Poorest Countries and Fragile States Are Increasingly Falling Behind
IMF Blog, June 26, 2025
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Bibliographic details
- Authors: Guillaume Chabert, Robert Powell
- Published: June 26, 2025
Overview
- Authors: Guillaume Chabert, Robert Powell
- Date: June 26, 2025
- Main message: The significant shocks of the past five years have weighed heaviest on low-income countries and fragile and conflict-affected states, with poorest and fragile countries lagging in recovery and facing disproportionate poverty, food insecurity, and debt vulnerabilities.
Growth performance and divergence
- Among low-income countries (defined as the 70 countries eligible for IMF concessional lending, the Poverty Reduction and Growth Trust):
- 38 of the more advanced low-income countries—characterized by higher income, varied exports, and international capital market access—grew by an average of 5.3 percent from 2022-24.
- The poorest 32 in the group grew by 3.3 percent from 2022-24.
- Fragile and conflict-affected states recorded growth of 2.6 percent from 2022-24.
- Implication: While some more robust low-income countries may soon achieve emerging status, the poorest and fragile counterparts are increasingly falling behind, threatening convergence of income per person with advanced economies.
Financing flows, needs, and debt vulnerabilities
- Financing flows to developing countries, especially low-income countries, have significantly declined since the onset of the pandemic, despite large needs for education, health, and infrastructure spending.
- Reversing the decline in new and affordable financing and ensuring sufficient recurrent flows is essential.
- Debt vulnerabilities are disproportionately affecting the poorest and fragile and conflict-affected states and should be proactively addressed.
- Recommendation themes:
- For wealthier developing countries: focus on attracting more foreign investment and international private finance, supported by bilateral and multilateral partners where needed.
- For poorest and fragile countries: prioritize adequate financial support through grants or highly concessional loans and provide technical assistance to build institutional capacity.
- Improve restructuring processes to deliver efficient and timely debt restructuring where debt is not sustainable.
- Develop risk-sharing instruments to attract more private investor participation where appropriate, while ensuring private debt is incurred sustainably given higher private finance costs.
Building institutional capacity
- Strengthening public financial management, spending efficiency, and tax capacity are core to building institutional capacity.
- IMF research published in 2023 estimates that a 7 percentage-point increase in the ratio of tax revenue to economic output is feasible for low-income countries through tax system reform and institutional capacity building.
- IMF support:
- Between 2022 and 2024, low-income countries received over 40 percent of the IMF’s overall capacity development with its member countries.
- The IMF will continue to use policy advice, capacity development, and balance of payments financial support where relevant to help members achieve economic and financial stability.
Policy recommendations and priorities
- Provide adequate financial support to poorest and fragile countries via grants and highly concessional loans.
- Intensify technical and financial assistance from the international community, including timely debt restructuring where needed.
- Help wealthier developing countries crowd in foreign investment and international private finance, with partner support as needed.
- Develop and expand risk-sharing instruments to mobilize private investors where appropriate.
- Ensure private debt is incurred in a sustainable manner given higher costs of private finance.
- Further improve debt restructuring processes to be efficient and timely for countries with unsustainable debt.
This blog draws on a recent IMF policy paper detailing the Fund’s contribution to the agenda at the International Conference on Financing for Development from June 30 to July 3, 2025.