How To Escape The Perils of Fragility
IMF Blog, August 3, 2021
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Bibliographic details
- Authors: Olusegun Akanbi, Kenji Moriyama, Keyra Primus
- Published: August 3, 2021
Overview
- Authors: Olusegun Akanbi, Kenji Moriyama, Keyra Primus
- Publication date: August 3, 2021
- Subject: Fragile and conflict states—currently about 40 countries—facing cycles of low administrative capacity, political instability, conflict, and weak economic performance.
- Dataset analyzed: 196 countries between 1979 and 2018.
- Empirical tools referenced: staff working paper and two charts measuring changes in probabilities of entry into/exit from fragility.
Key empirical findings
- Growth shocks and government effectiveness
- A decline in growth of 2 percentage points increases the probability of entering fragility, with a substantially larger impact for countries in the middle-range of government effectiveness.
- The effect of a 2 percentage point growth decline on the probability of exit from fragility is less pronounced.
- Improving government effectiveness from a low level has a more uniform (less bell-shaped) impact across growth rates, helping prevent entry into fragility at a wide range of growth rates.
- Social spending and exit success
- Countries that successfully exit fragility spend more on health and education than those that do not escape.
- These patterns suggest a possible virtuous cycle: protecting social spending → enhanced political and social inclusion → pressure to improve government effectiveness (fiscal, legal, civil service capacities) → stronger economic foundation.
- Pivotal moments
- Countries that experience a pivotal moment (a critical juncture such as after a crisis or a change of leadership) are more likely to:
- Exit from fragility,
- Implement critical reforms to strengthen institutions and policy frameworks,
- Enjoy more economic resilience after exit.
- Case examples
- Uganda: Improved political stability enabled reforms to strengthen economic institutions and policies, helping build resilience and increase social inclusion (some progress reversed after 2017).
- Rwanda: After regaining political stability in the early 2000s, reform efforts backed by international support helped improve resilience, governance and institutions, and social inclusion.
Policy implications and recommendations
- Counter-cyclical macroeconomic policy
- Near-fragile countries need to implement counter-cyclical policies—such as a fiscal stimulus—to prevent sharp contractions in economic output when growth weakens.
- External financing from international partners can support counter-cyclical policies.
- Strengthen macroeconomic and governance frameworks
- Sound macroeconomic policies should be supported by strong governance and anti-corruption measures to ensure proper use of resources and maintain a stable economy.
- Institutional and inclusion reforms
- Improve institutions and enhance political and social inclusion through measures such as:
- Fewer barriers to political participation,
- Expanded access to legal systems,
- Less corruption and discrimination in government agencies,
- Protection of social spending.
- Seize pivotal moments
- Governments and international partners should recognize and support pivotal moments to implement critical reforms that can trigger durable exits from fragility.
Interpretations and mechanisms
- Vulnerability profile
- Countries in the middle-range of government effectiveness are particularly vulnerable to growth slowdowns, implying targeted policy attention is needed for this group.
- Virtuous cycle hypothesis
- Protecting social spending can initiate a reinforcing process that strengthens inclusion, government effectiveness, and ultimately economic resilience.
- Reform sequencing and support
- Institutional strengthening and social inclusion are mutually reinforcing and benefit from international support, especially during windows of opportunity.
Source: IMF Blog post “How To Escape The Perils of Fragility,” August 3, 2021.