November 19, 2015
MACROECONOMIC DEVELOPMENTS AND PROSPECTS IN LOW-INCOME DEVELOPING COUNTRIES: 2015
EXECUTIVE SUMMARY This paper examines macroeconomic developments and prospects in low-income developing countries (LIDCs) against the back-drop of a sharp fall in international commodity prices. The focus here—by contrast with IMF (2014a)—is on recent developments and the near-term outlook, recognizing that the new price environment is likely to remain in place for several years to come. The paper also includes a section examining the experience of LIDCs with capital inflows over the past decade. Key messages in the report include: 1) many commodity-dependent exporters have been hit hard by export price declines, experiencing a significant growth slow-down in 2015 that will largely carry on into 2016; 2) countries less dependent on commodity exports benefited from the price movements (e.g., through reduced oil import bills), with growth continuing at the robust pace of recent years; 3) short-term economic vulnerabilities among LIDCs have increased steadily over the past two years, due mainly, but not exclusively, to weaker conditions in commodity exporters—underscoring the need for policy adjustments to strengthen fiscal and external positions; 4) most LIDCs are especially vulnerable to the projected effects of climate change, and will need significant support in the form of concessional climate finance to support adaptation efforts; and 5) capital inflows to LIDCs, including portfolio inflows, have grown sharply in recent years, augmenting domestic resources—but the usage of these resources, for consumption or investment, depends on national policy choices. Recent Macroeconomic Developments: The Varied Impact of Falling Commodity Prices The external economic environment facing LIDCs has weakened over the past eighteen months, with slowing global growth, sharp declines in commodity prices, and tighter external funding conditions. For most LIDCs, the key development has been the drop in commodity prices, which has adversely affected commodity-dependent exporters (especially oil exporters) but benefited many LIDCs less dependent on commodity exports (“diversified exporters”). Most commodity exporters have experienced slowing growth, widening fiscal and external deficits, and some combination of exchange rate depreciation and declines in reserves (in terms of months of import cover). Most diversified exporters have