Why the fuss over the World Bank’s country income classification?
The World Bank has been classifying countries according to their level of income since the late 1980s. The classification is based on the Gross National Income (GNI) per capita denoted in US$ for comparability across different countries.
In layman’s terms, GNI per capita is the total annual income of a country equally divided among all its citizens.
Countries are classified as low income (per capita income of less than US$1 036), lower middle income (per capita income between US$ 1036 and US$ 4045), uppermiddle income (per capita income between US$4 046 and US$12 535) or high income (per capita income more than US$12 535). The thresholds are adjusted annually for inflation and the country classifications are updated annually using the previous year’s GNI per capita estimates.
Country income classification is one of the factors considered by some international organizations and donors when allocating foreign aid.
According to the latest update of the income classifications released on the 1st July 2020, Mauritius graduated to a high income country to join Seychelles which was upgraded in 2015.
Botswana, Equatorial Guinea,
Gabon, Namibia and South Africa are classified as upper middle income countries while majority of the sub-Saharan Africa countries are classified as lower middle income (eighteen countries) and low income (twenty three countries).
Namibia was classified as a lower middle-income country for the first eighteen years after independence before graduating to an upper middle income country in 2009 and its GNI per capita is estimated to have increased from US$4 260 in 2009 to US$5 060 in 2019.
A key highlight of the 2020 update is the upgrade of Tanzania from a low income to a lower middle income group.
Tanzania’s per capita income marginally increased from US$1 020 in 2018 to US$1 080 in 2019, with the World Bank attributing it to a revision of that country’s national accounts.
The revision of national accounts is a common international practice to ensure the quality and comparability of national account statistics internationally.
What caught my attention is Tanzanian President John Magufuli’s reaction to the news of Tanzania’s new attained income status. In a tweet, he congratulated his fellow citizens for what he referred to as a historic achievement.
It is historic in the sense that
Tanzania’s Development Vision 2025 envisaged that the country will only graduate to a middle income country by the year 2025.
However, what is perhaps more significant about Tanzania’s upgrade is the fact that the country’s credit worthiness has improved and the lower middle income status will allow the country to break away from donor dependency.
These are the sentiments of Tanzania’s finance and planning minister.
In contrast, there is somewhat a negative perception about Namibia’s upper middle income status.
The point of contention is that because of the high level of income inequality (GINI coefficient of 0.591), the GNI per capita does not accurately reflect the distribution of income and the standard of living for an average Namibian.
The President has on several occasions lamented the World Bank’s classification of Namibia as an upper middle income country.
Recently, in his 2020 state of the nation address, he stated that the upper middle income status is disadvantaging Namibia as it now has limited access to concessional loans and grants required to address its socio-economic structural imbalances.
Since Namibia’s upgrade to an upper middle income group, there has been a reduction in donor funding, particularly for health care programmes.
In an interview with New Era in 2018, John Steytler, then economic advisor to the President, claimed that Namibia’s status, as an upper middle income country is one of the reasons for the country’s increasing public debt.
There does not seem to be empirical evidence to this effect.
Interestingly and in contrary to the President’s statements, some discussions and research seem to be focused on how Namibia can achieve high (equitable and sustainable) economic growth to be able to escape the middle income trap.
Vision 2030’s aspiration is for Namibia to become a high income country by the year 2030.
In a 2014 study, Bertha Kazauana argues that Namibia should embrace the upper middle income status and reap the benefits that come with it instead of fighting to hold on to a lower middle income status.
These benefits include a better credit rating, being in a better position to influence the borrowing conditions and increased investment opportunities. I share the same sentiment with Kazauana.
In addition to taking full advantage of the benefits that come with the upper middle income status, Namibia must manage and allocate its resources better to benefit its relatively small population.
Such efforts can be complemented by the technical support that Namibia continues to receive from international organisations such as the United Nations agencies.
It is worth mentioning that Vision 2030 recognizes broader bilateral and multilateral partnerships (and not donor dependency) as one of the key principles to achieve sustainable development.