Fragile and conflict-affected states are home to nearly 1 billion people facing many challenges—from low-capacity institutions and the limited provision of public goods to extreme poverty, forced displacement, and even war. Fragility and conflict are also linked to trends such as climate change, food insecurity, and persistent gender inequalities. The economic impact of the COVID-19 pandemic has been most severe in FCS, where per capita incomes are estimated to recover to 2019 levels only after 2024. If these trends persist, 60 percent of the global poor may live in FCS by 2030. FCS are at thus a significant risk of falling behind in their post-pandemic recovery, but also in achieving the Sustainable Development Goals. In addition, spillovers originating in FCS can also threaten macroeconomic stability and inclusive growth prospects in neighboring countries and regions.
Therefore, the IMF is stepping up its engagement with fragile states, including by completing its first FCS Strategy. This Strategy aims to provide robust, well-tailored, and longer-term support to help these vulnerable countries achieve macroeconomic stability, strengthen resilience, promote sustainable and inclusive growth, and exit fragility. While the Strategy is primarily focused on FCS, it is also relevant for countries at risk of becoming fragile and conflict-affected—whether due to internal factors or external shocks and spillovers
The IMF’s new FCS strategy has been developed through an extensive consultation process. The Fund has received feedback from over 55 organizations including the World Bank and regional development banks, the United Nations system, civil society organizations (CSOs), think tanks, and academia.
The IMF has had a long-standing engagement with fragile and conflict-affected states. Over the past decade, the Fund has provided emergency financial support worth US$7.5 billion to 28 economies considered FCS. During the COVID-19 pandemic, the Fund and the World Bank have actively supported the implementation of the G20 Debt Service Suspension Initiative (DSSI) in which 24 eligible FCS have requested to participate since 2020. FCS have also benefited from US$16.2 billion from the recent SDR allocation – which directly boosted foreign exchange reserves, supporting external stability and confidence. The FCS Strategy builds on this experience and lessons learned, providing a framework and a set of measures that will allow the Fund to better support its most vulnerable members. These include:
Greater tailoring of Fund engagement and instruments to the country-specific manifestations of fragility and conflict. The Strategy makes the case that the implications of fragility and conflict are macro-critical and directly relevant to the IMF’s mandate. It outlines principles of engagement to ensure that the IMF’s comparative advantage will be effectively leveraged to help country authorities in FCS achieve better macroeconomic outcomes. The Strategy also provides for stepped-up capacity development to strengthen economic institutions in FCS and greater agility of the IMF’s lending toolkit.
Closer proximity to our most vulnerable members. As exiting fragility and building resilience take time, the Strategy will lead to an expanded Fund presence in FCS to help country authorities respond to economic challenges associated with fragility and conflict, and deliver tailored support over the long run.
Stronger partnerships to amplify the Fund’s impact. Since progress in FCS requires a unified effort among partners, the Strategy spells out how the IMF will work with development, humanitarian, and peace actors who play a key role in helping FCS make progress.
June 6-7, 2022
To employ a growing population, the region needs to transform informal jobs, reduce barriers to business growth, and create conditions conductive to jobs growth in higher productivity sectors—especially in fragile and low-income countries
This paper examines the macroeconomic frameworks of IMF-supported programs with low-income countries from 2009 to 2022, focusing on how macroeconomic targets and their achievement differ between fragile and conflicted-affected states (FCS) and non-FCS. Key findings include similar program targets for FCS and non-FCS, optimism in all dimensions considered other than inflation, and no significant correlation between targets and outcomes. For variables other than inflation, country-independent targets equal to the mean or median outcomes of other programs outperform program projections as predictors of actual outcomes. This underscores the challenges in setting realistic, country and program-specific targets in IMF-supported programs with low-income countries. Finally, we discuss potential caveats, including GDP rebenchmarking, non-linear relationship between initial conditions and targets, and repeat programs. We do not study, and make no claims about, causality.
