Macroeconomic Developments and Prospects in Low-Income Countries—2026

Policy Papers, March 31, 2026

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Low-income countries (LICs) are navigating a highly uncertain global environment shaped by shifting policies in major economies affecting trade, migration, spending priorities, and foreign aid.
Recent developments providing relief include lower food and energy prices and a weaker dollar.
Headwinds include cuts in official development assistance and tighter immigration policies that could weaken remittance inflows going forward.
Macroeconomic outcomes across LICs remain highly divergent.

Growth is projected to rise from 4.8 percent in 2025 to 5.3 percent in 2026.
Many LICs face:
- weak per capita income growth,
- high debt service burdens,
- thin reserve buffers,
- tighter financing conditions.

Building resilience and reinvigorating growth are urgent priorities for LICs.
Stronger macro-fiscal management and fiscal institutions can help attract more and higher-quality foreign direct investment by reducing policy uncertainty and improving investors’ risk-adjusted returns.
Fiscal incentives should be used selectively and only where fiscal discipline and institutional capacity are already strong.

Fiscal policy:
- Continue fiscal consolidation in most LICs, with pace and calibration tailored to country circumstances.
- Support consolidation with stronger domestic revenue mobilization, expenditure prioritization, and improvements in public financial and debt management.
Monetary and exchange rate policy:
- Remain focused on durably restoring price stability while safeguarding financial stability.
Structural reforms:
- Strengthen governance and institutional quality.
- Support private sector-led growth and job creation to rebuild buffers and raise productivity.
Use of fiscal incentives:
- Restrict to cases with strong fiscal discipline and institutional capacity.

International support will remain critical, including:
- concessional financing,
- capacity development,
- IMF engagement.
Scarce concessional resources should be prioritized toward the poorest and fragile LICs.

Subjects: Balance of payments, External debt, Foreign direct investment, Government asset and liability management, Public debt, Public financial management (PFM)
Keywords: Capacity development, Capital flows, commodity price, Debt service, Debt vulnerability, Domestic debt, Domestic financial market, Domestic revenue mobilization (DRM), Financial inflows, financial market volatility, Financial support, Financing needs, Fiscal adjustment, Fiscal consolidation, Fiscal discipline, Fiscal institutions, food commodity importer, Foreign Direct Investment, Global, Governance, Government asset and liability management, Institutional quality, Investment climate, Low-Income Countries, Middle East, Official Development Assistance, policy agenda, Public financial management, remittance inflow, Remittances, Resilience building, Revenue administration, Social spending, Sub-Saharan Africa, Transparency policy, West Africa

Source: Macroeconomic Developments and Prospects in Low-Income Countries—2026, Policy Paper No. 2026/005 (March 31, 2026).