage) - Resilience and Sustainability Facility (RSF) - As of the end of 2023, used by 9 LICs for total access of SDR 2.5 billion. - Facilitates the climate transition, coordinates with the World Bank and other IFIs, provides coherent policy advice and helps catalyze additional official and private finance. - Temporary increase of annual and cumulative access limits under both the GRA and PRGT - Annual access limits raised to 200 percent of quota and cumulative access limits to 600 percent of quota, respectively. - The temporarily higher limits will be maintained until end-2024. - Food Shock Window (FSW) under the RCF/RFI - Approved in September 2022. - Six countries used the window to cope with urgent BOP pressures; three of these (Burkina Faso, Malawi, and Ukraine) have since transitioned to Fund support under a multi-year UCT-quality program. - The window will expire at the end of March 2024, with measures in place to ensure continued support for affected countries (including extension of higher cumulative access limits for the RCF/RFI and UCT-quality program transitions). - Extension of higher cumulative access limits for the RCF/RFI - Temporarily higher cumulative access limits under the RFI will be maintained until end-June 2024. - Temporarily higher cumulative access limits under the RCF will be maintained until the completion of the 2024/25 comprehensive review of the Fund’s concessional facilities and financing. - Expansion and refinement of non-disbursing Fund Instruments - Program Monitoring with Board involvement (PMB) has helped two LICs build track record with Board involvement. - The Policy Coordination Instrument (PCI) has been refined and streamlined. ### PRGT review: objectives and key considerations - A major milestone ahead is the completion of the review of PRGT facilities and financing. - The review aims to: - Ensure the Fund’s ability to provide adequate concessional financing support to LICs in accordance with the Fund’s mandate of providing temporary BOP support. - Ensure the self-sustained nature of the PRGT over the long term and catalyze additional financing from other sources. - Consider the role of concessional and non-concessional financial support to LICs amid increasing financing needs in a more shock-prone world. - Mobilize sufficient financing to buttress the long-term self-sustainability of the PRGT. - Better reflect heterogeneity across LICs by targeting limited concessional financing to members that need it most. - Reflect on how the Fund, the World Bank, and other donors and creditors can best work together to support LICs, in line with their respective mandates. *Italic: IMF macroeconomic developments and prospects for low-income countries, selected pages (Capacity Development, Fund lending, PRGT review, and Social Safety Nets).* ### 46. Commensurate to the limited spending envelope, SSN in LICs have relatively low ### 46. Commensurate to the limited spending envelope, SSN in LICs have relatively low ### Coverage and benefit adequacy - Share of population covered by SSN programs remains low in LICs, particularly in Sub-Saharan Africa where under 20 percent of the population receives SSN benefits. - On average, only about a quarter of households in the first quintile of the consumption distribution receive some form of support from SSNs in Sub-Saharan Africa. - Only a handful of countries reach over half of households in the poorest quintile: Bangladesh, Burkina Faso, Nepal, Malawi, Honduras, Lesotho, and Zimbabwe. - Benefit adequacy (average benefits in percent of pre-transfers consumption for SSN recipients): - In Sub-Saharan Africa, benefit adequacy seems on par with emerging economies. - In LICs outside Sub-Saharan Africa, benefit adequacy is much lower. - A few countries provide average benefits over 10 percent of average consumption: Cote d'Ivoire, DRC, Uzbekistan, and Zimbabwe. ### Spending incidence and targeting - A sizeable share of SSN spending goes to the better off in Sub-Saharan Africa. - On average, only about one-third of SSN (about 0.3 percent of GDP on average) is channeled to the poorest quintile. - A large share of beneficiaries are in the top quintile of the distribution. - In several countries over 80 percent of SSN spending is received by households outside of the poorest quintile: Burkina Faso, Chad, Niger, Senegal, Tajikistan, Uganda, and Zambia. - Efficiency example: reducing the share of SSN benefits that go to top quintile households in Sub-Saharan Africa from 25 to 10 percent and redirecting these resources to the bottom quintile would increase coverage of the bottom quintile from 24 to 40 percent without increasing the total level of SSN spending. ### Administrative capacity, costs, and financing - Effective SSNs require substantial investments in systems to identify and register eligible beneficiaries (ID systems, social registries, household surveys) and delivery mechanisms (bank accounts, mobile money, e-wallets, digital vouchers, one-time passports, smart cards). - Administrative costs can be sizeable in LICs, on average about 15 percent of spending in LICs. - Administrative cost ranges reported: - 5-10 percent in cash transfer programs. - 22 percent for in-kind benefits. - Development partners remain critical financiers of SSNs in many countries; FCS particularly depend on external support, with some countries (Cameroon, Republic of Congo, Guinea-Bissau and Sao Tome) relying entirely on it. - Multiple development partners can support capacity building and transparency but risk fragmentation. ### Innovations and responses to shocks - During COVID-19, SSNs expanded—average benefits were 80 percent higher than pre-pandemic transfers—but they reached less than 10 percent of the population. - Many LICs used digital measures to simplify program design and expand support, including to informal sector households; examples of countries leveraging digital systems: Benin, Democratic Republic of Congo, Ethiopia, Haiti, Malawi, Mozambique, Rwanda, Sierra Leone, and Togo. - Democratic Republic of Congo (STEP-KIN): - Within three months, STEP-KIN identified, registered, and paid benefits to over 100,000 vulnerable individuals. - The program expanded to assist 250,000 direct beneficiaries, indirectly impacting around 1.3 million