How the World Bank Classifies Developing Countries

The World Bank is a global financial institution that provides loans and other forms of assistance to developing countries. To guide its work, the World Bank classifies countries into four income groups: low, lower-middle, upper-middle, and high-income.

The World Bank's income classification system is based on gross national income (GNI) per capita, which is calculated by dividing a country's total income by its population. GNI is a measure of a country's economic output and includes income from all sources, including labor, capital, and natural resources.

For the 2024 fiscal year, the World Bank has classified developing countries as follows:

• Low-income countries: GNI per capita of $1,135 or less
• Lower-middle-income countries: GNI per capita of $1,136 to $4,465
• Upper-middle-income countries: GNI per capita of $4,466 to $13,845

The World Bank's income classification system is important for several reasons. First, it helps the World Bank allocate its resources more effectively. The World Bank provides more concessional financing to low- and lower-middle-income countries, which are typically in greater need of assistance.

Second, the World Bank's income classification system is used by other organizations to track progress on development goals. For example, the United Nations Sustainable Development Goals (SDGs) include targets to reduce poverty and inequality in all countries, regardless of income level.

Third, the World Bank's income classification system can be used by businesses and investors to make informed decisions. For example, a company that is considering expanding into a new market may want to consider the country's income level as one factor in making its decision.

How the World Bank's Country Classification System Can Be Used

The World Bank's country classification system can be used in a variety of ways. For example, it can be used to:

• Track progress on development goals. The World Bank's income classification system can be used to track progress on development goals, such as reducing poverty and inequality. For example, the World Bank can use its income classification system to track the number of people living in extreme poverty in each country.
• Identify the countries that need the most assistance. The World Bank's income classification system can be used to identify countries that need the most assistance. For example, the World Bank can use its income classification system to identify low-income countries that are struggling to meet the needs of their populations.
• Design and implement effective development programs. The World Bank can use its income classification system to design and implement effective development programs. For example, the World Bank can design different types of development programs for low- and middle-income countries based on their specific needs.
• Make informed business and investment decisions. Businesses and investors can use the World Bank's income classification system to make informed decisions. For example, a company that is considering expanding into a new market may want to consider the country's income level as one factor in making its decision.

Challenges of the World Bank's Country Classification System

The World Bank's country classification system is not without its challenges. One challenge is that it is based on a single measure of economic development: GNI per capita. GNI per capita is a useful measure of economic development, but it does not take into account other important factors such as poverty inequality, human development, and environmental sustainability.

Another challenge is that the World Bank's income classification system can change over time. This is because a country's GNI per capita can fluctuate due to a variety of factors, such as economic growth, inflation, and exchange rates. As a result, a country can move from one income group to another from year to year.

Conclusion

The World Bank's country classification system is a useful tool for tracking progress on development goals, identifying countries that need the most assistance, designing and implementing effective development programs, and making informed business and investment decisions. However, it is important to be aware of the limitations of the system, such as its reliance on a single measure of economic development and its potential to change over time.

Additional Information

In addition to the four income groups described above, the World Bank also classifies countries into three operational lending categories:

• International Development Association (IDA) countries: These are countries with the lowest GNI per capita and the least financial ability to borrow from the World Bank.
• International Bank for Reconstruction and Development (IBRD) countries: These are countries with a higher GNI per capita and the financial ability to borrow from the World Bank.
• Blend countries: These are countries that are eligible for both IDA and IBRD loans.