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World Bank's Global Income Shifts 2024-2025

General Report November 7, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Overview of World Bank Income Classifications
  3. Regional Analysis of Income Classifications
  4. Movements Between Income Categories in 2024-2025
  5. Factors Influencing Income Classification Changes
  6. Conclusion

1. Summary

  • In a comprehensive analysis of the World Bank's income classification of nations for the 2024-2025 fiscal years, the report highlights significant shifts in global economic standings since the late 1980s. The classifications dictate a nation's economic development level based on GNI per capita. Major transitions are seen across various regions: South Asia has markedly reduced its number of low-income countries, Latin America and the Caribbean have seen a rise in high-income territories, whereas the Middle East and North Africa have reached new heights of low-income prevalence. Several countries, including Bulgaria, Palau, and Russia, progressed to high-income status, driven by substantial economic growth and statistical revisions. Meanwhile, external conflicts notably impacted economies like West Bank and Gaza, resulting in a downward classification shift. The analysis emphasizes how economic growth rates and statistical accuracy significantly influence these classifications.

2. Overview of World Bank Income Classifications

  • 2-1. Definition of Income Classifications

  • The World Bank Group classifies the world's economies into four income groups: low, lower-middle, upper-middle, and high. This classification reflects a country's level of development, utilizing GNI per capita as a widely available economic capacity indicator.

  • 2-2. Update Frequency and Methodology

  • The income classifications are updated annually on July 1, based on the GNI per capita of the preceding calendar year. The GNI figures are expressed in United States dollars, using conversion factors established via the Atlas method, which has been in its current form since 1989.

  • 2-3. Historical Evolution of Classifications

  • The classification of countries into income categories has undergone significant changes since the late 1980s. In 1987, 30% of reporting countries were classified as low-income and 25% as high-income. By 2023, the percentage of low-income countries decreased to 12%, while high-income countries rose to 40%. Notably, in South Asia, the share of low-income countries dropped from 100% in 1987 to just 13% in 2023. In contrast, the Middle East and North Africa saw an increase in low-income classifications from 0% in 1987 to 10% in 2023.

3. Regional Analysis of Income Classifications

  • 3-1. South Asia: Shift from Low-Income to Upper Categories

  • In 1987, all countries in South Asia were classified as low-income. This classification has changed significantly, with only 13% of South Asian countries remaining in the low-income category by 2023. This change indicates a notable economic advancement in the region over the years.

  • 3-2. Middle East and North Africa: Stability in Low-Income Classification

  • The classification of countries in the Middle East and North Africa has shown relative stability; in 2023, 10% of the countries in this region were classified as low-income. This marks an increase from 1987, when no countries were classified as low-income, highlighting ongoing economic challenges faced by the region.

  • 3-3. Latin America and the Caribbean: Increase in High-Income Countries

  • The region of Latin America and the Caribbean has experienced a significant increase in its classification of high-income countries. In 1987, only 9% of countries in this region were classified as high-income, while by 2023, this share had risen dramatically to 44%. This shift reflects positive economic development trends in the region.

  • 3-4. Europe and Central Asia: Consistency in High-Income Classification

  • Europe and Central Asia has demonstrated consistent classification regarding high-income economies. The percentage of high-income countries in this region stood at 71% in 1987 and has slightly decreased to 69% in 2023. This stability indicates sustained economic strength across Europe and Central Asia.

4. Movements Between Income Categories in 2024-2025

  • 4-1. Countries Moving to High-Income Category

  • Three countries—Bulgaria, Palau, and Russia—moved from the upper-middle-income to the high-income category. Bulgaria's economy grew by 1.8% in real terms in 2023 due to robust consumption demand. Palau saw a real GDP increase of 0.4%, returning to pre-pandemic levels. Russia experienced significant growth amplified by military-related activities, with real GDP rising by 3.6% and nominal GNI per capita increasing by 11.2%.

  • 4-2. Countries Moving to Upper-Middle-Income Category

  • Algeria, Iran, Mongolia, and Ukraine moved from the lower-middle-income to upper-middle-income category. Algeria's economy experienced a considerable 4.1% growth in 2023, attributed to a major revision of national accounts statistics. Iran's economy grew by 5.0% due to oil exports, resulting in a 39.5% increase in nominal GNI. Mongolia’s real GDP grew by 7.0% as mining surged by 23.4%. Ukraine's economy rebounded with a 5.3% growth, driven by construction and significant investment in reconstruction efforts.

  • 4-3. Downward Movement: West Bank and Gaza

  • The West Bank and Gaza experienced a downward movement in classification due to the impact of conflict beginning in October 2023, resulting in a 9.2% drop in nominal GDP and a 5.5% drop in real GDP. This decline brought the Atlas GNI per capita back down, resulting in a classification shift to lower-middle-income.

5. Factors Influencing Income Classification Changes

  • 5-1. Economic Growth Rates

  • The World Bank's income classification relies heavily on economic growth rates, particularly GNI per capita, which is updated annually based on the previous year's data. From 1987 to 2023, significant shifts have been observed in income classification categories. For instance, the proportion of low-income countries decreased from 30% in 1987 to 12% in 2023, whereas high-income countries rose from 25% to 40%.

  • 5-2. Impact of Statistical Revisions

  • Statistical revisions profoundly affect income classifications. Countries undergo revisions to align their national accounts statistics with international standards, which can result in major changes in their classifications. For example, Algeria’s upward classification this year was primarily due to a comprehensive revision that increased its GDP figures by an average of 13.3% over several years.

  • 5-3. Effects of External Conflicts on Economies

  • External conflicts have substantial impacts on national economies and their corresponding income classifications. The West Bank and Gaza, for example, experienced a downward classification due to economic declines caused by conflict in the region. Following the conflict that began in October 2023, the economy suffered a 9.2% drop in nominal GDP, which led to a fall in Atlas GNI per capita, returning it to the lower-middle-income category.

Conclusion

  • The findings underscore profound global economic transformations captured by the World Bank's income categorizations, especially how individual and regional dynamics contribute to these shifts. In regions like South Asia, a reduction in low-income classifications suggests robust economic advancement, contrasting with the challenging economic landscapes in areas such as the West Bank and Gaza. The role of economic growth and statistical revisions is critical, as exemplified by Algeria and other nations experiencing classification changes due to comprehensive economic data updates. Historically, the consistency in classifications in Europe and Central Asia highlights sustained economic strength. Despite the significant insights provided, the report acknowledges limitations in addressing all underlying factors affecting income classification changes. Future research could delve into the effects of policy changes or international trade dynamics. Practically, understanding these classifications helps allocate financial aid and prompts strategic international development efforts to foster equitable growth across nations. As the world evolves, so too will these income classifications, reflecting new economic realities and challenges on the global stage.

Glossary

  • World Bank [International financial institution]: The World Bank is an international financial institution that provides loans and grants to the governments of low and middle-income countries for the purpose of pursuing capital projects. It aims to reduce poverty by providing financial and technical assistance. Its income classification system categorizes countries based on their gross national income (GNI) per capita, which is crucial for understanding their economic development and eligibility for various forms of financial assistance.

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