This paper investigates the consequences of global shocks on a sample of low- and lower-middle-income countries with a particular focus on fragile and conflict-affected states (FCS). FCS are a group of countries that display institutional weakness and/or are negatively affected by active conflict, thereby facing challenges in macroeconomic policy management. Examining different global shocks associated with commodity prices, external demand, and financing conditions, this paper establishes that FCS economies are more vulnerable to these shocks compared to non-FCS peers. The higher sensitivity of FCS economies is mainly driven by procyclical fiscal responses, aggravated by the lack of effective spending controls and timely access to financial sources. External financing serves as a source of stability, partially mitigating the adverse impact of global shocks. This paper contributes to a better understanding of how conditions of fragility, which are on the rise in many parts of the world today, can amplify the effects of negative exogenous shocks. Its results highlight the diverse nature of underlying sources of vulnerabilities, spanning from fiscal and external buffers to institutional quality and economic structure, with lessons applicable to a broader set of countries. Efficient and timely external financial support from external partners, including international financial institutions, should help countries’ counter-cyclical responses to mitigate adverse shocks and achieve macroeconomic stability.
This paper quantifies the macroeconomic spillover effects of conflict within sub-Saharan African (SSA) countries using a new Conflict Spillover Index (CSI), which accounts for conflict intensity and distance from conflict-affected countries. Our findings reveal an escalation in conflict spillovers across SSA since 2011, marked by considerable cross-country heterogeneity. Impulse responses show that conflict spillovers shocks significantly and persistently hinder economic growth, while concurrently elevating inflation in the “home” country. Conflict spillover shocks are also associated with increases in (current) government spending and government debt. Furthermore, the international trade transmission channel of spillovers operates mostly through increased imports, while negative effects on FDI winddown over time. Moreover, state-dependent impulse responses underscore the importance of good governance, fiscal space, and foreign aid in attenuating the adverse macroeconomic spillover effects of conflict. The detrimental impact of conflict on output is more severe in environments with weaker governance and limited fiscal space. Government expenditures tend to rise following a spillover shock in contexts of high governmental effectiveness, possibly reflecting the use of policy buffers to respond to shocks. In that context, the papers shed light on important factors to promote resilience in SSA economies.
Violent conflicts are typically associated with a long-lasting drag on economic output, yet establishing causality based on macro-data remains as a challenge. This study attempts to build causality in the conflict-growth nexus by exploiting within-country variation across industries’ technological intensity. It identifies a channel through which conflicts can impact growth, i.e., by hindering R&D activities. The analysis is based on industry-level data from two-digit manufacturing industries for a large sample of countries over the last four decades. The results show that conflicts lead to a decline in labor productivity growth, particularly in industries with higher technological intensity. The estimated magnitude of the differential effect of conflicts on labor productivity growth in high-tech industries is large. Moreover, the additional labor productivity loss in those industries in the years of conflicts does not seem to be offset in the post-conflict period neither. The findings offer insight into the observed patterns of durable declines in income in the aftermath of conflicts, considering the role of technological progress and innovation in long-term economic growth.
This study investigates the factors leading to exclusion and their detrimental impacts in sub-Saharan Africa (SSA). It employs two-levels of analysis: a macro-level estimation of the influence of exclusion and marginalization on violent conflict, and a micro-level investigation identifying the triggers of exclusion sentiments. We construct statistical summaries from multiple measures of exclusion, producing an overall exclusion index as well as social, economic, and political exclusion sub-indices. Our results show the importance of mitigating exclusion and marginalization within SSA nations, and pinpoint the most effective policy levers that governments may use to minimize destabilizing feelings of exclusion.
The paper explores the drivers of political fragility by focusing on coups d’état as symptomatic of such fragility. It uses event studies to identify factors that exhibit significantly different dynamics in the runup to coups, and machine learning to identify these stressors and more structural determinants of fragility—as well as their nonlinear interactions—that create an environment propitious to coups.
The Ukraine Capacity Development Fund (UCDF), a trust fund managed and administered by the IMF, was formally launched on February 13, 2024 at an inaugural Steering Committee meeting held in Kyiv. The UCDF will provide substantial resources for the scaling up of technical assistance and training in support of the Ukrainian government’s ambitious economic reform agenda.
Improving people’s relationships with state institutions and ensuring access to services can foster conditions for greater peace and social cohesion in sub-Saharan Africa.
Financial stability is not only about managing inflation, employment rates and spending, it’s about understanding how those factors affect people in different places and in all kinds of circumstances. In this podcast, the United Nations High Commissioner for Refugees, Filippo Grandi, discusses how strategic partnerships between humanitarians and economists will help support the millions of forcefully displaced people in the world and provide a firmer footing for an economic recovery.
