Low-income countries need $200 bln through 2025 to reinforce response to COVID-19: IMF

Doaa A.Moneim , Wednesday 31 Mar 2021

Accelerating convergence with advanced economies would require an additional $250 billion through 2025, according to IMF


Low-income countries (LICs) need an additional $200 billion between 2021 and 2025 to step up their responses to the COVID-19 pandemic and build adequate financial buffers, the International Monetary Fund (IMF) announced on Tuesday.

This came as a result of the IMF’s executive board discussion of the fund’s staff paper on recent economic developments and prospects in LICs.

The IMF also said that accelerating convergence with advanced economies would require an additional $250 billion, estimating that the downside scenario of a slower global recovery could add an extra $100 billion to these financing needs during the same period.

The IMF defines LICs as countries that are eligible for poverty reduction and growth facilities, which include 69 countries in Africa, Asia, and Latin America.

“LICs have been significantly affected by the COVID-19 pandemic and the associated health and economic crises. They entered this period with limited policy space. Real annual GDP growth in 2020, therefore, declined dramatically to 0.3 percent from above 5 percent in the previous three years”, said the IMF.

Looking ahead, the IMF is projecting long-lasting effects on LICs because of the pandemic that will lead to higher debt levels.

Meeting the required additional financial needs requires implementing domestic reforms —especially related to the governance of economic institutions— raising revenues, and improving the efficiency of spending, according to the IMF.

“These procedures will be crucial for LICs”, the IMF affirmed.

It added that the international community should step up its financing support, including grants and concessional loans by bilateral donors and multilateral institutions, as well as expanding the role of private sector financing, especially in infrastructure financing through international investors.

In their discussion, the board of directors noted that LICs face an uncertain economic outlook with the risk of renewed lockdowns due to resurgent waves and variants of the virus, and that these downside risks will likely persist until vaccines deliver herd immunity, adding that such countries are at a disadvantage to recover due to uneven access to vaccines, limited policy space, and pre-existing vulnerabilities.

The IMF also expected that appropriate financing and decisive policy implementation will make LICs able to converge back to their pre-COVID convergence path to advanced their economies between 2023 and 2025.

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