individuals in Kinshasa. - Togo (Novissi emergency cash transfer): - Initially reached approximately 550,000 individuals, accounting for 12 percent of the country's population. - Mobile-based platform allowed distribution of aid within roughly five days of announcement. ### Evidence on growth, SSN spending, and poverty - Cross-section evidence: countries with higher GDP per capita tend to experience lower poverty rates. - Regression finding (pooled OLS for LICs): a $1,000 increase in of per capita GDP has about the same impact of an increase in SSN spending of about 0.8 percentage points of GDP; both associations are affected by the degree of inequality. - The association between SSN spending and poverty rates is only slightly negative, with a range of poverty outcomes for similar low spending levels. ### Policy options to strengthen SSNs - Improve targeting efficiency to redirect benefits to the poor where leakages are large. - Where SSN spending is relatively low yet well-directed to vulnerable households (examples: Djibouti, Ghana, Myanmar), consider increasing SSN spending: - Horizontal expansion: expand coverage among the most vulnerable. - Vertical expansion: boost benefit levels where appropriate (noted scope in Ghana and Myanmar). - In contexts of limited administrative capacity and high informality, consider simpler identification methods (categorical, community, or geographical targeting) to reduce exclusion errors. - Enhance systems for rapid response to shocks: - Establish triggers for program activation, beneficiary identification, benefit levels and frequency, and sunset criteria. - Advance planning for costs and financing; donors can play a major role in LICs. - Continue to expand existing SSNs for vulnerable households and use program tweaks during shocks (relaxing targeting, raising benefits, increasing timeliness of payments). ### Country case-study insights (selected cash transfer programs; simulations under a spending envelope of 0.5 percent of GDP) - Ghana (LEAP): - LEAP is relatively well targeted via proxy means testing (about 60 percent of spending directed to households in the bottom quintile). - Raising LEAP spending to 0.5 percent of GPD would have a large impact on poverty, particularly by expanding coverage. - Mozambique (BSSP): - Spends about 0.4 percent of GDP on the Basic Social Subsidy Programme. - Only 24 percent of BSSP spending goes to households in the bottom quintile. - Raising BSSP spending to 0.5 percent of GDP while maintaining existing targeting would have only a marginal impact on poverty. - Tanzania (PSSN): - PSSN directs over 80 percent of benefits to households within the lowest two income quintiles but has limited impact due to small spending envelope. - Raising PSSN spending can substantially reduce poverty, particularly by increasing benefits to current recipients. - Uganda (Senior Citizens Grant, SCG): - SCG costs about 0.1 percent of GDP; about 24 percent of SCG goes to households in the poorest quintile. - Raising SCG spending to 0.5 percent of GDP would lower the poverty rate by an additional 1 percentage point, either by increasing benefits for current beneficiaries or expanding benefits to population 65 and older, though marginal effectiveness declines under age-only targeting. - Zambia: - Current program uses proxy means testing, categorical targeting, and community input. - Boosting spending from 0.4 to 0.5 percent of GDP by raising benefits would yield an additional 0.3 percentage point drop in the poverty rate. - Broadening coverage by easing eligibility could reduce the poverty rate by 1.5 percentage points. ### Prioritization considerations - Key factors in prioritizing SSN reforms: extent of poverty, administrative capacity, and fiscal space. - Trade-offs: - Proxy means testing can reduce leakages to better-off households but risks errors of exclusion. - Simpler methods (categorical, community, geographical) may be preferable where administrative capacity is limited. - In fragile and conflict situations, design must remain flexible (choice between cash and in-kind transfers may be influenced by security and operational constraints). *MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024, INTERNATIONAL MONETARY FUND* ### Box 9. Building SSN Resilience to Climate Events: Mauritania ### Box 9. Building SSN Resilience to Climate Events: Mauritania ### Program design and objectives - Two cash transfer programs mitigate climate shocks: - Elmaouna Program: provides immediate relief during periods of heightened vulnerability, including droughts and rapid-onset disasters like floods. - Tekavoul Choc: responds to shocks by expanding vertically (temporary increases in transfers) and horizontally (increasing the number of beneficiaries); targets areas not covered by Elmaouna. - Dual approach allows adaptation to varying needs by either augmenting support for existing beneficiaries or extending aid to additional households. ### Reach and recent performance - In 2022, the programs collectively reached approximately 69,000 households, responding to the highest level of food insecurity ever recorded in Mauritania. ### Institutionalization and policy intentions - In the context of an IMF arrangement under the Resilience and Sustainability Facility, the authorities intend to: - institutionalize the Tekavoul program, - expand the coverage of the Tekavoul Choc to vulnerable households affected by drought, - ensure adequate funding. ### Leveraging data - The government refined the social registry by: - incorporating an additional 50,000 households expected to be food insecure, - including key indicators related to livelihoods and vulnerability. ### Strengthening institutions and systems - A unified framework has been established to manage the complete cycle of dealing with food insecurity and nutrition shocks, encompassing prevention, preparation, coordination, implementation, monitoring, and capitalization of the national response plan. - Digitalization is highlighted as a means to strengthen data and information systems central to adaptive social safety nets; detailed and up-to-date data on potential beneficiaries—socio-economic status, geographical location, and vulnerability factors—is crucial. - Strengthening social registries is a priority in many LICs and has been used increasingly as a Structural Benchmark in IMF-supported programs (including Mauritania). ### Financing - Establishment of a contingent fund is a strategic measure to secure and streamline domestic and external funding sources. ### Replicability and constraints - Institutional capacity and fiscal space, among other factors, might constrain the potential for adoption in other countries. *Sources: IMF (2023r) and Ndoye, Nashin, and Pondi (2023).