World Bank Updates Income Classifications: Global Economic Shifts Highlighted

The World Bank Group categorizes global economies into four income groups: low, lower-middle, upper-middle, and high. These classifications, updated annually on July 1 based on the previous year’s GNI per capita, are expressed in U.S. dollars using the Atlas method. This method, introduced in 1989, aims to provide a consistent measure of a country’s economic capacity by reflecting its development level through the Atlas GNI per capita.

Over time, the classification of countries has seen significant changes. In 1987, 30% of reporting countries were classified as low-income and 25% as high-income. By 2023, these proportions had shifted to 12% low-income and 40% high-income.

These shifts vary greatly across different regions. For instance, South Asia saw a dramatic decrease in low-income countries, from 100% in 1987 to 13% in 2023. In contrast, the Middle East and North Africa experienced an increase in low-income countries, reaching 10% in 2023 from none in 1987. In Latin America and the Caribbean, high-income countries rose from 9% in 1987 to 44% in 2023. Europe and Central Asia saw a slight decrease in high-income countries, from 71% in 1987 to 69% in 2023.

Country income classifications can change due to two main reasons: variations in Atlas GNI per capita and adjustments to classification thresholds. Economic growth, inflation, exchange rates, and population growth can all impact a country’s GNI per capita. Additionally, classification thresholds are adjusted annually for inflation using the Special Drawing Rights (SDR) deflator, which includes GDP deflators from China, Japan, the United Kingdom, the United States, and the Euro Area.

For FY25, the updated classifications based on 2023 GNI per capita saw three countries—Bulgaria, Palau, and Russia—move from upper-middle-income to high-income. Bulgaria’s steady growth, Palau’s post-pandemic recovery, and Russia’s economic activity influenced these changes.

Several countries also moved from lower-middle-income to upper-middle-income, including Algeria, Iran, Mongolia, and Ukraine. Algeria’s reclassification was primarily due to revised national account statistics. Iran’s growth was driven by oil exports, Mongolia’s recovery was fueled by mining and export prices, and Ukraine’s classification change resulted from economic growth and population decline amid ongoing conflict. Conversely, the West Bank and Gaza were the only places downgraded this year due to the Middle East conflict starting in October 2023, which led to a significant economic downturn.

These updates reflect the dynamic nature of global economies and the importance of consistent and accurate economic measurement. The new thresholds and detailed data on Atlas GNI per capita for 2023 provide insight into the evolving economic landscape worldwide.

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