Press Release – Macroeconomic Developments and Prospects in Low-Income Countries—2026
IMF News, March 30, 2026
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- Published: March 30, 2026
Overview
- IMF Executive Board discussed the IMF staff paper on Macroeconomic Developments and Prospects in Low‑income Countries (LICs) on March 18, 2026.
- The paper defines LICs as the 70 countries eligible for the Poverty Reduction and Growth Trust facilities.
- Context: LICs face a fluid global environment with high uncertainty and shifting policies in major economies across trade, migration, digital finance, and spending priorities, including national security and foreign aid. The spillovers of the ongoing conflict in the Middle East add to pressures, with impacts depending on the conflict’s duration and breadth of disruptions.
Macroeconomic outcomes and prospects
- Growth and inflation
- GDP growth averaged 4.8 percent in 2025 across LICs, with high heterogeneity: some LICs are among the world’s fastest growing economies while others grow insufficiently to boost per capita income.
- Inflation continues to ease overall, but hotspots remain.
- Fiscal and debt dynamics
- Fiscal consolidation has supported modest reductions in public debt, yet debt vulnerabilities remain high.
- Significant increase in domestic borrowing is raising new concerns, including sovereign‑bank linkages and related financial stability risks.
- Reserve and vulnerability risks
- Many LICs with thin foreign exchange reserves remain vulnerable to changes in commodity prices, global interest rates, and further aid cuts.
- Divergence and outlook
- Divergence across LICs is expected to persist over the medium term amid elevated global and domestic risks.
External financing: levels and composition
- Long-term trends and recent shifts
- After peaking during 2010-14, net financial inflows to LICs have fallen by about one third amid declines in FDI equity flows and external debt.
- New public sector borrowing from the private sector has been contracted at higher interest rates and shorter maturities; official creditors have adjusted terms more gradually, preserving grant element for the poorest LICs.
- Official Development Assistance (ODA) and remittances
- ODA flows have declined to 4.3 percent of LIC GDP, from an average of 5 percent during 2010-14, and are projected to continue falling, alongside shifts from grants to loans and from budget support to project financing.
- Remittance inflows to LICs have been increasing, but ongoing changes in immigration policies globally pose risks to remittance flows.
- Quality and allocation concerns
- Weaker FDI equity inflows and external debt flows are a concern; subdued capital flows may be linked to a widening marginal product of capital gap relative to advanced economies.
Fiscal institutions and FDI
- Empirical findings
- Stronger fiscal discipline and fiscal institutions, particularly revenue administration and public financial management (PFM), are associated with higher Foreign Direct Investment (FDI) inflows in LICs.
- The effects of stronger fiscal institutions on FDI are stronger in LICs than in emerging markets and are amplified in high‑uncertainty settings.
- Stronger fiscal institutions are linked to higher quality FDI, proxied by R&D intensity.
- When fiscal discipline, fiscal institutions, and broader institutional settings are considered jointly, fiscal institutions emerge as a more important institutional correlate of FDI to LICs.
- Commonly used fiscal incentives such as tax reductions or special economic zones appear to attract FDI only where fiscal discipline and institutions are strong.
Policy recommendations and IMF role
- Prioritization and resource allocation
- Concessional resources should be more strongly prioritized toward poorer and fragile LICs, given their scarcity.
- Channeling of scarce concessional resources should prioritize the poorest countries and fragile LICs with limited market access.
- Domestic policies and reforms
- Stronger fiscal discipline and fiscal institutions (revenue administration and PFM) are critical to attract stronger and higher‑quality FDI inflows.
- Fiscal structural reforms should focus on mobilizing domestic revenue, safeguarding priority development spending, and enhancing transparency and governance.
- Policies to enhance macro‑financial stability and maintain price stability, and accelerated structural reforms to enhance resilience, policy credibility, and private sector‑led growth and job creation are recommended.
- Cautious use of fiscal incentives (tax cuts, special economic zones) is advised, particularly where fiscal discipline and institutions are weak.
- Capacity development and coordination
- Targeted capacity development and enhanced coordination between LIC authorities and development partners would boost reform implementation and help reduce borrowing costs.
- Strong public financial management (PFM), coordination with donors, and country ownership are essential given shifts from budget support to project financing and from grants to loans.
- IMF engagement
- The IMF has a strong role to play through policy advice, capacity development, and lending where needed.
- Directors underscored the importance of strong and sustained Fund engagement with LICs, in close coordination with the World Bank and other development partners, including through the Fund and World Bank's 3‑pillar approach to help LICs with a strong reform agenda and sustainable debt.
Executive Board Assessment (summing up)
- Directors broadly supported staff’s assessment and identified policy priorities: support macroeconomic and financial stability, reinvigorate growth, and reduce high debt burdens.
- Directors welcomed narrowing internal and external imbalances and easing inflation, but noted significant divergence in outcomes across LICs, especially between diversified manufacturing/services exporters and conflict‑affected/fragile LICs.
- Directors expressed concern that elevated debt service burdens limit development spending space and that tighter external conditions have accelerated a shift toward domestic borrowing.
- Directors emphasized substantial downside risks from continued global uncertainty and potential domestic shocks, and highlighted the importance of World Bank–Fund coordination to support economic diversification and transformation.
- Directors welcomed the empirical analysis linking fiscal policy and institutional drivers to FDI, and recommended strengthening PFM and debt management practices.
- Directors looked forward to further discussions on Fund engagement with LICs and fragile and conflict‑affected states, including in the context of the Comprehensive Surveillance Review, Review of Program Design and Conditionality, and Review of the Debt Sustainability Framework for LICs (LIC DSF).
International Monetary Fund — Press Release No. 26/097 (March 31, 2026)
