Macroeconomic Developments and Prospects in Low-Income Countries—2025
Policy Papers, April 22, 2025
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- Macroeconomic Developments and Prospects in Low-Income Countries—2025
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Bibliographic details
- Published: April 22, 2025
- Series: Policy Papers
- DOI: https://doi.org/10.5089/9798229004701.007
Overview of recent performance
- The 70 low-income countries (LICs) in the IMF’s membership experienced steady but modest growth in 2024, with marked divergence across countries.
- While 11 of the 20 fastest-growing countries in 2024 were LICs, many of the poorer and often also fragile and conflict-affected countries saw virtually no progress in per capita incomes over the past 15 years.
- Gradual fiscal consolidation proceeded in about half of the LICs, supporting further stabilization of public debt levels, but elevated debt service continues to constrain priority spending in many LICs.
- Growth is expected to accelerate over the medium term, while recent policy announcements on trade measures and official development aid will add to already elevated uncertainty and downside risks surrounding the outlook.
Key constraints and risks
- Elevated debt service that constrains priority spending in many LICs.
- Policy uncertainty from recent announcements on trade measures and official development aid, increasing downside risks to the outlook.
- Heterogeneity across LICs, with fragile and conflict-affected states lagging in per capita income progress.
Policy priorities and reform agenda
- Build resilience and reinvigorate inclusive growth by:
- Further progress with implementing fiscal adjustments while minimizing the impact on growth.
- More focus on measures to increase productivity.
- Enhancing spending efficiency and mobilizing domestic revenue.
- Improving economic institutions to support external capital inflows and domestic financial market development.
- Improvements to governance, education, and health.
- Supporting physical capital formation and facilitating broader labor force participation to boost all factors of production and especially total factor productivity.
Exchange rate regimes and FX market developments
- Clear trend among LICs to move away from market-determined exchange rates toward more tightly controlled arrangements, resulting in inconsistencies between de jure and de facto exchange rate arrangements.
- Overall, LICs progressed with developing FX markets; central banks play a lesser role in allocating foreign exchange, and greater reliance on FX auctions facilitates price discovery.
Thematic subjects and keywords highlighted
- Subjects: Currency markets, Exchange rate arrangements, Exchange restrictions, Financial markets, Foreign exchange, Multiple currency practices.
- Representative keywords: Aggregate demand; Artificial intelligence; Capital controls; Capital flows; Capital formation; Currency markets; Debt service; Debt vulnerability; Domestic financial market; Domestic revenue mobilization (DRM); Exchange rate; Exchange rate arrangements; Exchange rate restrictions; External capital inflows; External support; Financial inflows; Financial support; Financing needs; Fiscal adjustment; Fiscal consolidation; Fiscal multipliers; Food insecurity; Foreign exchange market operations; Fragile and conflict affected states; Frontier markets; Global; Global Growth; Heterogeneity; Human capital; Inclusive growth; Income convergence; Income gap; Inflation; Labor force participation; Low-Income Countries; Market access; Monetary policy; Multiple currency practices; net impact; policy agenda; Poverty rate; Poverty reduction; Productivity; Prospects in low-income countries; Reform scenario; Resilience building; Social spending; Sub-Saharan Africa; Sustainable development goals (SDGs); Total factor productivity (TFP); trade policy uncertainty; Transparency policy; Uncertainty; volatility in financial markets.
International Monetary Fund. Strategy, Policy, & Review Department, and International Monetary Fund. Monetary and Capital Markets Department "Macroeconomic Developments and Prospects in Low-Income Countries—2025", Policy Papers 2025, 008 (2025).
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- Policy Paper