Low-Income Countries Coped Well During Crisis, IMF Study Finds

Growth stayed positive in two-thirds of low-income countries despite gobal crisis

Policy buffers, IMF support facilitated policy response to fight crisis

Challenge now to rebuild buffers, support growth, reduce poverty

Unlike previous crises, real per capita GDP growth stayed positive in two-thirds of low-income countries during this crisis, remaining well above growth in richer countries.

Fiscal response

The report finds evidence that growth was supported by a robust domestic countercyclical fiscal policy response.

“Low-income countries entered the crisis with lower inflation, more manageable fiscal and current account deficits, higher international reserves, and lower debt than in previous downturns,” said Stefania Fabrizio, the lead author of the paper. “This gave them much more room for maneuver to let their fiscal automatic stabilizers operate and increase real spending. This is a welcome change from the past, when most low-income countries tended to tighten fiscal policy during global downturns.”

Thomas Baunsgaard, co-author of the paper, added: “Our analysis shows that this countercyclical fiscal response allowed vital spending to be preserved, in particular on social sectors and infrastructure. This in turn helped mitigate the negative impact of the global crisis on economic growth and the poor.”

IMF support played key role

Sharply higher financial support from the IMF also helped low-income countries navigate the crisis. The IMF has committed about $5 billion to low-income countries in concessional loans since the beginning of 2009, roughly four times the historical average.

Financial support from the IMF has reduced liquidity constraints and spurred donor support, helping countries with IMF-supported programs boost spending more than in countries that did not have such programs in place.

Low-income countries also benefited from a global allocation of the IMF’s reserve asset, the SDR, which helped boost the international reserves held by many countries.

Rebuilding buffers and boosting growth

Economic growth in low-income countries is expected to rebound quickly, driven in part by the global recovery. There are, however, important regional differences, with low-income countries in Latin America and the Caribbean, Middle East, and Central Asia expected to recover more...