* ### 2302. Washington, DC: World Bank Group. ### ppea2024011 - 2302. Washington, DC: World Bank Group. ### Annex I — PRGT Eligible Country Groups (inventory by categories) - Total: All Countries (69). - By Export: Fuel (5); Non-fuel (25); Other Export Structure (9); Tourism (9). - By Structure: FCS (30); Other Institutional Structure (16); Frontier (17); Diversified (21); Small States (19). - By Income (GNI per capita, Atlas method, compared with the FY24 IDA Threshold of $1315): - <=100 (30): Afghanistan, Burkina Faso, Burundi, Central African Republic, Chad, Democratic Republic of the Congo, Eritrea, Ethiopia, Gambia, The, Guinea, Guinea-Bissau, Haiti, Kyrgyz Republic, Lesotho, Liberia, Madagascar, Malawi, Mali, Mozambique, Myanmar, Niger, Rwanda, Sierra Leone, Somalia, South Sudan, Sudan, Tajikistan, Tanzania, Togo, Uganda, Yemen, Zambia, Zimbabwe (list preserved as in source). - >100=<150 (10): Benin, Cameroon, Comoros, Cote d'Ivoire, Ghana, Haiti, Lao P.D.R., Nepal, Senegal, Timor-Leste, Dem. Rep. of. - >150<=300 (18): Bangladesh, Bhutan, Burundi, Congo, Republic of, Djibouti, Eritrea, Ghana, Kiribati, Liberia, Madagascar, Marshall Islands, Micronesia, Fed. States of, Moldova, Mozambique, Myanmar, Nepal, Nicaragua, Papua New Guinea, Samoa, São Tomé and Príncipe, Solomon Islands, Uzbekistan. (source listing preserved) - >300 (11): Cabo Verde, Dominica, Grenada, Maldives, Marshall Islands, Micronesia, Fed. States of, Moldova, St. Lucia, St. Vincent and the Grenadines, Tonga, Tuvalu. (source listing preserved) ### Annex II — Assessing LICs’ Vulnerability to Shocks: assumptions and calibrated shock sizes - Context and main channels: - Since the Global Financial Crisis, LICs were affected by external shocks that impacted balances of goods and services (G&S) and net investment flows. - Large declines in G&S trade were driven by import prices (oil and food price fluctuations), nominal and real exchange rate developments, and tourism receipts. - Calibration approach: - Shocks on commodity prices and advanced country real exchange rates were calibrated to match one standard deviation around their means based on observed trends over the 2014-2023 interval. - Under the assumption of a normal distribution, these shocks carry a probability of about 16 percent. - Calibrated shock examples: - 35 percent increase in oil prices. - 12 percent increase in food prices. - Tourism shock calibrated to represent one third of the fall in tourism during the COVID-19 pandemic: 22 percent decline in travel exports and 16 percent decline in imports. - Modelling assumptions and pass-through: - Commodities’ share in exports and imports kept fixed (volumes assumed inelastic). - Pass-through rates from USD and EUR real exchange rate appreciation to countries’ REER were estimated and combined with elasticities of exports and imports with respect to REER to calculate impacts on current accounts. - Tourism shocks assumed identical impact across all countries, with separate treatment of exports and imports. - Calibration table (preserved numeric entries from source): - Calibrated size: 35% | 12% | 5% | -22% | -16% - Statistics for 2014-2013: - Mean: 4% | 2% | 2% - Stand. dev. (prob. 15.9%): 35% | 12% | 5% - Years exceeding stand.dev.: 2 out of 10 2 out of 10 2 out of 10 (as presented) - Max shock since 1990: 63% | 27% | 11% | -65% | -47% - Note: probability of stand. dev. is based on normal cumulative distribution. ### Annex III — Social Safety Net Responses to COVID-19 in Low-Income Countries: findings and lessons - Macro effect on poverty: - COVID-19 reversed the decline in global extreme poverty, increasing the number of people living in poverty by around 80 million in 2021 compared to pre-pandemic projections. - Fiscal and programmatic responses: - Global average spending on social protection amounted to 2 percent of GDP, of which ¾ corresponded to social safety nets. - In low-income countries (LICs), over 90 percent of measures implemented corresponded to social assistance programs. - Cash transfers were deployed (or strengthened) in nearly all LICs; public works programs and in-kind benefits were widely used. - Coverage, benefit levels, and timing: - About one quarter of horizontal expansions relied on pre-established programs in LICs. - Coverage scale-up took up to six months; expansions relying on preexisting programs delivered benefits faster than new programs. - Average emergency benefits were 80 percent higher than pre-pandemic cash transfers and amounted to around half of households’ median income but reached less than 10 percent of the population. - In LICs, cash transfers were effective in mitigating food insecurity, but most individuals reported that transfers did not fully cover income losses—likely reflecting the short duration of benefits. - Innovations and administrative adaptations: - Many countries relaxed ID requirements, simplified eligibility criteria, dropped conditionalities, and used digital payments systems to speed delivery. - Examples of innovations: - Nigeria: collaboration with mobile network operators to identify vulnerable informal workers through airtime purchase patterns. - Bolivia: used data analytics for “targeting from the top” to exclude wealthier households. - Several innovations have been absorbed into existing delivery systems. - Country cases — key quantitative outcomes and operational lessons: - Togo — Novissi program: - Pre-pandemic national registry covered about 90,000 households in rural areas (under 5 percent of the population). - Novissi established April 2020; targeted informal workers using artificial intelligence, mobile phone, and satellite data. - Rapid delivery: assistance delivered within approximately five days of program announcement. - After one year: created over 170,000 