## COVID-19 and Fragile States: Promoting Resilient Recovery for the Most Vulnerable Communities

## Source details

**Canonical URL:** [COVID-19 and Fragile States: Promoting Resilient Recovery for the Most Vulnerable Communities](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2021.pdf)

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### World Bank–IMF 2021 Annual Meetings events and high-level panels
- An event was held on October 11 to take stock of the economic and social impact of COVID-19 in fragile and conflict-affected states (FCS) and to identify pathways for resilient recovery.
- The IMF Managing Director Kristalina Georgieva chaired the event and reiterated the IMF’s commitment to FCS, particularly by developing an FCS Strategy.
- Participants included senior officials from the United Nations and the International Committee of the Red Cross, and finance ministers from Madagascar and Sudan.
- Key cross-cutting risks in fragile settings highlighted: overlap of climate risks, food insecurity, and active conflict.
- A background analysis for the event was produced as part of the FCDO-IMF research collaboration to examine economic situations in FCS during the pandemic period.

### East African Community: Monetary policy dialogue
- A virtual meeting with East African Community (EAC) Ministers of Finance and Central Bank Governors occurred on October 19th during the 2021 Annual Meetings.
- IMF contributions:
  - D. Filiz Ünsal joined the meeting and collaborated with the African Department.
  - IMF’s EAC team presented on “EAC: Challenges to Monetary Policy Space and Transmission.”
- Discussants included Mr. Atingi-Ego (Deputy Governor, Bank of Uganda) and Mr. Rwangombwa (Governor, Central Bank of Rwanda).
- Opening and closing remarks were given by Mr. Abebe Aemro Selassie (Director, IMF’s African Department).
- Focus: monetary policy developments since the start of the pandemic and the path forward for EAC countries.

### Food security in Sub‑Saharan Africa
- A high-level virtual panel titled “Supporting Food Security in Sub Saharan Africa Amid the COVID Pandemic and Climate Change” was held on October 19th 2021 as part of the 2021 Annual Meetings.
- Panel focus: role of macroeconomic policy and structural reforms in safeguarding food security while fostering an inclusive and green recovery in sub-Saharan Africa.
- Discussion context: IMF exploring options to support vulnerable member countries in pandemic recovery, including voluntary channeling of some SDRs from countries with strong external positions to those most in need.
- Panelists included Tahir Hamid Nguilin (Minister of Finance and Budget, Chad), David Beasley (Executive Director, World Food Programme), and Musa Kpaka (Chief Technical Advisor, Office of the President, Sierra Leone); moderated by Antoinette Monsio Sayeh (IMF’s Deputy Managing Director).

### Food insecurity and prices during COVID-19
- D. Filiz Ünsal coauthored a note featured as Box 2.1 in the October 2021 World Economic Outlook, Chapter 2.
- Key findings:
  - Recent increases in global food prices have made food insecurity macro-critical to many countries.
  - The dual shock of rising food prices and falling incomes will exacerbate inequality.
  - Low-income countries and the poorest households generally spend an outsize share of income on food.

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### Capacity building, technical assistance, and training

### Macro-Structural Training: Distributional Impact of Policies and Reforms
- Course offered as part of a series on macro-structural issues; provides an overview of IMF analytical and policy work on inequality and operationalization in country work.
- Course content highlights:
  - Multifacted nature of inequality with case studies from surveillance.
  - Fiscal policy as the main redistribution tool: focus on taxes, transfers/social spending.
  - Overview of latest tools available to Fund economists.
  - Two of four sessions focus on user-friendly templates developed by Fund staff:
    - (i) a template to assess distributional incidence of fuel subsidy reform;
    - (ii) a multi-sector heterogeneous agents model and associated toolkit to analyze macro and distributional implications of reforms (examples: revenue mobilization, infrastructure investment, tax consolidation, cash-transfer or universal base income measures).

