Low-income countries (LICs) were more resilient during the global crisis than in past downturns. The impact of the crisis was severe, but economic growth stayed positive in two-thirds of LICs, in contrast to richer countries. Growth was supported by a robust countercyclical domestic policy response—a first for LICs and in contrast to past crises when the fiscal stance was typically tightened. Pre-crisis macroeconomic policy buffers, built mainly over the past decade, had created space in many countries for this countercyclical response. To help low-income countries navigate the crisis, the IMF sharply scaled up its liquidity support, reformed its concessional instruments, and endorsed adaptations in program design to accommodate the countercyclical responses, including continued real growth in expenditures.

LICs’ economic recovery is expected to be faster and more aligned with the rest of the world than in previous crises, reflecting greater trade and financial integration and more robust domestic policies. A key downside risk is a slower-than-expected recovery in the rest of the world. Another risk could be a spike in world food and fuel prices. Most LICs are expected to realign their fiscal and current account positions as the recovery proceeds, partly through the cyclical rebound in exports and revenues, although some will continue to face fiscal and/or external vulnerabilities that would limit their ability to respond to another large shock.