Slowing Global Growth has Varied Effects on Low-Income Countries

  • Lower commodity prices: some lose, some gain
  • Countries with diversified exports fared better than commodity exporters
  • Rising vulnerabilities in many countries, including to climate change
  • While all of the 60 IMF member countries classified as low income countries have been affected by slowing global growth, the key shock has been the dramatic drop in commodity prices over the past eighteen months. The report says while commodity-dependent exporting countries (especially oil exporters) are being adversely affected, countries that are more diversified in their exports have benefited from lower prices and continue to record robust growth.

    Macroeconomic Developments and Prospects in Low-Income Developing Countries: 2015, analyzes recent events and looks at the near-term prospects for this group of countries, almost all of which are eligible for concessional IMF financing.

    “While the global economic environment has weakened, especially in regard to commodity prices, the effects on low-income countries has varied with differences in country-specific exposures and domestic policy conditions,” said Seán Nolan, Deputy Director of the IMF’s Strategy, Policy, and Review Department who oversaw the production of the report. “Policy responses need to be tailored to country circumstances,” Nolan emphasized.

    Varied impact of falling commodity prices

    Hardest hit by low commodity prices are commodity exporters, particularly oil exporters, with growth, on average, set to decline from 5.7 percent in 2014 to 3.0 percent in 2015. By contrast, countries less dependent on commodities for export revenues, and that have benefited from lower fuel bills, for example, are expected to see growth as high as 6 percent in 2014-15.

    The study shows a diverse picture when looking at the net impact of commodity price movements, even within country subgroups. While countries like Cambodia, Nicaragua, and Senegal have benefited, terms-of-trade losses are disproportionally high for some large oil exporters like Nigeria, for example (Chart 1).

    Rising vulnerabilities

    The report says economic vulnerabilities in low-income developing countries have increased steadily over the past two years, with some 40 percent of countries now deemed to be highly vulnerable to growth shocks, up from 25-30 percent in recent years and the highest level recorded since the global financial crisis (Chart 2).

    Key drivers are the drop in commodity prices, which has led to weaker fiscal and external...

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