Frequently Asked Questions
Q1: What are the World Bank country income classifications?
The World Bank assigns the world’s economies to four income classifications: low, lower-middle, upper-middle, and high-income countries. These classifications are based on each country’s Gross National Income (GNI) per capita for the previous fiscal year (presently – fiscal year 2020/21), derived from the sum of the gross domestic product (GDP) for the country and net income of residents, converted into United States dollars using conversion factors derived according to the Atlas method.
The conversion factors are derived from the exchange rate average of the respective year (e.g., FY2020/21) and previous two years, adjusted for inflation through the country’s GDP deflator, and the Special Drawing Rights deflator which is a weighted average of the GDP deflators of China, Japan, the United Kingdom, the United States, and the Euro Area. The derived GNI (in this case FY2020/21) is divided by the mid-year population estimates (e.g., CY 2021) to calculate the GNI per capita of a given country.
The GNI per capita estimates, including underlying data, for all World Bank member countries and the updated income thresholds are circulated to the World Bank’s Board of Executive Directors for information prior to the end of every fiscal year. They are then published on July 1 and used to guide operational lending policy for that fiscal year. These income classifications are also used by other Development Partners for similar purposes.
Q2: Why does the World Bank use GNI per capita to classify economies?
GNI measures the total income accruing to residents of a country to allow them access goods and services (primary income receivable by resident units from the rest of the world minus primary income payable by resident units to the rest of the world), while GDP measures the total production of goods and services within a country irrespective of whether it is generated by residents or non-residents. While it is understood that GNI per capita does not completely summarize a country’s level of development or measure welfare, it has proved to be a useful and easily available indicator that is closely correlated with other non-monetary measures of the quality of life, such as life expectancy at birth, mortality rates of children, and enrollment rates in school. More details are available here.
Q3. Why does the World Bank prepare income classification using the prior fiscal year’s data?
The World Bank collects data from all its member countries in April each year. The data is collected for the prior fiscal year (actuals) to allow for consistency and accuracy and avoid the use of estimates and forecasts to derive income classifications.
Q4: Why are income classification thresholds changed annually?
To keep income classification thresholds fixed in real terms, they are adjusted annually for inflation using the Special Drawing Rights (SDR) deflator, a weighted average of the GDP deflators of China, Japan, the United Kingdom, the United States, and the Euro Area.
Q5 What factors influence changes in a country’s income classification?
In each country, factors such as economic growth, inflation, exchange rates, and population growth influence the level of GNI per capita. Revisions to improve national accounts estimates and methods can also have an impact. Annual adjustments in income classification thresholds are also taken into account.
Q6: What are the latest thresholds for income classification?
As of July 1, 2022 (FY23), the lower-middle income threshold is US$1,085 against which, countries’ GNI per capita income have been assessed to determine their current income classification drawing on the FY21 data. The threshold rose from US$ 1,045 in FY22 and is almost double the threshold of US$ 610 in FY90.
Q7: Why do income classifications matter?
The World Bank Board uses GNI per capita levels (calculated using the Atlas method) to guide operational lending policy. According to the World Bank’s operational lending policy, low-income countries access highly concessional financing through the International Development Association (IDA). Generally, middle-income countries receive less concessional terms, depending on their income levels, as IDA targets most of its grant financing to countries with high debt vulnerability. Middle income countries that are financially creditworthy, may also access financing from the International Bank for Reconstruction and Development (IBRD).
Income classifications are also used to analyze development trends by researchers, policy makers, journalists, private sector, civil society, and students. Development Partners also use income classifications for both analytical and operational reasons. For example, governments in Europe and the United States of America have used the classification to set rules regarding preferential trade access to countries. The wide use and acceptability of these income classifications is because the methodology used is robust and is standardized across all countries.
Q8: What is the current World Bank Income Classification for Uganda?
Using the Atlas method, the FY2020/21 GNI per capita for Uganda is $840, classifying the country as low-income as per the World Bank’s global income classification issued on July 1, 2022. Uganda’s GNI per capita improved significantly over the past few decades, although in recent years, this has slowed due to a series of shocks, while the country also maintained a faster rate of population growth than its income peers. Deepening ongoing reforms would accelerate improvements in the GNI per capita. More detail on reform options to accelerate growth is available in the 19th edition of the Uganda Economic Update.
Q9: Using the Atlas method, how is the GNI Per Capita for Uganda calculated?
The variables used to derive Uganda’s GNI per capita include:
- Nominal GDP in current purchaser’s price as estimated by Uganda Bureau of Statistics (UBOS). Data for FY2020/21 are reported as year 2021 in the World Bank’s World Development Indicator database.
- Net primary income (primary income receivable by resident units from the rest of the world minus primary income payable by resident units to the rest of the world) as estimated in the Balance of Payments statement by Bank of Uganda (BoU).
- Mid-year population estimates from the United Nations World Population Prospects 2019 Revision.
- A weighted average of the USD: UGX exchange rates over the last three years: FY2018/19, FY2019/20 and FY2020/21 as reported under the IMF’s International Financial Statistics (consistent with BoU data).
- Adjustment for inflation, using the Uganda GDP deflator (UBOS) and SDR deflator (calculated as a weighted average of the GDP deflators of the countries currently included in the SDR basket). The weights are the amount of each country’s currency in one SDR unit, which change over time in line with the composition of the SDR and the relative exchange rates for each currency. The SDR deflator is first calculated in SDR terms, and then converted to U.S. dollars using an SDR to dollar conversion factor that is calculated as an average over three years.
Q10: Where can one get information on the data, methodology and current income classifications?