IMF Sees Strong Growth, Lingering Risks in Low-Income Countries

Good performance based on solid foundation

Low-income countries must build up defenses against potential shocks

IMF is sharpening financial, policy support for most vulnerable countries

“Low-income countries have worked to develop institutional capacity and build fiscal buffers that they were able to use during the crisis, and now, all the hard work has paid off,” said IMF Deputy Managing Director Min Zhu at an IMF seminar.

But these economies should take this opportunity to shore up their resilience to potential new shocks if they hope to sustain their current growth momentum, stressed Zhu and several participants at the IMF-World Bank Spring Meetings, which took place in Washington from April 19-21.

In months leading up to the Spring Meetings, the IMF had stepped up its work on low-income countries, publishing a comprehensive review of its concessional lending instruments as well as new research on growth prospects for economies in this category.

Solid fundamentals

Low-income countries are experiencing strong expansion that is based on relatively solid fundamentals, observed Hugh Bredenkamp, Deputy Director of the IMF’s Strategy, Policy, and Review Department.

Speaking at the seminar, “Low-Income Countries in the Global Economic Recovery: Strengths, Vulnerabilities, and the Role of the IMF,” Bredenkamp pointed to three clear signs that growth in low-income countries was firmly rooted.

First, low-income countries are relying less on domestic demand and more on external demand as the world starts to recover from the recent crisis. Inflation has also come down steadily in low-income countries, despite occasional spikes related to commodity price shocks. And governments in low-income countries have seen declining debt ratios, thanks to a combination of debt relief, growth, and greater fiscal discipline.

Because of the decline in debt, these countries have been able to spend less on debt service and more on poverty-reducing programs, Bredenkamp added.

“All this suggests that low-income countries’ currently strong economic performance has strong foundations, and from that perspective, we see good chances of it being sustained over the medium term,” Bredenkamp said.

Vulnerabilities remain

During the 2008-09 global economic crisis, low-income countries did experience a downturn, but they bounced back more rapidly than the rest of the world. Bredenkamp noted that a key reason for their resilience was that they were able to use...