Macroeconomic Developments and Prospects For Low-Income Countries—2024

MACROECONOMIC DEVELOPMENTS AND PROSPECTSFOR LOW-INCOME COUNTRIES—2024 IMF staff regularly produces papers proposing new IMF policies, exploring options forreform, or reviewing existing IMF policies and operations. The following documents havebeen released and are included in this package: •APress Releasesummarizing the views of the Executive Board as expressed during itsMarch 29, 2024, consideration of the staff report. •TheStaff Report, prepared by IMF staff and completed on February 22, 2024, for theExecutive Board’s consideration on March 29, 2024. •AStaff Supplement. The IMF’s transparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Electronic copies of IMF Policy Papersare available to the public fromhttp://www.imf.org/external/pp/ppindex.aspx International Monetary FundWashington, D.C. IMF Executive Board Discusses MacroeconomicDevelopments and Prospects in Low-Income Countries FOR IMMEDIATE RELEASE Washington, DC – April 2, 2024:On March 29, 2024,the Executive Board of theInternational Monetary Fund (IMF) discussed the IMF staff paper on macroeconomicdevelopments and prospects in low-income countries (LICs) [link], which includes in-depthanalysis of strategies for strengthening social safety nets (SSN) in LICs. The paper definesLICs as those 69 countries eligible forthe Poverty Reduction and Growth Trustfacilities.1 The economic scarring of the COVID-19 pandemic, Russia’s war in Ukraine and ensuinggeopolitical tensions, and the tightening of financial conditions following strong inflationarypressures have hit LICs the hardest in recent years. LICs' prospects are finally slowly improving, helped by a better global outlook, as economicgrowth accelerates, inflation decreases, and financial conditions ease. However, significantuncertainties and adverse risks remain in the context of a more shock-prone world. Liquidityconditions remain tight and the burden of high debt service payments limits the space fordevelopment spending. However, there is significant heterogeneity amongst LICs. The poorest countries have beenhit hardest by the pandemic and have experienced the strongest scarring in terms of outputloss. Fragile and conflict affected states (FCS) have seen their recovery hindered by weakinstitutions and inherent fragilities. The many LICs whose exports have been concentrated in afew products, have had weaker and more volatile performance. Fuel exporters, in particular,have missed the chance to capitalize on the oil windfall and will now have to consolidate in aless favorable environment. On the contrary, diversified exporters and frontier markets haveshown more resilience to shocks. Finally, many Small Developing States who are oftentourism-dependent, have recovered comparatively better but need to reduce high debt levelsand allocate part of their revenues to critical climate change adaptation investments. The report points to the fact that decisive efforts are needed to accelerate incomeconvergence with more advanced economies and make progress towards the SustainableDevelopment Goals. This involves boosting growth, overcoming setbacks in povertyreduction triggered by the COVID-19 pandemic, reversing negative trends in food securityand women’s employment, and enhancing resilience to future shocks. Addressing these challenges requires decisive domestic actions paired with strong externalsupport. On the domestic front, prudent fiscal and monetary policies would be key to maintainmacroeconomic stability. The authorities should also focus on accelerating domestic revenuemobilization and prioritizing public spending to create additional space for critical developmentand social spending. In this context, efficient allocation and expansion of social safety netplays a crucial role in alleviating poverty and building buffers against external shocks. Thiscalls for a re-direction of SSN spending from the better-off to the poorest segments.Strengthening public financial management, governance and transparency would promote accountability and help build political support buy-in for reforms, including ambitious structuralreforms that support inclusive growth. At the same time, all partners should step up external support, including not just financing butalso policy advice and technical assistance. In particular, grants and highly concessionalfinancing will be crucial to support development efforts of poorer countries, while efforts tocatalyze private financing should be enhanced, in particular in frontier markets. Improvedcreditor cooperation would be important to ensure timely debt treatment where needed. TheFund is continuing to play its part: lending more than tripled since the pandemic, the bulk of iton concessional terms, and continuing to adapt its support to respond to changing LIC needs. Executive Board Assessment2 Executive Directors welcomed the timely opportu