Low-income countries (LICs) are navigating a complex global environment marked by high uncertainty, shifting policies in major economies, and ongoing geopolitical tensions, the International Monetary Fund (IMF) said Tuesday, highlighting both progress and persistent vulnerabilities.
The IMF’s Executive Board reviewed the staff paper on “Macroeconomic Developments and Prospects in Low-Income Countries—2026,” which defines LICs as the 70 nations eligible for the Poverty Reduction and Growth Trust facilities. The report noted that while internal and external imbalances have narrowed in recent years, outcomes remain highly divergent.
GDP growth across LICs averaged 4.8 percent in 2025, but performance varied widely. Some LICs ranked among the fastest-growing economies globally, driven by diversified manufacturing and services exports, while others, particularly conflict-affected and fragile states, lagged, leaving per capita income largely stagnant. Inflation has eased overall, but localized hotspots remain a concern.
The IMF highlighted fiscal consolidation efforts, which have modestly reduced public debt, but vulnerabilities persist. Many LICs with limited foreign exchange reserves remain exposed to commodity price swings, rising global interest rates, and potential cuts in foreign aid. The ongoing conflict in the Middle East adds further uncertainty, although its ultimate impact will depend on duration and severity.
The report also warned of shifting patterns in external financing. Net financial inflows to LICs have declined by roughly one-third from their 2010–2014 peak, reflecting drops in foreign direct investment (FDI) equity and external debt. Private-sector borrowing is increasingly at higher interest rates and shorter maturities, while official creditors have adjusted more gradually, preserving concessional lending to the poorest LICs. Official development assistance (ODA) flows fell to 4.3 percent of LIC GDP in recent years from an average of 5 percent in 2010–2014, with continued declines expected. Meanwhile, remittance flows face risks from changing global immigration policies.
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The IMF underscored that stronger fiscal discipline and robust institutions, particularly in revenue administration and public financial management, correlate with higher and higher-quality FDI inflows. Fiscal incentives such as tax breaks or special economic zones are effective only in contexts with sound fiscal governance.
Executive Directors broadly endorsed the staff assessment, emphasizing the need to support macroeconomic and financial stability, sustain growth, and reduce high debt burdens. Directors stressed the persistence of divergence across LICs and flagged downside risks from global uncertainties and domestic shocks that could undermine development gains.
Directors highlighted the importance of targeting scarce concessional resources to the poorest and most fragile LICs. They emphasized the need for strong public financial management, coordination with donors, and country ownership to maximize the impact of ODA, particularly as funding shifts from grants to loans and from budget support to project-based financing.
In addition, the board called for resolute domestic reforms to increase returns on capital and attract FDI, noting that structural reforms, macro-financial stability, and price stability are critical to fostering private-sector-led growth and job creation. They encouraged fiscal structural reforms to mobilize domestic revenue, safeguard priority development spending, and enhance transparency and governance.
The IMF said it will continue supporting LICs through tailored policy advice, capacity development, and financing, in close coordination with the World Bank and other partners. The board also reaffirmed its commitment to engagement with fragile and conflict-affected LICs, as part of ongoing reviews of the IMF’s surveillance, program design, and debt sustainability frameworks.
“LICs face a challenging combination of external shocks and domestic vulnerabilities, but progress is possible with sound policies, effective institutions, and international support,” the IMF said.