This note provides operational advice and information to help staff implement the IMF Strategy for Fragile and Conflict-Affected States (FCS) approved by the Executive Board on March 9, 2022. Topics covered include (i) the new IMF FCS classification methodology, which is aligned with that of the World Bank; (ii) the preparation of Country Engagement Strategies (CES) that will be rolled out across FCS to ensure that Fund engagement is appropriately tailored to country-specific manifestations of fragility and/or conflict; (iii) advice on tailoring the thematic focus of Article IV consultations and Fund analytics to FCS, as well as on the prioritization, design, and implementation of capacity development (CD) projects in fragile contexts; (iv) guidance on making full use of the flexibilities of the lending toolkit; (v) guidance on engaging in specific FCS situations, including building accountable institutions to exit fragility, cases of rising fragility risks, active conflict, post-conflict, and addressing the impact of external shocks and spillovers; and (v) strengthening partnerships with humanitarian, development, and peace actors, in accordance with the Fund’s mandate. Dedicated annexes provide additional information on the CES process, addressing good governance in FCS, program design, and country examples of Fund engagement in FCS.
This paper contributes to the research on the macroeconomic origins of conflict. Based on a sample of 133 low- and middle-income countries over a 30-year period, it analyses to what extent changes in a country’s commodity terms-of-trade (ToT) can explain an increase in the incidence and intensity of conflicts through their effect on aggregate income. While the evidence from previous studies on the link between macroeconomic conditions and conflict is rather inconclusive, we find a significant relationship.
Fragile and conflict-affected states, home to 1 billion people across more than 40 countries, are at particular risk in this era of economic uncertainty. 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.
Based on internal data, this paper finds that the capacity development program of the IMF’s Statistics Department has prioritized technical assistance and training to fragile and conflict-affected states. These interventions have yielded only slightly weaker results in fragile states than in other states. However, capacity development is constantly needed to make up for the dissipation of progress resulting from insufficient resources that fragile and conflict-affected states allocate to the statistical function, inadequate inter-agency coordination, and the pervasive impact of shocks exogenous to the statistical system. Greater coordination with other capacity development providers and within the IMF can help partially overcome low absorptive capacity in fragile states. Statistical capacity development is more effective when it is tailored to countries’ level of fragility.
Fragile and conflict-affected states are home to nearly 1 billion people and confront some of the greatest challenges among the world’s economies. 220 million people live within 40 miles from a major conflict event and 155 million globally are acutely food insecure. Franck Bousquet is the deputy director, coordinating the Fund's work in fragile and conflict-affected states. In this podcast, Bousquet talks about the growing costs associated with fragility and conflict, and how the IMF is trying to help.
The chart of the week illustrates how the pandemic exacerbated income divergence between the fragile and conflict-affected states and the rest of the world.
Building on the Fund’s long-standing experience in FCS, the Strategy will further articulate the IMF’s role in helping countries to exit from fragility. It will also identify and propose specific measures to enhance the impact of the Fund’s engagement over the next three years.
August 2021
Economic analysis can shine a revealing light on the causes and consequences of social unrest.
June 27, 2023
A course toward prosperity depends on international community support for peace as a global public good
June 12, 2023
The success of reforms hinges on achieving a stable political and security environment and developing institutional capacity
June 5, 2023
Public financial management and technical assistance in fragile states.
Properly managed public investment in infrastructure is crucial to address protracted fragility.
International partners must support the continent's most vulnerable countries to adapt to extreme weather.
Climate vulnerability and underlying fragilities, like conflict, exacerbate each other.
Strengthening state capacity must adapt to more frequent economic shocks, greater political instability, and fewer resources.
Escalating insecurity, political instability including military takeovers climate change, and overlapping economic shocks are challenges in one of the poorest parts of the world.
IMF work shows that fragile countries' average economic losses from climate change are four times worse than when a storm, drought, or flood hits other countries.
Revenue Forecasting and Analysis (RFAx) - Online Course
Virtual Training to Advance Revenue Administration (VITARAx) Online Course
A discussion on the policy challenges faced by fragile and conflict-affected states and the need for increased support from the international community.
Average economic losses for fragile countries are four times worse than when a storm, drought, or flood hit other countries.
Remarks by Managing Director on Somalia reaching the HIPC completion point.
