Macroeconomic Developments and Prospects in Low-Income Developing Countries

Abstract

IMF Executive Board Discusses " Macroeconomic Developments and Prospects in Low-Income Developing Countries—2018 " Against the background of a climbing number of low-income developing countries (LIDCs) at high risk or in debt distress, the International Monetary Fund (IMF) Executive Board assessed economic prospects and policy challenges facing these countries. On March 9, 2018, the Board discussed a staff paper on macroeconomic developments in LIDCs. The paper includes an in-depth look at public debt developments in LIDCs. Growth improved broadly across LIDCs in 2017, helped by more favorable external conditions including a pick-up in global growth, partial recovery of commodity prices, and benign financing conditions. However, output growth in commodity exporters continues to lag behind levels achieved in 2010-14—by an average of some 2 percentage points in non-fuel commodity exporters and even more in fuel exporters. In countries less reliant on commodity exports, growth remains robust, averaging 6 percent in 2017, but there is marked variation across countries, with smaller countries typically faring less well. Growth prospects for LIDCs are improving, supported by improved external conditions, while global inflation pressures remain contained. However, this more favorable outlook is subject to a range of risks, including from a reversal of the recovery in commodity prices, an unexpectedly sharp tightening of global financial conditions, domestic policy slippage, internal conflict, weather shocks, and rising financial sector stress. There has been a broad-based weakening of fiscal positions in LIDCs in recent years, with fiscal deficits widening in some 70 percent of LIDCs between 2010-14 and 2017. In about one-third of these cases, higher public borrowing was fully matched by a scaling-up of investment, but in close to half the cases investment declined, notwithstanding higher public borrowing. Increased fiscal pressures contributed to rising stress in financial sectors in many LIDCs.