Macroeconomic Developments and Prospects in Low-Income Countries—2026

Low-income countries (LICs) are navigating a highly uncertain global environment shaped by shifting policies in major economies. Changes in trade, migration, spending priorities, and foreign aid are affecting LICs directly and indirectly. While lower food and energy prices and a weaker dollar have provided some relief, cuts in official development assistance are already weighing on many LICs, and tighter immigration policies could weaken remittance inflows going forward. Macroeconomic outcomes also remain highly divergent: growth is projected to rise from 4.8 percent in 2025 to 5.3 percent in 2026, but many LICs still face weak per capita income growth, high debt service burdens, thin reserve buffers, and tighter financing conditions. Building resilience and reinvigorating growth remain urgent. This agenda calls for continued fiscal consolidation in most LICs, with pace and calibration tailored to country circumstances, and supported by stronger domestic revenue mobilization, expenditure prioritization, and improvements in public financial and debt management. Monetary and exchange rate policies must remain focused on durably restoring price stability while safeguarding financial stability. At the same time, structural reforms to strengthen governance, improve institutional quality, and support private sector-led growth and job creation will be critical to rebuilding buffers and raising productivity. The paper also emphasizes that stronger macro-fiscal management and fiscal institutions can help attract more and higher-quality foreign direct investment by reducing policy uncertainty and improving investors’ risk-adjusted returns. By contrast, fiscal incentives should be used selectively and only where fiscal discipline and institutional capacity are already strong. International support, including concessional financing, capacity development, and IMF engagement, will remain critical, with scarce concessional resources best prioritized toward the poorest and fragile LICs.