{
  "title": "Impact of Conflict and Political Instability on Banking Crises in Developing Economies",
  "publication": "IMF Blog, July 29, 2020",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies",
  "canonical": "https://www.imf.org/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies",
  "overlayPath": "/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/index.md",
  "summary": "Study covers systemic banking crisis occurrence in 92 developing countries over the period 1970-2016.",
  "sections": [
    {
      "heading": "Scope and data",
      "content": "- Study covers systemic banking crisis occurrence in 92 developing countries over the period 1970-2016.\n- Focus: whether rising conflict and political instability globally over the past several decades has led to more banking crises in developing countries."
    },
    {
      "heading": "Key quantitative findings",
      "content": "- The odds of a banking crisis are 2.5 times greater when a country is affected by a conflict.\n- The probability of experiencing a banking crisis is 25 percent when the conflict lasts 10 years, against 16.4 percent when it lasts two years.\n- Major waves of conflict tend to be associated with a higher rate of occurrence of banking crises (as illustrated by the study’s chart relating number of countries in banking crises and in conflict)."
    },
    {
      "heading": "Empirical examples",
      "content": "- Sierra Leone civil war (1991-2002): more than 40 percent of banking system loans were nonperforming and the license of one bank was suspended in 1994.\n- Central African Republic (outbreak of conflict in 2013): bank nonperforming loans increased to more than one-third of total loans and some banks became undercapitalized."
    },
    {
      "heading": "Transmission channels and mechanisms",
      "content": "- Primary channel of transmission: occurrence of fiscal crises following a conflict or political instability.\n- Mechanisms described:\n  - Conflicts and political instability negatively affect the productive capacity of a country.\n  - Reduced productive capacity can reduce government revenue.\n  - Increased unproductive spending, including military expenditures, can follow.\n  - Resulting fiscal crises can lead to government dysfunctionality and weakening of institutions, increasing banking system vulnerability.\n- Cross-border spillovers: conflicts and political instability in neighboring countries increase the likelihood of banking crises in a given country."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Governments facing conflict and/or political instability need to address their root causes and try to mitigate their negative effects with the appropriate design and implementation of economic policies.\n- Creating adequate fiscal space in normal times can reduce the likelihood of fiscal crises and in turn lower the probability of systemic banking crises.\n- Policymakers should pay attention to conflicts in neighboring countries even if they themselves are not conflict-afflicted, since their banking systems may suffer negative spillovers from neighbors given that banks operate across borders.\n\nImpact of Conflict and Political Instability on Banking Crises in Developing Economies — Montfort Mlachila, Rasmane Ouedraogo; July 29, 2020 (IMFBlog)\n\n---\n\n\n References\n\n- Our IMF staff paper\n\nSource: https://www.imf.org/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies"
    }
  ],
  "bullets": [
    "[Markdown version](/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/index.md)",
    "[Structured JSON version](/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/index.json)",
    "[Bundle manifest](/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/bundle-manifest.json)",
    "Authors: Montfort Mlachila, Rasmane Ouedraogo",
    "Published: July 29, 2020",
    "Study covers systemic banking crisis occurrence in 92 developing countries over the period 1970-2016.",
    "Focus: whether rising conflict and political instability globally over the past several decades has led to more banking crises in developing countries.",
    "The odds of a banking crisis are 2.5 times greater when a country is affected by a conflict.",
    "The probability of experiencing a banking crisis is 25 percent when the conflict lasts 10 years, against 16.4 percent when it lasts two years.",
    "Major waves of conflict tend to be associated with a higher rate of occurrence of banking crises (as illustrated by the study’s chart relating number of countries in banking crises and in conflict).",
    "Sierra Leone civil war (1991-2002): more than 40 percent of banking system loans were nonperforming and the license of one bank was suspended in 1994.",
    "Central African Republic (outbreak of conflict in 2013): bank nonperforming loans increased to more than one-third of total loans and some banks became undercapitalized.",
    "Primary channel of transmission: occurrence of fiscal crises following a conflict or political instability.",
    "Mechanisms described:",
    "Cross-border spillovers: conflicts and political instability in neighboring countries increase the likelihood of banking crises in a given country.",
    "Governments facing conflict and/or political instability need to address their root causes and try to mitigate their negative effects with the appropriate design and implementation of economic policies.",
    "Creating adequate fiscal space in normal times can reduce the likelihood of fiscal crises and in turn lower the probability of systemic banking crises.",
    "Policymakers should pay attention to conflicts in neighboring countries even if they themselves are not conflict-afflicted, since their banking systems may suffer negative spillovers from neighbors given that banks operate across borders.",
    "[Our IMF staff paper](https://www.imf.org/en/Publications/WP/Issues/2020/02/28/The-Impact-of-Conflict-and-Political-Instability-on-Banking-Crises-in-Developing-Countries-49047)"
  ],
  "alternates": {
    "markdown": "/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/index.md",
    "json": "/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/index.json",
    "bundleManifest": "/en/blogs/articles/2020/07/29/impact-of-conflict-and-political-instability-on-banking-crises-in-developing-economies/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-08-28T18:04:07.432Z"
}