tenth of the population in Yemen (World Bank 2017a, 2019d). In both countries, oil production has fallen by 90 percent from pre-war levels, sharply constraining fiscal positions.

# **4. Prospects for further LIC progression**

Prospects for most of today’s LICs to progress to MIC levels in the near future are dim, as the factors that may hold back progression are more pervasive today than they were in the 2001 LICs (Figure 6).

- _Weaker starting positions._ The gaps between per capita incomes in today’s LICs and in middle-income countries are larger than the corresponding gaps faced by the LICs of 2001 that subsequently became MICs. Comparing today’s LICs with those that have become MICs, current public spending on health care relative to GDP in today’s LICs is one-fifth lower than health care spending was in 2001 in the LICs that became MICs, measures of human capital development are lower by about one-tenth, the share of their populations with access to electricity is lower by one-third, and some measures of financial inclusion are lower by almost one-half.<sup>11</sup>

- _Fragile or in conflict._ Fifty-five percent of today’s LICs are countries affected by fragility, conflict, and violence (FCV)—more than one-quarter higher than the share of countries in conflict among the 2001 LICs that became MICs.<sup>12</sup> In these FCVs, weak governments and poor institutions are endemic. Government revenues in these countries are often lower than in other LICs, leaving them heavily dependent on foreign aid to finance critical government spending (IMF 2014). Their economies are volatile and prone to collapses (World Bank 2017b). Since 1990, chronic FCVs—countries that have been FCVs for at least five years— have faced annual output contractions of 3 percent or more at least once every decade.

- _Clustered._ More than half of the LICs that are not FCVs are landlocked, and their neighbors are other LICs or countries with per capita incomes just above middle-income thresholds. This geographical disadvantage—often exacerbated by high trade costs and behind-theborder non-tariff barriers—limits LICs’ ability to unleash a growth burst by encouraging trade with large trading partner economies (Arvis et al. 2010; Arvis et al. 2013; Paudel and Cooray 2018).

- _Heavily reliant on agriculture._ All but one (Yemen) of today’s LICs is heavily dependent on the agriculture sector, which accounts for 30 percent of GDP on average compared with 9 percent of GDP in the average non-LIC EMDE. In 75 percent of today’s LICs (considerably more than the 35 percent of 2001 LICs that became MICs) agriculture accounts for more than one-quarter of the economy. Climate change is presenting many of these agricultural sectors with severe challenges as mean temperatures continue to rise and

> 11 While mobile payment systems have improved financial inclusion in LICs, limited access to electricity, particularly in rural areas, severely constrains the charging of mobile phones (Max and Berman 2018; Riley and Kulathunga 2017, World Bank Group and China Development Bank 2017).

> 12 Due to data limitations, official FCV country classifications for 2001 are not available. This share is based on the World Bank FCV country classification of the 2005/06 fiscal year that has been amended to include countries with UN peace-keeping missions between 1999 and 2001.

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