Economic Prospects and Development Challenges in Landlocked Developing Countries (LLDCs)

Recent years have been marked by overlapping global crises, severely impacting the economies of Landlocked Developing Countries (LLDCs).

While economic growth in these countries has shown signs of stabilization, they continue to face the lingering effects of the COVID-19 pandemic.

These nations, which already grapple with structural challenges such as geographical remoteness, over-reliance on commodity exports, inadequate social safety nets, and heightened vulnerability to climate change, are facing increasing fragility.

The upcoming Third UN Conference on LLDCs in Gaborone, Botswana (10–13 December 2024) aims to address these ongoing challenges and identify effective solutions to unlock the potential of these countries.

This briefing highlights the current macroeconomic conditions of LLDCs and outlines their key development hurdles in the post-pandemic world.

Macroeconomic Trends in LLDCs

The economies of LLDCs have experienced several years of disruption from multiple shocks, but growth rates are forecast to stabilize in 2024 and 2025 at 4.7% and 4.8%, respectively.

While these figures represent a recovery from the steep declines during the pandemic, they remain below the pre-pandemic growth rate of 5.3% (2010–2019).

The pandemic’s impact has led to a significant output loss for these countries.

From 2020–2023, LLDCs lost an average of over 6% of their output per year compared to pre-pandemic trends, a greater loss than the 4.7% for developing economies overall.

The Least Developed Countries (LDCs) within the LLDC group have been particularly hard hit, with output losses continuing to widen, surpassing 10% in 2023.

LLDCs in the Commonwealth of Independent States (CIS) region have seen relatively better performance, driven by wage growth, remittance inflows, and investment in construction.

However, geopolitical conflicts and secondary sanctions from trade with Russia continue to present risks.

On the other hand, LLDCs in Africa, Asia, and Latin America face slower growth, exacerbated by natural disasters such as droughts and floods, high borrowing costs, political instability, and commodity price fluctuations.

Commodity dependence remains a major vulnerability for LLDCs, with lower prices for oil and minerals slowing growth in resource-dependent countries.

Despite the easing of inflation pressures globally, inflation rates in LLDCs are expected to remain high, particularly due to challenges such as transport costs, exchange rate volatility, and governance issues.

Inflation in LLDCs is projected to moderate from 14% in 2023 to 10.5% in 2024 and 7.3% in 2025, although several countries will continue to face persistent inflationary pressures.

Economic Policy Challenges Amid Recent Crises

LLDC central banks have generally reduced interest rates to manage inflation and growth risks, with notable exceptions in countries like Lao PDR, Malawi, and Zambia.

Over the past few years, these countries have faced difficult trade-offs, including balancing inflation control with efforts to stimulate growth.

Declining commodity prices, rising trade restrictions, and tightened global financial conditions have adversely affected their balance-of-payments positions.

Foreign direct investment (FDI) flows have remained subdued, exacerbating economic difficulties, with net FDI to LLDCs totaling only $20 billion in 2022—well below the 2015–2019 average.

Weak balance-of-payments positions have led to currency depreciation in several LLDCs, putting financial stability at risk.

In 2024, several LLDCs, including Armenia, Bolivia, and Kazakhstan, have foreign exchange reserves that are barely enough to cover three months of imports, raising concerns about currency and financial stability.

Fiscal conditions are similarly strained, as many LLDCs had limited fiscal space to implement effective pandemic-related measures.

On average, these countries spent only 3.5% of GDP on pandemic-related measures, far below the world average.

This fiscal limitation has contributed to higher debt risks, with external debt averaging 51% of GDP in LLDCs, compared to 15% in developing countries overall.

Debt servicing costs remain a significant concern, with some countries spending as much as 22% of export revenue on debt servicing.

Progress Toward Sustainable Development Goals (SDGs)

LLDCs face inherent structural vulnerabilities that make achieving the SDGs particularly challenging.

These countries are geographically isolated with limited access to international markets, which leads to high transport costs and reduced competitiveness.

In 2018, 26.4% of LLDC populations lived below the international poverty line ($2.15 per day), significantly higher than the global average of 8.8%.

These challenges have been exacerbated by the COVID-19 pandemic and subsequent shocks, which have led to higher unemployment rates, increased informal sector employment, and reduced access to social safety nets.

High unemployment, combined with large informal sectors, means many LLDC workers lack basic protections such as health insurance and unemployment benefits.

In 2023, unemployment rates were higher in LLDCs than the global average, with gender disparities widening in many regions.

The lack of social protection systems leaves populations vulnerable to shocks, leading to a rise in extreme poverty.

Poverty rates have worsened in several LLDCs.

For example, in Mali, the extreme poverty rate increased from 15.2% in 2018 to 20.8% in 2021, and in Zambia, it rose from 60.8% in 2015 to 64.3% in 2022.

Food insecurity has also worsened since 2020, driven by disruptions in food supply chains, rising food prices, and climate-related events.

In LLDCs, 51.9% of the population faces moderate or severe food insecurity, far higher than the global average of 29%.

Limited Productivity Growth Amid Structural Challenges

Economic diversification in LLDCs has been limited, with agriculture continuing to dominate their economies.

Manufacturing remains underdeveloped, and these countries remain highly dependent on primary commodity exports, which are vulnerable to price fluctuations.

Productivity growth has been slow, with labor productivity rising modestly from $7.9 in 2014 to $8.9 in 2023, well below the global average.

To improve productivity, LLDCs need better infrastructure, skilled labor, and stronger institutional frameworks.

The Vienna Programme of Action (VPoA), adopted by the UN in 2014, prioritizes these areas, and its progress will be reviewed at the Third UN Conference on LLDCs in December 2024.

Integration into global trade and value chains is crucial for improving productivity and promoting sustainable growth.

However, LLDCs remain marginalized in global trade, with their exports accounting for less than 1% of the world total.

The lack of direct access to sea ports, combined with high transport costs and geopolitical tensions, hampers their ability to benefit from global trade.

Infrastructure deficiencies, both physical (roads, electricity) and digital (internet access, communication networks), further limit their potential for growth.

The Way Forward

The economic and development challenges faced by LLDCs require targeted efforts to accelerate structural transformation, enhance transport connectivity, improve digital infrastructure, address climate change, and foster regional integration.

Many of these efforts will require substantial external support, as LLDCs struggle with high debt burdens and limited fiscal space.

Some LLDCs have already made progress through policy initiatives such as incorporating the VPoA into national development plans and promoting public-private partnerships for infrastructure development.

Regional trade agreements and initiatives, such as the African Continental Free Trade Area, are helping to improve connectivity and trade facilitation.

However, to secure long-term economic recovery and social welfare gains, LLDCs need continued support from the international community in the form of development aid, technology transfer, and regional cooperation.

The Third UN Conference on LLDCs in December 2024 will provide an opportunity to discuss strategies and forge partnerships to address these challenges and unlock the full potential of LLDCs for sustainable development.

The Monthly Briefing on the World Economic Situation and Prospects is part of the monitoring and analysis activities of the Global Economic Monitoring Branch (GEMB) of the Economic Analysis and Policy Division (EAPD) of UN DESA.

This issue was prepared by Zhenqian Huang under the supervision of Hamid Rashid, Chief of GEMB, and with guidance from Shantanu Mukherjee, Director of EAPD.

The briefing benefited from comments by Kenneth Iversen, Ingo Pitterle, and Sebastian Vergara, with statistical support from Andrea Dominovic.

Additional Resources

• UN DESA
• Global Economic Monitoring Branch
• Development Policy Branch
• UN-OHRLLS (Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries, and Small Island Developing States)