new mobile money accounts; delivered payments to around 10 percent of the population. - Challenges: fraud and scalability; provided foundation for strengthening social assistance programs. - Mozambique — Direct Social Support Program – Post Emergency (PASD-PE): - Included vertical and horizontal expansions and introduced bimonthly cash transfers to over 1.1 million poor households. - Timeliness issues: disbursements intended for cyclone-affected households not initiated until September 2020; COVID-19 disbursements commenced in December 2020. - Lessons: need for better coordination among sectors, establishment of early warning systems for anticipatory actions, flexibility in defining shocks (PASD-PE manual focused on climate hazards, not public health), and improved communication with beneficiaries on amount, frequency, and delivery modalities. ### Annex IV — Poverty, Growth, and Social Safety Nets: empirical findings - Data and scope: - Panel sample: 1990–2022 for 110 countries, of which 47 are LICs. - Data sources: poverty headcounts and Gini from Poverty and Inequality Platform (World Bank 2022); GDP per capita (PPP 2017) from WEO; social safety net (SSN) spending from IMF Government Finance Statistics (social assistance expense). - OLS regression key findings (pooled data; dependent variable: poverty rate): - For the full sample of LICs (Specification II): - A $1,000 increase in GDP per capita is associated with a decline in poverty rate of 3.2 percentage points. - A one percentage point increase in the share of GDP in social safety net spending is associated with a decline in poverty rates of 4.1 percentage points. - Interpretation: every $1,000 of per capita GDP growth has the same impact as an increase in SSN spending of about 0.8 percentage points of GDP. - Inequality interaction: every percentage point increase in Gini is associated with an increase in poverty of about 1 percent, controlling for income per capita and SSN spending. - For LICs in Sub-Saharan Africa (sample restricted): both the impact of GDP per capita growth and SSN spending is magnified. - Robustness and fixed-effects results: - Data limitations: time series data availability remains limited for LICs, particularly for poverty rates and SSN spending. - Fixed effects specifications (VI and VII): the impact of GDP per capita is not statistically significant; SSN spending is statistically significant only for the sample of LICs in SSA. - Table 2 (regression coefficients preserved as reported): - GDP per capita ($1,000): -4.2 ***, -3.2 ***, -3.2 ***, -9.3 ***, 0.7, -7.5 (across specifications I–VII as presented). - SSN spending (percent of GDP): -4.1 *, -1.6, -6.6 **, -2.7, -6.0 *** (across specifications). - Gini coefficient: 0.7 ***, 1.3 ***, 0.2 ***, 0.3 (across specifications). - Year controls: Yes in most OLS specifications; R2 values reported: 0.37, 0.35, 0.39, 0.60, 0.04, 0.54 (corresponding to specifications listed). - Sample and observations: LICs (observations 270, 130, 130) and LICs in SSA (observations 73, 130, 73) as shown in the table. - Policy-relevant inference: - Both growth and SSN spending are associated with poverty reduction in pooled OLS estimates; distributional context (Gini) matters. - Effectiveness of SSN spending appears particularly important in LICs in Sub-Saharan Africa. - Fixed-effects results underline the need for caution given data constraints and the potential role of country-specific factors. *International Monetary Fund — MACROECONOMIC DEVELOPMENTS AND PROSPECTS FOR LOW-INCOME COUNTRIES 2024 (selected annexes and reference excerpts).* ### 1. Low-Income Countries: Estimation of Additional Financing Needs to Meet the SDGs, ### 1. Low-Income Countries: Estimation of Additional Financing Needs to Meet the SDGs ### New methodology and model design - Purpose: incorporate SDG costing elements into a dynamic macroeconomic framework to estimate LICs’ additional financing needs, focusing on education, health, roads, electricity, and water and sanitation using nominal costs as exogenous inputs. - Innovation: includes a fiscal multiplier effect on growth so growth is endogenously determined and higher growth from increased spending raises fiscal revenues and reduces external financing needs compared to a static exercise. - Growth cap: increase in the annual growth rate is capped at 5.1 percent (one standard deviation above the [average] real growth rate for LICs over the period 1999-2019). - Absorptive capacity constraints: to avoid unrealistic scaling-up, the approach imposes ceilings on the maximum possible annual and 5-year growth of spending, with ceilings depending on the initial level of total public expenditure (cap equal to the 80th percentile change in total expenditure for the relevant sample of LICs from 1999-2019). - Time horizon for achieving SDGs: target moved from 2030 to 2040 to create a more realistic spending path; even then, a gap remains between what the public sector can finance and required spending, potentially to be filled by the private sector. ### Key modeling parameters preserved from FAD and assumptions - Fiscal multipliers: assumed 50 percent of whole-sample values, resulting in multipliers of 0.2, 0.25, 0.2, 0.15, 0.1, and 0.05 for years 1 to 6, respectively. An alternative scenario assuming 75 percent of whole-sample values is noted as an option. - FAD SDG costing baseline: additional annual spending in 2030 of US$0.2 trillion for education and health and US$0.3 trillion for infrastructure (roads, electricity, water and sanitation), total US$0.5 trillion for year 2030 (as expressed in the FAD exercise). ### Principal estimates of financing needs (2024-28) - Gross Financing Needs (GFN) baseline (WEO CA deficit + external amortization): US$817 billion for the period 2024-28. - Best estimate for additional public-sector financing needs to progress towards the SDGs (constrained model, public sector): US$527 billion over 2024-28. - Required median annual additional expenditure for all LICs: 4.3 percent of GDP. - Total additional financing needs including SDG-related spending and the need to rebuild external reserve buffers (Total Additional Needs Approach B): US$557 billion over 2024-28. - Total Additional Needs Approach A (reserves accumulation + investment