### Forecasting and Policy Analysis Systems (FPAS) Technical Assistance to Bank of Ghana
- A virtual FPAS TA mission was conducted during November 2021 to support Bank of Ghana (BoG) analytical capacity and FPAS processes.
- Mission components:
  - Part 1: enhance short-term forecasting architecture, revisit and run counterfactual simulations with the Quarterly Projection Model (QPM), and study BoG staff historical forecast performance.
  - Part 2: support BoG staff in using extended modelling framework for the November 2021 forecast round.
- Parallel work by the Institute for Capacity Development Department’s FPAS TA team:
  - Document components of BoG’s FPAS organization.
  - Outputs include User Guides for internal use and external publications, including a prospective IMF Working Paper on Ghana QPM.

### Human capital scarring and IMF–FSB Early Warning Exercise
- Human capital scarring from the pandemic was identified as a significant downside risk in the confidential Early Warning Exercise jointly conducted by the IMF and the Financial Stability Board (FSB) and presented to the IMFC during the World Bank–IMF 2021 Annual Meetings.
- Contribution from FCDO–IMF research collaboration:
  - Team that examined education losses during the pandemic (April 2021 World Economic Outlook, Chapter 2, Box 2.2) estimated long-term GDP losses from school closures and pandemic-related disruptions under a downside risk scenario.
  - Analysis indicated a potentially higher scarring effect due to more school closures in low-income countries, contributing to strong support for low-income countries at the IMFC meeting.

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### Research outputs and working papers

### Opening Up: Capital Flows and Financial Sector Dynamics in Low‑Income Developing Countries
- IMF Working Paper by Futoshi Narita and Sebastian Horn analyzes link between increased capital flows and financial sector dynamics in low-income countries using bank-level micro data.
- Findings:
  - Capital inflows associated with financial deepening via increases in bank loans, deposits, and wholesale funding.
  - Domestic banks increase loans more than foreign banks.
  - Only modest signs of a build-up in financial vulnerabilities.
- Methodology:
  - Causality examined via an instrumental variable approach and an augmented inverse-probability weighting estimator.
  - Results indicate only limited evidence for global push effects and point toward importance of domestic pull factors.
- Note: Paper became available online recently and was reported in the 2020 Annual Report of the FCDO–IMF research collaboration.

### The Distributional Implications of the Impact of Fuel Price Increases on Inflation
- Working Paper by Kangni Kpodar and Boya Liu investigates consumer price inflation responses to changes in domestic fuel prices across CPI categories.
- Data update:
  - Global Monthly Retail Fuel Price Database expanded to premium and regular fuels, time dimension to December 2020, and sample to 190 countries.
- Key findings:
  - (i) Response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies.
  - (ii) Studies using crude oil prices instead of retail fuel prices to estimate pass-through to inflation significantly underestimate it.
  - (iii) Purchasing power of all households declines as fuel prices increase, but the CPI of the 20 percent richest households rises more than that of the 20 percent poorest households.
  - (iv) The observed progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.

### The Socio‑Economic Impact of Special Economic Zones: Evidence from Cambodia
- Presentation on November 20 by Mariya Brussevich at the Southern Economic Association Meetings examined SEZs in Cambodia (established as a place-based policy in 2005).
- Data and methods: database on existing and future SEZs combined with matched household surveys at the district level.
- Findings:
  - SEZ entry disproportionately benefits female workers.
  - SEZ entry leads to a decline of income inequality at the district level.
  - Land values in SEZ districts tend to rise while wage levels remain largely unchanged relative to other districts.
  - The paper tests for socio-economic spillovers to surrounding areas and for agglomeration effects from clusters of multiple SEZs.

### Global Climate Change Mitigation, Fossil‑Fuel Driven Development, and Financial/Technology Transfers
- Working Paper by Johannes Wiegand develops a simple model of sequential, fossil-fuel driven development to examine climate financing and compensation arguments.
- Key results:
  - (i) Advanced economies (AEs) typically have a stronger interest in climate change mitigation than emerging markets and developing economies (EMDEs).
  - (ii) From an equity perspective, compensation is called for only if EMDEs are relatively small.
  - (iii) There can be an efficiency case for compensation, with AEs buying EMDEs out of some of their GHG emissions.
  - (iv) A superior option for climate and growth prospects is development of clean energy technologies by AEs and their transfer to EMDEs, which requires strong mitigation efforts by AEs even if EMDEs fail to play along initially.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2021.pdf_