Global Economic Prospects: Low-Income Countries in the 21st Century

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The first years of this century presented big opportunities for emerging market and developing economies (EMDEs). Today, they account for nearly half of global GDP, up from about 25 percent in 2000. But the pace of growth in these economies has slowed in recent years, and the road ahead presents challenges that could lead to slower growth. What can these countries do to take advantage of good opportunities? Dana Vorisek, Lead Economist with the World Bank’s Prospects Group, explores the findings from the latest Global Economic Prospects report.

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00:10 This year marks the end of the first quarter of the 21st century.

00:14 It's a good time to take stock of the progress made by low income countries

00:18 or leaks over the past 25 years.

00:21 In 2000,

00:23 63 countries were classified as low income,

00:26 yet 24 countries that were low income at the turn of the century

00:30 remain so today.

00:31 Two other countries have regressed to low income in that time.

00:35 So in total,

00:36 there are 26 leaks currently.

00:38 These countries are home to more than 40% of extreme poverty globally,

00:43 and their income gap with other economies has widened.

00:46 Moreover,

00:47 the extreme poverty rate in leaks is slightly higher than it was 10 years ago,

00:51 while poverty has continued to decline

00:54 elsewhere.

00:55 If we focus on the first decade of this century,

00:57 there has been reasonably solid progress among leaks.

01:00 Annual per capita GDP growth in leaks

01:03 averaged 2.2% in the first decade of this century.

01:07 And was markedly faster in some economies such as Ethiopia,

01:11 Mozambique,

01:12 Rwanda,

01:13 and Uganda.

01:14 During this period,

01:15 LES made much progress on poverty reduction

01:18 and other development goals.

01:20 However,

01:21 over the last 15 years,

01:22 per capita incomes have barely increased.

01:25 On average,

01:26 leaks have become poorer relative to other emerging market

01:29 and developing economies,

01:31 or EMDEs.

01:32 Since 2010,

01:33 the rate at which leaks are graduating to middle income status has slowed markedly.

01:38 Based on 2010,

01:39 2019 average growth rates,

01:41 only six leaks would be on course to graduate by 2050.

01:45 This

01:46 compared with nearly 2/3 of eligible countries that make the transition

01:50 between 2000 and today.

01:53 Today's leaks are facing something of a perfect storm.

01:55 Many countries face acute challenges at home

01:58 regarding fragility and conflict.

02:01 Meanwhile,

02:01 the global environment has also become less supportive of growth

02:05 against the backdrop of geopolitical tensions

02:07 and trade fragmentation.

02:09 Let me give you a few numbers to flesh this out.

02:13 More than 2/3 of today's leaks have experienced at least 1 year of intense conflict

02:17 since 2000.

02:19 The cost of natural disasters as a potential of GDP

02:22 has doubled in leaks over the past decade.

02:25 The median loss of productivity due to climate change

02:28 could be as high as 6%

02:30 through 2050.

02:33 Half of today's leaks are in or near debt distress,

02:37 and not a single leak today is judged to be at low risk

02:40 of debt distress.

02:42 Meanwhile,

02:43 productivity,

02:44 the secret source of economic growth,

02:47 has been declining in leaks since 2010,

02:50 while continuing to make state gains

02:52 in the countries

02:53 that graduated.

02:55 Despite the challenges confronting leaks,

02:58 these countries have considerable untapped growth potential

03:01 which could be unlocked with the right policies

03:03 and international support.

03:05 With the appropriate policy interventions,

03:08 some challenges can be converted into opportunities.

03:12 Most leaks need higher rates of investment.

03:15 That requires fiscal

03:16 and monetary frameworks that support macroeconomic resilience,

03:20 and it requires domestic stability and an end to conflict.

03:24 For many leaks,

03:26 agricultural productivity needs to increase

03:28 to power transformation.

03:30 That requires improved infrastructure and better access to credit

03:34 and inputs like fertilizers.

03:37 And in natural resource dependent economies,

03:39 the governance and transparency of resource sectors must improve

03:43 with resource revenues invested into human capital

03:46 and broader competitiveness.

03:48 These steps are not easy.

03:50 But past low income success stories prove that they are possible.

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transcript

This year marks the end of the first quarter of the 21st century. It's a good time to take stock of the progress made by low income countries or leaks over the past 25 years. In 2000, 63 countries were classified as low income, yet 24 countries that were low income at the turn of the century remain so today. Two other countries have regressed to low income in that time. So in total, there are 26 leaks currently. These countries are home to more than 40% of extreme poverty globally, and their income gap with other economies has widened. Moreover, the extreme poverty rate in leaks is slightly higher than it was 10 years ago, while poverty has continued to decline elsewhere. If we focus on the first decade of this century, there has been reasonably solid progress among leaks. Annual per capita GDP growth in leaks averaged 2.2% in the first decade of this century. And was markedly faster in some economies such as Ethiopia, Mozambique, Rwanda, and Uganda. During this period, LES made much progress on poverty reduction and other development goals. However, over the last 15 years, per capita incomes have barely increased. On average, leaks have become poorer relative to other emerging market and developing economies, or EMDEs. Since 2010, the rate at which leaks are graduating to middle income status has slowed markedly. Based on 2010, 2019 average growth rates, only six leaks would be on course to graduate by 2050. This compared with nearly 2/3 of eligible countries that make the transition between 2000 and today. Today's leaks are facing something of a perfect storm. Many countries face acute challenges at home regarding fragility and conflict. Meanwhile, the global environment has also become less supportive of growth against the backdrop of geopolitical tensions and trade fragmentation. Let me give you a few numbers to flesh this out. More than 2/3 of today's leaks have experienced at least 1 year of intense conflict since 2000. The cost of natural disasters as a potential of GDP has doubled in leaks over the past decade. The median loss of productivity due to climate change could be as high as 6% through 2050. Half of today's leaks are in or near debt distress, and not a single leak today is judged to be at low risk of debt distress. Meanwhile, productivity, the secret source of economic growth, has been declining in leaks since 2010, while continuing to make state gains in the countries that graduated. Despite the challenges confronting leaks, these countries have considerable untapped growth potential which could be unlocked with the right policies and international support. With the appropriate policy interventions, some challenges can be converted into opportunities. Most leaks need higher rates of investment. That requires fiscal and monetary frameworks that support macroeconomic resilience, and it requires domestic stability and an end to conflict. For many leaks, agricultural productivity needs to increase to power transformation. That requires improved infrastructure and better access to credit and inputs like fertilizers. And in natural resource dependent economies, the governance and transparency of resource sectors must improve with resource revenues invested into human capital and broader competitiveness. These steps are not easy. But past low income success stories prove that they are possible.

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