In this uncertain and fast-changing global environment, low-income countries (LICs) are dealing with changing policies in major economies regarding trade, migration, digital finance, and spending priorities such as national security and foreign aid, according to an IMF staff paper on Macroeconomic Developments and Prospects in Low-income Countries (LICs).
The spillovers from the ongoing conflict in the Middle East contribute to the pressures, although the actual impact will depend on the conflict’s length and the extent of the disruptions, the paper says.
The IMF staff paper defines LICs as the 70 countries eligible for the Poverty Reduction and Growth Trust facilities. Although internal and external imbalances have narrowed in recent years, macroeconomic outcomes remain highly diverse. GDP growth averaged 4.8% in 2025, but with large differences across LICs.
While some LICs are among the fastest-growing economies in the world, others grow too little to increase per capita income. Inflation remains low, but hotspots exist. While fiscal consolidation has contributed to modest reductions in public debt, debt vulnerabilities remain high, and the rapid rise in domestic borrowing is a new source of concern. Many LICs are highly vulnerable to commodity prices, global interest rates, and additional cuts in aid, and divergence across LICs is likely to continue for the medium term amid high global and domestic risks.
The flows of external financing to LICs are also going through significant changes. Net financial inflows to LICs, which reached their highest level during 2010-2014, have declined by approximately one-third, as FDI equity flows and external debt have declined, new public sector borrowing from the private sector has been contracted at higher interest rates and shorter maturities, and official creditors have adjusted terms more gradually, preserving the grant element for the poorest LICs.
Official Development Assistance flows have declined in recent years to 4.3% of LIC GDP, from an average of 5% during 2010-2014, and are projected to continue falling, alongside shifts from grants to loans and from budget support to project financing.