spending / convergence): US$439 billion (reported as updated comparable figure to 2022 approach). - Unconstrained (no absorptive-capacity limits) estimate would be US$2.2 trillion for 2024-28 (noted as unrealistic). - Annual breakdowns reported (Table 1, row 4): 2024: 375; 2025: 408; 2026: 439; 2027: 470; 2028: 476; Total: 2,168 (these values are presented in the source as additional spending needs towards SDGs under alternative approaches). - Alternative presentation (Table summary): Total Additional Needs 2024-28 under Approach B: 711, 1021, 1141, 1271, 1435, 557 (table headings indicate annual then total; preserve table values as presented in the source). ### Distribution and concentration of needs across LIC groups and countries - Concentration by institutional category (2024-28): - Frontier markets: total needs US$167 billion (32 percent of total LIC additional needs), median US$9.5 billion. - Fragile and conflict-affected situations (FCS): total needs US$187 billion, median US$3.3 billion; Ethiopia accounts for about US$58 billion (about one-third of the FCS total). - Small states: median needs around US$300 million (note: small states’ needs for climate change adaptation are not yet captured and likely underestimated). - Other LICs: total needs US$169 billion, median US$3.8 billion; Bangladesh accounts for around 60 percent of that total. - Data coverage caveat: FAD database covers only 47 countries out of 69 LICs; estimates rely on extrapolation by applying the median estimate of additional SDG needs in percent of GDP for the covered sample to the missing countries’ nominal GDP levels. ### Financing mix and residual gaps - Domestic revenue mobilization (DRM): could help cover as much as US$292 billion of the projected financing needs over 2024-28. - Assumed revenue effort: about a 5.0 percentage point increase in the Tax to GDP ratio for the median LIC over 5 years, calibrated by country-specific gaps versus tax potential estimates. - Historical comparison: the historical period 1999-2019 observed around 3.1 percentage points of GDP revenue improvement; FAD finds up to 9.0 percentage points of GDP feasible with reforms. - Other financing (debt, reprioritization, external finance, private sector): required to complement DRM; Fund’s PRGT concessional lending would cover only a small part, consistent with its BoP mandate. - Private sector role and residual gap: private sector would need to close a residual gap of US$258 billion over 2024-28. - Memo comparisons: - 2022 LIC report total additional spending (reserves + COVID + investment): US$437 billion (2023-27). - Previous COVID financing toll estimated at US$150 billion (2022 LIC report). ### Scenarios and robustness considerations - Alternative multiplier scenario: 75 percent of whole-sample multipliers offered as an alternative in the source. - Sensitivity to shocks: negative terms-of-trade shocks (one-standard deviation increase in global oil and food prices) could increase needs anywhere from US$5 to 20 billion; more extreme shocks (pandemic-scale) would increase financing needs multiple-fold (COVID toll cited as US$150 billion in prior work). - Import propensity caveat: the assumption that all public spending increases external financing needs 1:1 is strong; import propensity of SDG-related spending may be below 1, especially for health and education, affecting estimates. - Overlap caution: significant overlaps may exist between investments needed for convergence and SDG-related spending. ### Policy implications and recommendations (from analysis) - Immediate revenue efforts: launch DRM measures now to capture potential US$292 billion contribution over 2024-28. - Mobilize a mix of financing: DRM, debt financing, reprioritization of spending towards SDGs, and private sector participation will all be needed. - Strengthen absorptive capacity: scale-up must respect absorptive capacity constraints; capacity building and public expenditure management are critical to realistic implementation. - Leverage private finance: given public sector limits, enhance policies to improve the business environment and crowd-in private investment for infrastructure and service delivery. - Prioritize and sequence spending: use constrained, realistic spending paths with attention to sectors with lower import propensities (health, education) and high social returns. - Maintain macro stability: incorporate endogenous growth benefits of SDG spending while preserving macroeconomic realism (growth caps, buffers). *Source: ppea2024011 - 1. Low-Income Countries: Estimation of Additional Financing Needs to Meet the SDGs (IMF online annexes, February 29, 2024).* ### Annex I). ### Annex I) ### Defining Expenditure Ceilings for the Annual SDG-Related Public Expenditure - The SDG costing tool estimates do not consider absorptive or institutional capacity limits on public sector execution in the sample countries. - Two common alternative annual public expenditure limits are proposed: - (i) the maximum annual increase that a public sector in a LIC country could execute; and - (ii) the maximum cumulative increase that could be sustained over a five-year period. - Method: - Compute quartiles based on total expenditure to GDP for LICs in year 2019 (pre-pandemic). - Compute the 80th percentiles of the annual increase (change) in public expenditure within each quartile over 1999-2019 using WEO data, counting only years with positive change. - Empirical results (80th percentile of change in total public expenditure within quartile): - One year: Quartile 1 = 3.0 percent of GDP; Quartile 2 = 3.1 percent of GDP; Quartile 3 = 3.8 percent of GDP; Quartile 4 = 8.2 percent of GDP. - Five years: Quartile 1 = 3.3 percent of GDP; Quartile 2 = 4.7 percent of GDP; Quartile 3 = 5.6 percent of GDP; Quartile 4 = 9.0 percent of GDP. - Implementation rule in model: - Year 1: impose the one-year cap as the binding constraint. - Years 2–4: allow spending to grow to the five-year maximum. - If caps yield a public expenditure level lower than required to reach target stock infrastructure SDGs, the resulting gap is added to the subsequent five-year period. - Year 6: allow public spending to grow again by the annual cap, and from year 7 increase to a new incremental 5-year cap. - Repeat