Graduation

Middle-income countries should not be rushed to graduate

Development Matters Development in Transition, New social contract , , ,

By Otaviano Canuto, Senior Fellow at the Policy Centre for the New South, Non-Resident Senior Fellow at Brookings Institution, and Former Vice President at the World Bank; Matheus Cavallari, Senior Advisor and Tiago Ribeiro dos Santos, Advisor at the Board of Executive Directors of the World Bank Group. Opinions here are their own. The authors wrote chapter 12 of the recent book: Alonso, J.A. & Ocampo, J.A. (eds.), Trapped in the Middle? Developmental Challenges for Middle-Income Countries, Oxford University Press, 2020

Salvador, Bahia, Brazil

Many donor countries seem eager to see middle-income countries (MICs) “master out” and graduate to a non-client status in multilateral development institutions before fully achieving their development potential. We argue that such institutions can still significantly contribute to the sustainable development of MICs, while also seizing many benefits from this relationship (Middle income countries and multilateral development banks: traps on the way to graduation).  

Multilateral development banks operate in two main ways: regular lending and concessional finance. Regular lending uses interest rates close to market levels and relies on multilateral development banks’ wealth of knowledge to create attractive projects for MICs. Concessional finance on the other hand, is attractive for low-income countries, not only because of the banks’ knowledge, but also because it is much more financially favourable, offering low interest rates or grants.

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Overcoming the Challenges of the Transition and Exit from Aid

Development Matters Development finance, Development in Transition, Reviving international co-operation , , ,

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By Annalisa Prizzon, Senior Research Fellow, Overseas Development Institute 

This blog is part of an ongoing series evaluating various facets
of Development in Transition

ODI transition finance
Flat stairs, Sao Paulo by Jared Yeh / Flickr CC-BY-NC-ND

Since 2000, the number of low-income countries (LICs) has more than halved — from 63 to 31 — and have now joined the ranks of middle-income countries (MICs). Typically, these economies have strengthened their macroeconomic management, played a stronger and more visible role in global policy, diversified their sources of finance and received less external development assistance (or ceased to benefit materially from it).

As developing countries become richer and address their own development challenges, donors usually reconsider their programming and interventions. And so, transition and exit from bilateral development co-operation programmes should rightfully be celebrated as an indicator of success in economic and social development.

Challenges facing financing for development

However, as countries graduate from soft windows of multilateral development banks or as bilateral donors cut their country programmes — or they shift to loans if that is an option — the financing mix changes. Reliance on tax revenues and commercial finance when aid starts falling inevitably expands, and so does the costs to service debt obligations. Tax revenues do not necessarily increase to fill the gap. Continue reading →

Increasing income and resilience of the poorest: The role of economic inclusion programmes in social protection systems

Development Matters Building resilience, New social contract, Policy, Social Protection , , , ,

By 1 : Aude de Montesquiou and Syed M. Hashemi (Partnership for Economic Inclusion 2 at the World Bank) and Alessandra Heinemann (ADB)

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While the past two decades saw spectacular progress in the fight against poverty, more than 10% of the world’s population – 735 million people – still live below USD 1.90 per day. Ending poverty in all its forms everywhere as envisioned in Agenda 2030 will prove challenging. Reaching the poorest is in itself difficult, but even more so is getting them onto a sustained pathway out of poverty because of the need for carefully managed, multi-sectoral interventions.

What could help? The graduation approach is one example of targeted household-level economic inclusion approaches with a proven track record of ensuring sustainable pathways out of extreme poverty.3  The graduation approach is specifically defined as a time-bound multi-sectoral “big push” intervention designed to overcome the multiple barriers that prevent extremely poor and vulnerable households from earning enough income and building sufficient human capital and assets to break out of such extreme poverty. The graduation approach typically offers extremely poor and vulnerable households a sequenced package of consumption support, of access to savings services, technical skills, transfer of productive assets, seed capital or an employment opportunity, and of coaching.

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The Transition from Least Developed Country Status

Development Matters Policy, Reviving international co-operation , ,

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By Dr Jodie Keane, Economic Adviser, and Dr Howard Haughton, Quantitative Analyst, Commonwealth Secretariat1

This blog is part of an ongoing series evaluating various facets of Development in Transition. The 2019 “Perspectives on Global Development” on “Rethinking Development Strategies” will add to this discussion.

To learn more about countries’ strategies for economic transformation, including a session on Least Developed Countries (LDCs), follow the 10th Plenary Meeting and High-Level Meeting of the OECD Initiative for Policy Dialogue on Global Value Chains, Production Transformation and Development in Paris, France on 27-28 June 2018.

The Least Developed Countries (LDCs) are an internationally defined group of highly vulnerable and structurally constrained economies with extreme levels of poverty. The Committee for Development Policy (CDP) is a subsidiary body of the United Nations Economic and Social Council (ECOSOC). Every three years, the CDP advises ECOSOC and the United Nations (UN) General Assembly on which countries should either enter or leave the LDC category. Since the category was created in 1971, only five countries have graduated and the number of LDCs has doubled on the basis of selected indicators (income, human assets, economic vulnerability). And when countries graduate they lose international support measures provided by the international community.

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