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

_IMF News, April 2, 2024_

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## Bibliographic details
- Published: April 2, 2024

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### Key facts and context
- Discussion date: March 29, 2024.
- Publication/press date: April 2, 2024.
- Definition used for LICs: "those 69 countries eligible for the Poverty Reduction and Growth Trust facilities."
- Press Release No.: 24/95.
- Media contact: PRESS OFFICER: Randa Elnagar; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
- The paper includes in-depth analysis of strategies for strengthening social safety nets (SSN) in LICs.[1]

### Recent macroeconomic developments and outlook
- LICs' prospects are "finally slowly improving" supported by:
  - economic growth acceleration,
  - decreasing inflation,
  - easing financial conditions.
- Adverse forces and scarring:
  - Economic scarring from the COVID-19 pandemic, Russia’s war in Ukraine and ensuing geopolitical tensions, and tightening financial conditions following strong inflationary pressures have disproportionately hit LICs.
  - Liquidity conditions remain tight and the burden of high debt service payments "limits the space for development spending."
- Risks:
  - Significant uncertainties and adverse risks remain in "a more shock-prone world."
  - Downside risks remain amid persistent scarring, liquidity challenges, elevated vulnerabilities to shocks, and relatively low macroeconomic buffers.
  - Some Directors highlighted the impact of geoeconomic fragmentation on LICs.

### Heterogeneity across LICs
- Poorest countries: hit hardest by the pandemic with the strongest scarring in output loss.
- Fragile and conflict affected states (FCS): recovery hindered by weak institutions and inherent fragilities.
- Commodity/export concentration: LICs with exports concentrated in a few products have weaker and more volatile performance.
  - Fuel exporters missed the chance to capitalize on the oil windfall and will need to consolidate in a less favorable environment.
- Resilient groups:
  - Diversified exporters and frontier markets have shown more resilience to shocks.
  - Many Small Developing States (often tourism-dependent) have recovered comparatively better but face high debt levels and need to allocate part of their revenues to critical climate change adaptation investments.

### Policy priorities and domestic actions recommended
- Macroeconomic stabilization:
  - Prudent fiscal and monetary policies to maintain macroeconomic stability.
- Revenue and spending:
  - Accelerate domestic revenue mobilization.
  - Prioritize public spending to create additional space for critical development and social spending.
  - Strengthen public financial management, governance, and transparency to promote accountability and build political support for reforms.
- Structural reforms and resilience:
  - Well sequenced and growth enhancing structural reforms.
  - Deepen domestic financial markets.
  - Stronger public financial and debt management.
  - Build climate resilience.
- Social safety nets (SSN):
  - Efficient allocation and expansion of SSNs are "crucial" for alleviating poverty and building buffers against external shocks.
  - Call for re-direction of SSN spending "from the better-off to the poorest segments."
  - Tailored SSN design to improve poverty impact of expanding coverage and benefits.
  - Enhance adaptability of SSNs to respond swiftly to shocks by improving identification, verification, and delivery mechanisms and "making use of digitalization to the extent possible."
  - Noted impact example: "Simply redirecting half of the portion of SSN spending going to the richest households toward the poorest would be enough to nearly double the coverage of the most vulnerable."

### External support, financing, and debt treatment
- External support needed in multiple forms: financing, policy advice, and technical assistance.
- Financing priorities:
  - Grants and highly concessional financing "will be crucial" for poorer and fragile LICs.
  - Catalyzing private financing is important, particularly in frontier markets.
- Cautionary points:
  - Some Directors recommended a cautious approach to further buildup in senior debt held by LICs, which could impact the catalytic effect of Fund financing.
- Debt restructuring:
  - Debt restructuring processes, including under the Common Framework, need further improvement through closer creditor coordination to deliver timely debt relief.
  - Directors welcomed the work of the Global Sovereign Debt Roundtable.
- IMF engagement:
  - "The Fund is continuing to play its part: lending more than tripled since the pandemic, the bulk of it on concessional terms, and continuing to adapt its support to respond to changing LIC needs."
  - Directors look forward to the upcoming review of the PRGT Facilities and Financing and the review of the Bank-Fund debt sustainability framework for low income countries (LIC DSF).

### Executive Board assessment and consensus
- Directors broadly agreed with the staff’s assessment and identified policy priorities, including strengthening SSNs.
- Consensus points emphasized by Directors:
  - Need for more growth, more inclusion, and more resilience to accelerate convergence and progress toward the Sustainable Development Goals.
  - Importance of tailoring the policy mix to country circumstances given heterogeneity across LICs.
  - Need to reverse adverse trends in poverty reduction, food security, and women’s labor force participation.
  - Continued Fund engagement through targeted policy advice, capacity building, and financing.
  - Continued close cooperation between the Fund, the World Bank, other development partners, and stakeholders, leveraging the Fund’s comparative advantage.

*This summary reflects the content of the IMF Executive Board discussion as presented on the referenced page.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [the Poverty Reduction and Growth Trust](https://www.imf.org/en/About/Factsheets/IMF-Support-for-Low-Income-Countries)
- [http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2024/04/02/pr2495-imf-exec-board-discusses-macroecon-developments-prospects-low-income-countries_