## How Financing Can Boost Low-Income Countries’ Resilience to Shocks

_IMF Blog, June 14, 2023_

## Source details

**Canonical URL:** [How Financing Can Boost Low-Income Countries’ Resilience to Shocks](https://www.imf.org/en/blogs/articles/2023/06/14/how-financing-can-boost-low-income-countries-resilience-to-shocks)

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## Bibliographic details
- Authors: Karmen Naidoo, Nelson Sobrinho
- Published: June 14, 2023

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### Context and motivation
- Low-income countries face rapid inflation, food insecurity, costly borrowing, and mounting debt, heightened by shocks from the pandemic and Russia’s war in Ukraine.
- The IMF has revised down growth projections for low-income countries; per capita income growth is falling further behind rates needed to catch up with advanced economies, threatening reversal of decades-long convergence in living standards.
- The IMF estimates that low-income countries need an additional $440 billion of financing through 2026 from all available sources to boost economic growth and restore a path to income convergence with advanced economies.
- IMF concessional financing offered at low or zero interest rates is highlighted as playing a key role in cushioning the impact of ongoing shocks and future crises.

### Evidence from the pandemic (Chart of the Week summary)
- The economic gains from $272 billion in pandemic support for 94 countries were strongest in the poorest and more vulnerable recipients of IMF concessional financing.
- High-frequency indicators used to assess recovery:
  - Google Mobility Reports (smartphone location data).
  - Nighttime satellite imagery (Earth Observation Group).
  - A composite of conventional economic indicators: gross domestic product, industrial production, and tourist visits.
- Methodological notes:
  - Analysis excludes high-income countries and very fragile countries to address selection bias.
  - Controls include key variables representing country-level demand for and availability of financing, income levels, pandemic severity, lockdown intensity, and other multilateral financing.

### Quantitative findings
- An illustrative 10 percent increase in IMF financing was associated with a 0.2 percentage point increase in economic activity, on average over the course of the pandemic.
- The study implies that increasing access to IMF financing by half would be associated with an increase in economic activity by around 1 percentage point in IMF-funded countries relative to unfunded ones.
- More than $272 billion in support was provided to 94 of the IMF’s 190 member countries since the start of the pandemic, including $34 billion in emergency financing.
- Effects are larger in low-income countries with interest-free borrowing from the Poverty Reduction and Growth Trust (PRGT).

### Interpretation and policy implications
- PRGT concessional financing can have greater positive effects on low-income countries, partly because these countries have more constrained policy space and limited access to international credit compared to advanced and emerging market countries.
- Maintaining the PRGT adequately financed is underscored as important so it can continue to provide strong support to low-income countries for years to come.

### Research attribution
- This blog reflects research contributions by Sumin Chun, PhD candidate in economics at Duke University.

*Source: How Financing Can Boost Low-Income Countries’ Resilience to Shocks, Karmen Naidoo and Nelson Sobrinho, June 14, 2023.*

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## References

- [Low-income countries](https://www.imf.org/en/Topics/low-income-countries)
- [estimate](https://www.imf.org/en/Publications/Policy-Papers/Issues/2022/12/07/Macroeconomic-Developments-and-Prospects-in-Low-Income-Countries-2022-526738)
- [nighttime satellite imagery](https://www.imf.org/en/Publications/fandd/issues/2019/09/satellite-images-at-night-and-economic-growth-yao)
- [working paper](https://www.imf.org/en/Publications/WP/Issues/2022/12/17/The-Impact-of-the-IMFs-COVID-19-Support-to-Developing-and-Emerging-Economies-527076)
- [Poverty Reduction and Growth Trust](https://www.imf.org/en/About/Factsheets/IMF-Support-for-Low-Income-Countries)

_Source: https://www.imf.org/en/blogs/articles/2023/06/14/how-financing-can-boost-low-income-countries-resilience-to-shocks_