every 5 years until public spending reaches the unconstrained estimation level and all additional gaps are closed. - Note: Boosting expenditures in countries with smaller public sectors (lower total expenditure to GDP) poses greater implementation challenges, both macroeconomic and institutional. Presence of SIDS increases spending growth volatility in the fourth quartile (Annex II). ### Case Studies: Strengthening Social Safety Nets in Low-Income Countries — Overview - Annex includes four case studies analyzing social safety nets using household survey data for Ghana, Mozambique, Tanzania, Uganda, and Zambia. - Focus: description of selected SSN programs, assessment of coverage, adequacy, and incidence, and reform scenarios for main cash transfer programs aiming to strengthen poverty alleviation impact. - Methodology: tax-benefit microsimulation model SOUTHMOD (UNU-WIDER collaboration) using representative survey microdata; complemented by World Bank ASPIRE and Committed to Equity (CEQ) project reports. ### A. Ghana — Description of Main Social Safety Net Benefits - Total Ghana spending in SSN programs covered in this Annex: 0.3 percent of GDP as of 2022. - Main programs and 2022 allocations: - School Feeding Program: 0.18 percent of GDP. - Free Senior High School (SHS) initiative: 0.06 percent of GDP. - LEAP (Livelihood Empowerment Against Poverty) cash transfer: 0.05 percent of GDP. - Note: estimates do not include allocation for the National Health Insurance Authority. - LEAP program: - Targeting: poorest households via proxy means tests (PMT) aiming to identify bottom 20 percent; beneficiaries must also be aged 65+, have disabilities, be expectant mothers, or caregivers of orphaned/vulnerable children. - Transfer amounts (2022 monthly): GH¢ 64 (US$ 5.73) to GH¢ 106 (US$ 9.49). - Average annual benefit: GH¢ 845 (4.6 percent of GDP per-capita). - Coverage: 2.06 million individuals in 344 thousand households (LEAP eligibility in SOUTHMOD scaled to 344 thousand households). - School Feeding Program: - Targets pupils in public pre-secondary schools (ages 2–12). - Coverage expansion: from 1,900 to 3.8 million children in 2023; reaches 43 percent of targeted age group. - 2022 estimated annual cost per pupil: GH¢ 313 (1.7 percent of GDP per-capita); benefits reach 3.6 million pupils. - Free SHS program: - Instituted 2017–18; benefit not means tested. - Benefit amounts differ: resident students GH¢ 1,002.47; non-resident GH¢ 648.47. - 2022-23: program covered approximately 400 thousand students (one-third of 1.1 current students). - Average annual benefit per student: GH¢ 985 (5.4 percent of GDP per-capita). ### A. Ghana — Assessment of Social Safety Nets (Findings) - Targeting incidence (share of total benefits reaching poorest quintile Q1): - LEAP: 58 percent of total LEAP expenditures reach households in the poorest quintile. - School Feeding: 31.3 percent of total benefits reach Q1. - SHS: 10.4 percent of total benefits reach Q1. - LEAP share reaching Q5 (richest quintile): 3.5 percent. - SHS shows regressive incidence with 24.6 percent of spending reaching Q5. - Coverage rates (percent of households receiving benefit in 2022): - LEAP: 4.7 percent of households. - SHS: 4.8 percent of households. - School Feeding: 27.9 percent of households. - By quintile: - LEAP coverage Q1 = 21.7 percent; Q5 = 0.5 percent. - School Feeding coverage Q1 = 60.6 percent; Q5 = 7.1 percent. - SHS coverage is flat: ~4 percent across Q1 and Q5. - Adequacy (benefit as percent of household consumption for recipients): - LEAP average adequacy: 7.7 percent of consumption for households receiving it. - School Feeding adequacy: 3.1 percent. - SHS adequacy: 3.5 percent. - Adequacy declines across quintiles: - LEAP: from 12.7 percent in Q1 to 4.1 percent in Q5. - School Feeding: from 7.9 percent in Q1 to 1.1 percent in Q5. - SHS: from 9 percent in Q1 to 2.2 percent in Q5. - Poverty reduction properties: - Baseline poverty rate: 24.6 percent. - Poverty rate reduction (percentage points) attributable to programs: - School Feeding: 1 percentage point. - SHS: 0.4 percentage points. - LEAP: 0.2 percentage points. - Poverty gap reduction: - School Feeding: 0.81. - LEAP: 0.31. - SHS: 0.18. ### A. Ghana — Reform Scenarios for LEAP - Two evaluated scenarios aiming for a LEAP program budget of 0.5 percent of GDP: - (i) Increase benefits while keeping coverage constant. - (ii) Expand coverage while keeping benefit amounts constant (relax eligibility). - Outcomes (Table 2 summaries; figures preserved exactly): - Poverty rate reduction (p.p): - Actual: 0.20 - Benefit increase: 2.88 - Coverage expansion: 4.09 - Poverty gap reduction (p.p): - Actual: 0.31 - Benefit increase: 2.07 - Coverage expansion: 2.19 - Coverage Q1 (percent): - Actual: 21.71 - Benefit increase: 21.71 - Coverage expansion: 100 - Percent of total benefit received by Q1: - Actual: 57.48 - Benefit increase: 57.48 - Coverage expansion: 35.56 - Benefit adequacy (percent of consumption for recipients): - Actual: 12.65 - Benefit increase: 60.57 - Coverage expansion: 14.74 - Key interpretation: - Benefit increase to 0.5 percent of GDP would make transfers represent up to 60 percent of beneficiary households' consumption in Q1 (well above 20 percent international benchmark) and is expected to reduce poverty by 2.9 percentage points (benefit increase scenario shows 2.88 p.p). - Expanding coverage could lower poverty by 4.1 percentage points (coverage expansion shows 4.09 p.p) but would reduce the share of benefits going to the poorest from 57.5 percent to 35.6 percent, indicating higher leakage. - Improved targeting could achieve similar poverty reduction with less than half the proposed budget. ### B. Mozambique — Description of Main Social Safety Net Benefits - Main program: Basic Social Subsidy Programme (BSSP). - Eligibility categories: individuals permanently unable to work due to age/chronic illness/disability; households with malnourished/orphan children in poverty; households headed by an orphan aged 14–18. - Means tests at individual and household levels; BSSP implemented in all districts but with geographical coverage gaps. - 2022 transfer amounts (monthly, by household composition): - MZN 540 (USD 8.46, equivalent to 1.56 percent of per capita GDP) to MZN 