government debt in these countries declined by 53 percentage points of GDP, on average, to 31 percent of GDP. Rapid growth from 2001, more broadly, also supported the reduction of debt ratios. In the median 2001 LIC, government debt declined by 35 percentage points of GDP, from 84 percent of GDP in 2001 to 49 percent of GDP in 2018.

**Figure 4. Domestic factors supporting LIC growth**

<!-- Start of picture text --> A. Public finances before and B. Share of population with C. Average secondary school<br>after debt relief access to electricity enrolment rates<br>Percent of GDP Percent of GDP Percent Percent<br>2001 LICs 2001 LICs<br>6 25<br>80 LICs turned MICs 60 LICs turned MICs<br>4 Continued LICs Continued LICs<br>23<br>2<br>60<br>0 21 40<br>-2<br>19 40<br>-4<br>-6 17 20<br>5-year before 5-year after 20<br>Poverty-reducing expenditure<br>Fiscal deficit 0 0<br>Non-interest government expenditure (RHS) 1990s 2010s 1990s 2010s<br>D. Average life expectancy E. Share of LICs with flexible F. Control of corruption<br>exchange rate arrangements<br>Years 2001 LICs Percent 2001 LICs Index 2001 LICs<br>70 LICs turned MICsContinued LICs 40 LICs turned MICsContinued LICs -0.6 LICs turned MICsContinued LICs<br>30 -0.7<br>60<br>20 -0.8<br>50<br>10 -0.9<br>40 0 -1.0<br>1990s 2010s 2001-10 2016 2001 2017<br><!-- End of picture text --> Source: Reinhart and Rogoff (2004), World Governance Indicators, World Development Indicators.

Note. “LICs turned MICs” are those LICs in 2001 that have achieved MIC per capita incomes by 2020; “Continued LICs” are LICs that have remained LICs since 2001.

A. Poverty-reducing expenditure represents public spending on health and education. Unweighted average for 26 LICs that received MDRI or HIPC debt relief between 2000-2010.

B.-F. Unweighted averages.

B. 2010s includes data up to 2016. 2001 LICs, “LICs turned MICs,” and “Continued LICs,” include 62, 35 and 27 countries, respectively. C. 2010s includes data up to 2017. 2001 LICs, “LICs turned MICs,” and “Continued LICs,” include 47, 25 and 22 countries, respectively.

D. 2010s includes data up to 2017. 2001 LICs, “LICs turned MICs,” and “Continued LICs,” include 64, 32 and 32 countries, respectively. E. Following the coarse exchange rate regime classification of Reinhart and Rogoff (2004), where categories 1-2 represents fixed, and 3-6 represent more flexible arrangements. 2001 LICs, “LICs turned MICs,” and “Continued LICs,” include 63, 35 and 28 countries, respectively. F. 2001 LICs. “LICs turned MICs,” and “Continued LICs,” include 64, 35 and 29 countries, respectively.

This reduction of debt burdens has helped put public finances on a sounder footing. While government deficits increased slightly (by about 1 percentage point of GDP), non-interest government expenditures rose by 5 percentage points of GDP, and combined health and education expenditures rose by one-fifth between the five years preceding debt relief and the five years following it (Figure 4). More sustainable public finances supported macroeconomic stability (Bayraktar and Fofack 2011; Marcelino and Hakobyan 2014).

Since 2013, the downward trend in 2001 LICs’ debt has reversed, with government debt rising in the median 2001 LIC by 14 percentage points of GDP to 49 percent of GDP in 2018. That said, 7