Fiscal Challenges Confronting Low-income Nations


  • The International Monetary Fund (IMF) has expressed its concern over the debt and fiscal challenges confronting low-income nations.


  • The IMF lowered its 2024 growth forecast for low-income countries as a group to 4.7% from an estimate of 4.9% in January.
  • Meanwhile, the World Bank noted a concerning trend where half of the world’s 75 poorest countries are experiencing a widening income gap with wealthier economies, marking a reversal in development progress seen earlier this century.

Fiscal challenges of low-income countries

  • In Sub-Saharan Africa, currently countries face debt service payments of 12% on average, compared to 5% a decade ago.
  • In some countries debt payments are up to 20% of revenues. Those countries had far fewer resources to invest in education, health, infrastructure and jobs.
  • High interest rates in advanced economies have lured away investments from low income countries, and raised their cost of borrowing.
  • There are concerns regarding debt trap challenges from China and other emerging official creditors. Almost 40 countries saw external public debt outflows in 2022.

How does the IMF help countries?

  • Countries seek help from the IMF (bailout) usually when their economies face a major macroeconomic risk, mostly in the form of a currency crisis.
  • The IMF basically lends money, often in the form of special drawing rights (SDRs), to troubled economies that seek the lender’s assistance.
  • SDRs simply represent a basket of five currencies, namely the U.S. dollar, the euro, the Chinese yuan, the Japanese yen, and the British pound.
  • The IMF carries out its lending to troubled economies through a number of lending programs such as the extended credit facility, the flexible credit line, the stand-by agreement, etc.
  • Countries receiving the bailout can use the SDRs for various purposes depending on their individual circumstances.
  • The IMF usually imposes conditions on countries before it lends any money to them.
  • For example, a country may have to agree to implement certain structural reforms as a condition to receive IMF loans.

Significance of IMF bailouts

  • IMF bailouts provide a source of financial support to stabilize a country’s economy, prevent further economic decline and restore confidence in the country’s ability to repay its debts.
  • IMF bailouts help prevent financial crises from spreading to other countries by containing the economic damage and stabilizing the financial system of the affected country.
  • IMF bailouts often come with conditions for economic policy changes and structural reforms that help the country address its underlying economic problems and put it on a sustainable path to growth and development.

Way Ahead

  • Affected countries needed to increase their domestic revenues by raising taxes, continuing to fight inflation, paring back spending and developing local capital markets.
  • It is vital for these countries to make themselves more attractive to investors, and the IMF needs to engage with countries to help them do that.

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