1000 (USD 15.66, 2.89 percent of per capita GDP). - Coverage and spending: - Benefits reach 492 thousand households (about 8.7 percent of household population). - Annual spending on BSSP: 0.4 percent of GDP. - Note: other social programs exist but are beyond the scope of this study (Programa do Apoio Social Directo, Programa dos Serviços Sociais de Acção Social, Acção Social Escolar, Acção Social da Saúde, Programa Acção Social Produtiva). ### B. Mozambique — Assessment of Social Safety Nets (Findings) - Targeting and coverage: - BSSP shows relatively uniform targeting and coverage across welfare quintiles Q1–Q4 (each receiving 20–24 percent of total benefit); coverage ranges from 12 percent in Q1 to 9 percent in Q4. - Limited efficiency in targeting and coverage; poorer targeting may stem from means tests based on employment and pension incomes while welfare quintiles are based on consumption. - Adequacy: - Adequacy declines steeply: from 34 percent of household consumption in Q1 to 3 percent in Q5. - Country-level average adequacy: 8.54 percent of household consumption. - Poverty reduction properties: - Baseline poverty rate: 47.49 percent. - BSSP reduces poverty rate by 0.5 percentage points. - BSSP reduces the poverty gap by 0.58. - Both poverty rate and poverty gap remain well above values observed in other case studies. ### B. Mozambique — Reform Scenarios for BSSP - Two reform scenarios evaluated, targeting BSSP budget of 0.5 percent of GDP (extra 0.1 percent compared to baseline 0.4 percent): - (i) Increase benefit generosity by 25 percent, unchanged coverage. - (ii) Expand coverage to those fulfilling eligibility but not receiving the benefit in 2022, maintaining benefit levels constant. - Outcomes and interpretation: - Increasing benefit generosity yields modest improvements: transfer would account for 40 percent of Q1 beneficiary households' consumption and could reduce poverty by 0.58 percentage points. - Expanding coverage has similar poverty reduction properties. - Poverty reduction remains limited in both reform scenarios because: - High baseline poverty rate and poverty gap mean BSSP is not generous enough to lift the poorest households out of poverty; only those close to the poverty threshold exit poverty. - Baseline total benefit already equals 0.4 percent of GDP, limiting fiscal space for larger benefit increases. ### C. Tanzania — Description of Main Social Safety Net Benefits - Main program: Productive Social Safety Net (PSSN). - PSSN components: basic cash transfer to low-income households plus top-up transfers related to household composition (children of various age groups, people with disability). - Eligibility: PMT and community inputs. - 2022 coverage and spending: - About 685 thousand households benefit (6 percent of household population). - Total spending: 0.14 percent of GDP. - Transfer amounts (2022): - Basic cash transfer: 12 thousand TZS per month for households with at least one adult (0.4 percent of per-capita GDP). - Additional 5 thousand TZS per month for households with at least one child (0.18 percent of GDP). - Top-up amounts depend on household composition; average benefit = 30.6 thousand TZS per month (1.1 percent of per capita GDP). - Scope note: this case study focuses solely on the PSSN and does not analyze other SSN components such as public works within PSSN, National Agriculture Input Voucher Scheme (NAIVS), or Bed Net Program. *Source: ppea2024011 - Annex I).* ### 17. The PSSN demonstrates high efficiency in beneficiary selection, effectively directing ### 17. The PSSN demonstrates high efficiency in beneficiary selection, effectively directing ### PSSN targeting and coverage - 83 percent of its benefits are directed to households within the lowest two income quintiles. - Coverage by quintile: - Q1: 25 percent of households - Q2: 8 percent of households - Q3: 3 percent of households - Q4: 1 percent of households - Q5: 1 percent of households - Targeting mechanism: - Dual strategy blending means-tested targeting with community-based selection. - Result: high precision in targeting, minimizing leakage to non-poor households, but limited overall coverage. ### Adequacy of benefits (PSSN) - For households receiving PSSN benefits, transfers account for approximately 11 percent of their consumption (average for beneficiaries). - Adequacy by quintile (PSSN share of household consumption for beneficiary households): - Q1: 14.8 percent - Q2: 10 percent - Q3: 8 percent - Q4: 6 percent - Q5: 3.1 percent ### Poverty impact of PSSN - Baseline poverty rate: 25.62 percent - PSSN reduction in poverty rate: 0.62 percentage points - Baseline poverty gap: 6.27 - PSSN reduction in poverty gap: 0.56 ### Tax-benefit system interaction (Tanzania) - On average, all households are net contributors. - Net contribution by the poorest quintile: 4.1 percent of their consumption. - For the poorest 20 percent, benefits constitute 3.9 percent of household consumption. - For the top quintile, benefits constitute 0.03 percent of household consumption. - Direct taxes as percent of consumption: - Highest quintile: 12.2 percent - Lowest quintile: 3.2 percent - Indirect taxes as percent of consumption: - Lowest quintile: 4.7 percent - Highest quintile: 7.7 percent ### Reform scenarios for PSSN (budget envelope: 0.5 percent of GDP) - Scenario A — Increase benefit generosity by 173 percent (coverage unchanged): - Effect on transfers: transfer would represent 37.5 percent of consumption for Q1 households (Q1 beneficiaries). - Poverty rate reduction: 3.16 percentage points (fivefold relative to current impact). - Poverty gap reduction: 1.37 percentage points. - Panel A reported impacts: - Poverty Rate reduction (p.p): 0.62 (actual), 3.16 (benefit increase), 2.89 (coverage expansion) - Poverty Gap reduction (p.p): 0.56 (actual), 1.37 (benefit increase), 1.92 (coverage expansion) - Panel B scheme characteristics: - Coverage Q1: 24.57 (actual), 24.57 (benefit increase), 84.3 (coverage expansion) - % benefit received by Q1: 63.25 (actual), 63.25 (benefit increase), 62.98 (coverage expansion) - Benefit Adequacy: 14.76 (actual), 37.53 (benefit increase), 14.27 (coverage expansion) - Scenario B — Expand coverage to all eligible non-recipients (benefit level unchanged): - Coverage in