Fragile, Conflict-Affected Economies Fall Further Behind – Analysis – Eurasia Review

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Even before the pandemic, fragile and conflict-affected states (FCS) were already facing some of the greatest challenges among global economies. Although not all FCS faces active conflict, most are at risk: global levels of violence are at their highest levels in 30 years and more than 80 million people were forcibly displaced before the discovery of the coronavirus.

Today, the continuation of the pandemic presents a significant risk that the divergence between these countries and the rest of the world will widen and persist.

The chart of the week illustrates how the pandemic has exacerbated the income divergence between these economies and the rest of the world. Per capita incomes in fragile states will not return to 2019 levels until 2024, according to IMF projections; and until then, the gap with pre-crisis per capita income trends should remain larger for FCS than for other countries.

These bleak outlooks can be difficult to reverse as fragility and conflict interact with and are often exacerbated by global trends such as climate change, soaring food prices and gender inequality.

The IMF classifies more than 40 economies as fragile and affected by conflict. Examples include Libya, Yemen, Chad, Democratic Republic of Congo, Somalia, Haiti and Papua New Guinea. Fragile states are already home to almost a billion people and are on track to be home to 60% of the world’s poor by 2030.

Although everyone is different, fragile states generally have reduced institutional capacity and provide limited services to the population. They are also characterized by a limited capacity to manage or mitigate social, economic, political, security or environmental risks. Conflict-affected states experience active armed violence resulting in the death of civilians or military personnel.

In these vulnerable economies, a slower recovery has followed a particularly hard hit from the pandemic. Their gross domestic product per capita contracted by 7.5% last year amid heightened political tensions, limited policy options to respond to the pandemic, lockdowns and other measures to contain the virus and volatile oil prices.

In addition, debt and inflation pressures are increasing. Compared to pre-pandemic projections, public debt has increased by 17 percentage points to reach 78% of gross domestic product in 2020, according to IMF research.

Fragile states also saw consumer prices rise 9 percentage points above their pre-pandemic projections. Food inflation particularly exacerbates food security problems and reverses past progress. Global food prices rose 23.1% last year, according to the Food and Agriculture Organization of the United Nations.

Together, these challenges underscore how fragile states risk falling even further behind the rest of the world and why supporting them, more than ever, must be an international priority.

*About the Author: Frank Bousquet is the deputy director who coordinates engagement with fragile and conflict-affected states. Prior to joining the IMF, he was Senior Director of the Fragility, Conflict and Violence Group at the World Bank. Franck led the development of the Bank’s first strategy for fragility, conflict and violence.

Source: This article was published by the IMF Blog

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