Glossary 6

SECTION I: NAVIGATING GLOBAL CHALLENGES AND SHIFTS IN EXTERNAL FINANCING 8

RECENT DEVELOPMENTS AND OUTLOOK IN LICS 8

A. A Challenging Global Context 8

B. Macroeconomic Outcomes in LICs Remain Highly Uneven 9

C. Reforms Are Underway, Yet More Effort Is Needed 14

A SHIFTING EXTERNAL FINANCING LANDSCAPE FOR LICS 21

A. Major Evolutions in External Inflows 21

B. Declining External Flows and Lower Capital Returns in LICs 29

POLICY PRIORITIES 30

A. Resolute Domestic Policies and Reforms 30

B. External Support 33

C. A Strong Role for the IMF 34

SECTION II: ATTRACTING INVESTMENT IN UNCERTAIN TIMES: FISCAL POLICY AND INSTITUTIONAL DRIVERS OF FDI IN LOW-INCOME COUNTRIES 42

A. Introduction 42

B. FDI in LICs: Small Flows, Changing Sources, Declining Quality 46

C. Identifying Key Domestic Pull Factors for FDI in Light of Existing Research 49

D. Empirical Assessment of Key Domestic Pull Factors Shaping FDI into LICs 56

E. Lessons from Country Reform Experiences 63

F. Policy Implications and Recommendations 66