Macroeconomic challenges facing low-income countries (LICs) as they emerge from the global crisis had triggered the sharpest economic slowdown in four decades, pushing additional 64 million people into extreme poverty by end-2010. This was revealed at a meeting held recently by the International Monetary Fund.
Most LICs, in particular those with IMF-supported programmes, were able to maintain real primary spending growth throughout the crisis, and the composition of expenditure also improved in favour of priority sectors, including health, education, and infrastructure.
Nevertheless, in two-thirds of low-income countries, per capita GDP growth remained positive during the crisis, in contrast to previous crises and to the situation in most advanced economies, says the IMF.
Executive Directors of the IMF attributed the resilience of LICs to the generally stronger macroeconomic positions prior to this crisis, including smaller fiscal and current account deficits, lower debt and inflation, and higher levels of international reserves.
Directors underscored the importance of rebuilding macroeconomic policy buffers, restoring fiscal and debt sustainability while also being attentive to the still fragile growth prospects.
For many LICs, the policy priorities during the recovery phase would include:
(i) strengthening domestic revenues beyond the cyclical rebound, to help create fiscal space for priority spending;
(ii) pursuing cautious external and domestic borrowing strategies, supported by measures to boost domestic savings, develop domestic financial sectors, and improve debt management frameworks; and
(iii) advancing structural reforms to boost growth and manage volatility. For countries benefitting from debt relief, it will be particularly important to safeguard against a re-accumulation of debt beyond sustainable levels.
Directors also urged prudent use of the recently-allocated SDRs, with regard to the macroeconomic impact and associated risks.
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