IMF Executive Board Discusses Macroeconomic Developments and Prospects in Low-Income Countries—2021

IMF News, March 30, 2021

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Press Release No. 21/92; March 30, 2021. IMF Communications Department.
On March 26, 2021, the Executive Board discussed an IMF staff paper on recent economic developments and prospects in low-income countries (LICs).
LICs are defined as those countries eligible for Poverty Reduction and Growth Trust facilities (69 countries in Africa, Asia, and Latin America).
LICs entered the COVID-19 period with limited policy space and experienced a sharp output loss: real annual GDP growth in 2020 declined to 0.3 percent (from above 5 percent in the previous three years).

Base additional needs to respond to the pandemic and build buffers:
- "around $200 billion up to 2025" (initial statement).
- "beyond the needs embedded in the World Economic Outlook projections, LICs would require an additional $200 billion between 2021-25" (staff paper estimate).
- Executive Board: "around US$200 billion will be needed to step up the spending response to COVID and rebuild or maintain external buffers."
Investment needs to accelerate convergence:
- "an additional $250 bn to accelerate their income convergence with advanced economies" (staff paper).
- Executive Board: "An additional US$250 billion in investment spending would be needed to accelerate convergence to advanced economies."
Downside (adverse) scenario:
- "A downside scenario of a slower global recovery could add a further $100 billion to these financing needs" (staff paper).
- Executive Board: "Should the risks identified in an adverse scenario materialize, an additional US$100 billion would be necessary."
Timing and scope:
- Main financing window assessed: 2021-25.
- The paper responds to requests from the International Monetary and Financial Committee (IMFC) and the Group of 20.

Pandemic impacts:
- Significant health and economic effects on LICs, higher debt levels, increased within-country inequality and poverty, and delayed income convergence with advanced economies.
Projections and conditional outcomes:
- With appropriate financing and decisive policy implementation, LICs "would be able to converge back to their pre-COVID convergence path to advanced economies between 2023 and 2025."
Risks highlighted:
- Uncertain economic outlook, risk of renewed lockdowns due to resurgent waves and variants, uneven access to vaccines, limited policy space, and preexisting vulnerabilities.

Domestic policy and reform priorities:
- Implement domestic reforms—especially related to the governance of economic institutions.
- Raise revenues and improve efficiency of spending.
- Address governance, institutional capacity, and other structural bottlenecks.
External financing and international support:
- Stepped up financing by the international community, including grants and concessional loans by bilateral donors and multilateral institutions.
- Debt restructuring where needed.
- Expand role of private sector financing—particularly for infrastructure financing by international investors.
- Continued IMF emergency financing, World Bank and multilateral development bank support, and initiatives such as the G20-led Debt Service Suspension Initiative and Common Framework have temporarily eased financing constraints for many LICs.

Directors welcomed the assessment of macroeconomic developments, financing needs, and sustainable financing options for LICs.
Directors broadly agreed with the financing estimates and policy measures, while noting underlying uncertainty and emphasizing sensitivity tests as providing reasonable approximation of additional needs relative to the baseline.
Directors emphasized a multifaceted approach combining:
- Strong domestic reforms and capacity development (with policy advice and capacity development from the Fund and other development partners).
- Stepped up international financing, debt restructuring where necessary, and catalyzing private-sector financing.
Directors were encouraged that, with appropriate financing and decisive policy implementation, LICs could return to pre-COVID convergence paths between 2023 and 2025.

IMF Executive Board Discusses Macroeconomic Developments and Prospects in Low-Income Countries—2021; Press Release No. 21/92; March 30, 2021.