Fiscal Vulnerabilities in Low-Income Countries : Evolution, Drivers, and Policies

Overview & Synopsis

The world’s 26 poorest economies - home to about 40 percent of all people who live on less than $2.15 a day - are deeper in debt than at any time since 2006 and increasingly vulnerable to natural disasters and other shocks. Yet international aid as a share of their GDP has dwindled to a two-decade low, starving many of much-needed affordable financing. This study constitutes the first systematic assessment of the causes of chronic fiscal weakness in the very poorest economies - those with annual per capita incomes of less than $1,145 a year. These economies are poorer today on average than they were on the eve of COVID-19, even though the rest of the world has largely recovered. Government debt, on average, now stands at 72 percent of GDP, an 18-year high. Nearly half of these low-income countries (LICs) - twice the number in 2015 - are either in debt distress or at high risk of it. Not one of them is at low risk.