Q1 would rise to 84.3 percent. - Poverty gap reduction: 1.92 (from baseline 6.27). - Rationale: expanding coverage brings more households closer to the poverty line but the transfer amount is insufficient to fully lift many out of poverty, hence a smaller poverty headcount reduction than the benefit increase scenario. --- ### Uganda — Senior Citizens Grant (SCG) description and assessment - Eligibility and coverage: - Eligibility: age-based (initially over 65 in specific districts; lowered to 60 in Karamoja; expanded in 2020 to all seniors aged 80 and above nationwide; beneficiaries registered prior to July 2020 maintain eligibility). - Benefit level as of 2022: UGX 25,000 monthly per beneficiary (USD 6.75), accounting for 8.7 percent of per capita GDP. - Coverage: about 645,000 individuals, representing 42 percent of those over 65. - Total spending: 0.12 percent of GDP. - Targeting and leakage: - Sole eligibility criterion is age; no PMT or consumption linkage. - Around 76 percent of total benefits go to non-poor households (leakage). - Average coverage: 6.4 percent of households nationwide. - Coverage by quintile: - Poorest 20 percent: 8.8 percent of households have at least one beneficiary. - Highest quintile: 4 percent coverage. - Adequacy: - SCG accounts for approximately 7.6 percent of consumption for beneficiary households (average). - Adequacy by quintile (SCG share of household consumption for beneficiary households): - Q1: 26.3 percent - Q2: 11 percent - Q3: 8 percent - Q4: 3 percent - Q5: 2.5 percent - Poverty impact: - Baseline poverty rate: 20.37 percent - SCG reduction in poverty rate: 0.57 percentage points - Baseline poverty gap: 5.27 - SCG reduction in poverty gap: 0.34 ### Reform scenarios for SCG (budget target: 0.5 percent of GDP) - Scenario A — Increase benefits (coverage unchanged) to reach 0.5 percent of GDP: - Requires more than a fourfold increase in the current transfer amounts. - Transfer would account for 60 percent of Q1 beneficiary households' consumption. - Poverty rate reduction: 1.72 percentage points. - Scenario B — Expand coverage to all seniors and newborns (benefit unchanged): - Poverty rate reduction: 2.1 percentage points. - Drawback: coverage expansion including children and without targeting decreases the share of benefits reaching the poorest 20 percent, increasing leakages. - Recommendation: incorporating a targeting mechanism could yield comparable poverty reductions with lower resource requirements. --- ### Zambia — Main SSN programs description and assessment - Budget allocations (program transfer costs only): - SCT program: approximately 0.44 percent of GDP. - School meal program: 0.1 percent of GDP. - SWL: 0.05 percent of GDP. - KGS: 0.01 percent of GDP. - SCT program details: - Targeting: proxy means tests, categorical targeting, community input. - Eligibility categories include: elderly, severe disability, chronically ill on palliative care, child-headed households, female-headed households with at least three children. - 2022 operations: all 116 districts; bi-monthly cash transfers of 400 ZMW; households with severely disabled members receive 800 ZMW. - 2022 beneficiaries: 680 thousand households. - Average annual transfer in 2022: ZMW 3283 (equivalent to 13 percent of GDP per capita). - Other programs (selected figures): - SWL (2022): 50.2 thousand households received a one-time transfer of ZMW 4442 (USD 225), equivalent to 15 percent of GDP per capita. - KGS (2022): almost 56 thousand girls reached; average transfer ZMW 1466, equal to 5.81 percent of GDP per capita. - HGSM (2022): 1.3 million students reached (54 percent of school-aged population 5 to 14); value per child annually ZMW 397, equivalent to 1.57 percent of GDP per capita. - Targeting performance: - On average, about 60 percent of program benefits go to the poor (bottom 40 percent). - Coverage of poorest families: - School feeding: reaches 41 percent of poorest families. - SCT: reaches 38 percent of poorest families. - SWL: 94 percent of its benefits go to the bottom 40 percent (high targeting accuracy). - Some programs still have around 20 percent of benefits going to households in the top 40 percent of consumption (leakage). - Adequacy of transfers (share of household consumption for beneficiary households, Q1): - SCT: 28 percent (Q1) - School meal (Q1): 7 percent - SWL (Q1): comparable to SCT; combined SCT+SWL can reach 57 percent of household consumption for households receiving both. - KGS: similar scale to school meal program. - Poverty impact: - SCT reduces poverty rate by 2.05 percentage points (baseline without SCT would be 40.8 percent). - School meal poverty reduction: 0.56 percentage points. - SWL poverty reduction: 0.39 percentage points. - KGS poverty reduction: 0.08 percentage points. - Baseline poverty rate: 38.76 percent (for SCT panel) - Baseline poverty gap: 15.46 - Poverty gap reductions correspond to poverty headcount reductions. ### Reform scenarios for SCT (target SCT expenditure: 0.5 percent of GDP) - Two scenarios analyzed: - (i) Increase SCT benefit with unchanged coverage (raising expenditure from 0.44 to 0.5 percent of GDP). - This translates into a 9.14 percent rise in household transfers in the first quintile. - Additional poverty rate drop: 0.39 percentage points. - (ii) Expand coverage while keeping benefit constant (aiming at 0.5 percent of GDP total SCT expenditure). - Coverage in Q1 would rise to 65.5 percent of households. - Share of benefits reaching poorest 40 percent would increase from 56 percent to 66 percent. - Potential poverty headcount reduction up to 3.52 percentage points. - Panel A reported impacts (SCT): - Poverty Rate reduction (p.p): 2.05 (actual), 2.44 (benefit increase), 3.52 (coverage expansion) - Poverty Gap reduction (p.p): 1.94 (actual), 2.16 (benefit increase), 3.39 (coverage expansion) - Panel B scheme characteristics (SCT): - Coverage Q1: 37.75 (actual), 37.75 (benefit increase), 65.46 (coverage expansion) - % benefit received by Q1: 28.68 (actual), 28.68 (benefit increase), 36.55 (coverage expansion) - Benefit Adequacy (Q1): 27.90 (actual), 30.45 (benefit increase), 24.30 (coverage expansion) *Sources: Fund staff estimates using SOUTHMOD.* --- _Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024011.pdf_