Financing for Low-Income Countries, Collateral Damage of Global Imbalances

The first finding is that LICs have sustained a structural current account deficit, persistent but modest, since the early 2000s. This deficit widened until the mid-2010s, experienced a significant shock during the pandemic, and then returned to its pre-crisis level. The presence of a deficit is not uncommon for young, capital-poor economies with considerable investment requirements. However, current account deficits in LICs are more indicative of limited capacity to mobilize the external financing needed to support growth and structural transformation than of prudent external balance management. This problem is particularly acute in Africa, where deficits have been more pronounced than in other LICs in recent years. These current account deficits stem primarily from the negative trade balance of goods and, to a lesser extent, of services. Despite growth in exports and improved terms of trade for several groups of countries, export momentum remains weak relative to the needs of economies in the early stages of development. We estimate that annual financing needs of LICs will amount to approximately $160 billion per year by 2030 to reach investment rates of 30%, which are conducive to economic takeoff. 

 The second finding is that LICs are highly dependent on a limited number of sources of external financing. Deficits in the balance of goods and services are partly financed through remittances and Official Development Assistance (ODA) grants and loans. In African LICs, ODA plays a central role, while remittances dominate in non-African LICs. Foreign direct investment (FDI) flows play a more limited role and tend to be concentrated in a few countries and in the extractive sector. The critical issue is that these financing sources are fragile in light of future needs. The anticipated decline in ODA and the sectoral concentration of FDI undermine the long-term sustainability of external financing at a time when financing needs related to demographics, climate, and the energy transition are growing rapidly. Finally, debt financing is not viable, given the weak growth of current account receipts, particularly export earnings from goods and services. 

The third finding is the forced specialization of LICs in natural resources. LICs, and African LICs in particular, face persistent trade deficits, rely heavily on a small number of trading partners, primarily China, and mainly export primary products, especially extractive resources, while importing manufactured goods. As of 2024, China has emerged as the primary trading partner of African LICs, both in terms of exports and imports, and accounts for the majority of their trade deficits. Additionally, their bilateral trade is highly asymmetrical, with 88% of exports from African LICs to China consisting of unrefined extractive resources (minerals and hydrocarbons) and 93% of imports consisting of manufactured products. This pattern has further entrenched a development trajectory where the economy is undiversified, vulnerable to shocks, and unsuited to fostering productive capacity. 

This report was produced for the Directorate-General of the Treasury as part of the French G7 Presidency in 2026.