Middle Income Countries and Multilateral Development Banks Traps on the Way to Graduation

Multilateral Development Banks (MDBs) have two financing windows, with different terms, dedicated to low- and middle-income countries. Countries are presumed to cross those windows as their income per capita rises, with middle-income countries (MICs) eventually “graduating” to a non-client status once they reach some criteria. However, due to what may be called “middle-income traps”, such progression toward graduation has been limited to a small number of countries. The qualitatively distinctive nature of the middle-income stage of development differentiates it from both high- and low-income phases, demanding an effort to go beyond generalizations about growth and productivity. In our view, the relevance of the concept of middle-income traps stems not from being a hypothesis about deterministic trends in growth, but rather as a warning shot about “complacency” risks of casting forward past transition successes. Instead, updating and prioritizing policies and strengthening institutions to new requirements are paramount. Individual middle-income country experiences of falling into a “trap” could also be approached as cases of lack of – or failing performance in – footing the bill in terms of appropriate foundations for development.