Insights into Global Economic Shifts
World Bank Updates Country Income Classifications for 2024–2025
Introduction
The World Bank has released its annual update of country income classifications for fiscal year 2025 (FY25), covering the period from July 1, 2024, to June 30, 2025. Based on Gross National Income (GNI) per capita data from the 2023 calendar year, these classifications are a cornerstone for analyzing global development trends. They significantly influence international aid allocation, eligibility for concessional loans, investment strategies, and national and global policy formulation. This latest update reflects the dynamic nature of the global economy, capturing shifts driven by economic growth, inflation, demographic changes, and methodological improvements.
Theme
This article explores the World Bank’s methodology for classifying economies by income level, highlights the key changes in income status from the 2024–2025 update, examines the drivers behind these shifts, and discusses their broader implications for both the reclassified countries and the global development landscape.
Understanding the World Bank Classification System
The World Bank groups economies into four income categories based on GNI per capita (in current USD):
- Low Income: ≤ $1,175
- Lower-Middle Income: $1,176 – $4,615
- Upper-Middle Income: $4,616 – $14,295
- High Income: > $14,295
These categories are updated annually on July 1 using the Atlas method, which averages exchange rates over three years and adjusts for inflation differences between the country in question and major economies (US, UK, Eurozone, Japan, China). This smoothing approach helps to reduce the volatility caused by short-term exchange rate fluctuations.
Key Country Reclassifications for 2024–2025
Upgraded from Upper-Middle to High-Income Economies
- Bulgaria
Real GDP growth of 1.8% in 2023, primarily fueled by rising real wages and household consumption, pushed Bulgaria past the $14,295 high-income threshold. This aligns with Bulgaria’s broader economic convergence within the European Union. - Palau
Although GDP growth was modest (0.4%), Palau’s nominal GNI per capita rose by 10%, reflecting a rebound in tourism and external income flows post-COVID. It now qualifies as a high-income economy. - Russia
Despite international sanctions, Russia’s economy grew by 3.6% in real terms in 2023, driven by military spending and growth in key sectors like construction, finance, and trade. Nominal GNI per capita increased by 10.9%, lifting Russia into the high-income bracket—although the sustainability of this growth remains uncertain.
Upgraded from Lower-Middle to Upper-Middle-Income Economies
- Algeria
Adoption of an updated national accounting framework (SNA 2008) combined with 4.1% GDP growth supported by strong energy exports contributed to Algeria’s reclassification. - Iran
With 5% GDP growth in 2023, driven by increased oil exports and strong services/industrial activity, Iran saw a significant rise in GNI per capita—despite ongoing sanctions and macroeconomic volatility. - Mongolia
Mongolia experienced robust GDP growth of 7%, fueled by a surge in mining and exports (particularly coal and copper to China). This resource-driven boom propelled it into the upper-middle-income range. - Ukraine
Despite the ongoing war, Ukraine’s economy grew by 5.3% in 2023. Coupled with a population decline of over 15% since 2022, this led to an 18.5% increase in GNI per capita—allowing the country to regain its upper-middle-income status.
Drivers of Classification Changes
1. Changes in GNI per Capita (Atlas Method):
- Economic Growth: Increases national income.
- Inflation: Affects nominal income, but its impact is moderated by exchange rate trends and the Atlas smoothing mechanism.
- Exchange Rates: Depreciation against the USD reduces GNI per capita in dollar terms; appreciation raises it.
- Population Growth: A declining population can inflate GNI per capita even if total GNI is stable or growing.
- National Account Revisions: Changes in data or methodology, as seen in Algeria, can significantly affect reported GNI.
2. Adjustments to Income Thresholds:
Income thresholds are adjusted annually using the SDR deflator (a weighted average of inflation in the US, UK, Eurozone, Japan, and China) to account for global inflation. For FY25, the high-income threshold rose from $13,845 (FY24) to $14,295.
Conclusion
The World Bank’s FY25 income classifications reflect the dynamic nature of global development and the resilience or fragility of national economies. The upward movement of countries such as Bulgaria, Mongolia, and Ukraine illustrates progress under varied conditions—from post-pandemic recovery and resource-led growth to adaptation during active conflict.
However, ascending to a higher income category has policy implications. It may reduce eligibility for concessional finance, shift access to aid, and alter a country’s risk perception among investors. These classifications therefore hold strategic value for governments, development agencies, and the private sector alike—serving as a global benchmark for socioeconomic progress.
Tags:
World Bank, Country Classification, GNI per Capita, Global Development, High-Income Economies, Middle-Income Economies, FY25, Atlas Method, SDR Deflator, Economic Trends, Global Economy, Income Thresholds, Economic Policy
References:
World Bank. (2024). World Bank Country Classifications by Income Level for 2024–2025. World Bank Blogs: Open Data.
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