After struggling with poverty, low-capacity institutions, governance challenges, violence, and other risks for decades, these countries must now contend with the scars of the pandemic and Russia’s invasion of Ukraine. Accordingly, the international community must work together to help ensure their stability as a global public good—or else spillover effects associated with fragility and conflict become even more disruptive.
The pandemic has had a lasting economic impact, with income per capita in fragile statesprojected not to recover to 2019 levels until 2024. Russia’s war in Ukraine and its related spillovers, including on food and energy prices, further aggravated the situation.
Sub-Saharan Africa, home to about half of countries in the FCS category, has been hit particularly hard. Consumer prices have increased by more than 20 percent on average this year, while public debt is approaching 60 percent of gross domestic product—a level not seen since the early 2000s. We forecast that economic growth in seven countries—Burkina Faso, Central African Republic, Comoros, Eritrea, Mali, Nigeria, and Zimbabwe—will be below the regional average of 3.6 percent this year. In addition, 123 million people, or 12 percent of the region’s population, face acute food insecurity, equivalent to two-thirds of the worldwide total.
FCS in the Middle East and North Africa—more than one-third of the countries in the region—confront lingering effects from the pandemic and higher food and energy prices. Growth has remained sluggish at less than 1 percent, while per capita GDP continues to decline. Consumer prices are projected to rise by more than 30 percent on average this year and inflation will remain in double digits in 2023. Public debt as a share of GDP is forecast above 60 percent. As a result, FCS are facing very difficult trade-offs between rising spending needs, the difficulties in raising extra revenue, and elevated debt levels Vulnerable countries in the region also face food insecurity and social and political instability.
Conflict has returned even to regions considered to be more stable. According to the United Nations, Russia’s war in Ukraine increased the number of forcibly displaced people to 100 million. The influx of almost 8 million Ukrainian refugees in neighboring European countries requires governments to cope with short-term fiscal costs amid already tight budget constraints, and make policy decisions about labor market integration and access to social services.
These challenges are well-known in Africa and the Middle East, where policymakers contend with refugee flows and other regional impacts of fragility and conflict with few resources at hand. In this context, we should prioritize three ways to move these countries and their neighbors from fragility to stability and resilience.
Tailored multilateral engagement
First, the international community must support countries under stress, even in the toughest situations. This is especially important in places such as the Sahel, where overlapping security, humanitarian, and economic crises threaten to undermine country institutions at risk of state collapse. Consensus is growing that international financial institutions must remain engaged and play a key role in stabilizing fragile and conflict-affected economies and helping foster inclusive growth.
Just this year, the African Development Bank updated its fragile states strategy, and theEuropean Investment Bank adopted its first. The World Bank and the Asian Development Bank have taken similar steps since 2020.
In March, the IMF launched its Strategy for Fragile and Conflict-Affected States to strengthen our efforts to deliver more robust support to FCS, tailored to the constrained policy space in these countries.
The IMF is supporting FCS in several ways. For example, Mozambique’s program supports vulnerable households through cash transfers, including people forcibly displaced by conflict in the North. We support Somalia‘s efforts to rebuild key economic institutions and foster stability and growth, including through forthcoming debt relief under theHeavily Indebted Poor Countries Initiative with the World Bank. And we provide Yemenwith policy advice to help stabilize its economy and reduce food insecurity.
Financing is key
The second priority is expanding the scale of financing to match the challenges ahead.Our contributions are part of broader efforts, and we have been supporting global initiatives to cushion the impact on those countries most exposed to risks. During the pandemic, FCS received $14.3 billion in IMF financing and an additional $26 billion from last year’s IMF general allocation of special drawing rights.
In addition, the Fund recently set up the Resilience and Sustainability Trust , which will provide longer-term affordable financing to address structural challenges such as those brought about by climate change, and which is a potential additional source of financing for eligible FCS.
In September, the IMF’s Executive Board approved the new Food Shock Window to help countries faced with food cost-related balance of payment problems. Our policy advice, capacity development assistance, and financial support are coordinated with our international partners.
Addressing fragility is a global public good
Finally, it is essential to recognize that fragility evolves. Several middle-income countries are now facing intense challenges due to spillovers from conflicts in neighboring countries. Scaled-up support from the international community to countries providing a global public good, including by opening their borders to refugees, is therefore critical.
In recent years, multilateral development banks have enhanced their assistance—including through concessional financing to middle-income countries affected by spillovers from fragility and conflict, such as Colombia, Ecuador, Jordan, Lebanon, and, more recently, Moldova. These actions underscore how multilateral institutions can help countries better address regional and global challenges.
In an increasingly fragmented world, we can only respond effectively by joining forces to manage interconnected risks. For the international community, this means strengthening its social contract with the most vulnerable countries which cannot absorb these shocks alone.
*About the authors:
- Jihad Azour is the Director of the Middle East and Central Asia Department at the International Monetary Fund where he oversees the Fund’s work in the Middle East, North Africa, Central Asia and Caucasus.
- Franck Bousquet is the deputy director coordinating engagement with fragile and conflict-affected states (FCS). Franck led the preparation of the IMF FCS Strategy approved by the Board in March 2022.
- Abebe Aemro Selassie is the Director of the IMF’s African Department. Previously, he was deputy director of this department.
Source: This article was published by IMF Blog