Across the world, the COVID-19 pandemic has stretched fiscal capacity and strained social compacts, as governments struggle to respond to health and economic shocks. The political and economic challenges are especially acute in fragile states, which are both more vulnerable to shocks and less able to manage them. International institutions, including the international financial institutions (IFIs)—the World Bank and the International Monetary Fund (IMF)—and the United Nations (UN) are front and center in the international community’s effort to help fragile states and often set the agenda for action and assistance.
These three institutions have distinct roles, and while their efforts can and should be complementary, in reality, they don’t always operate in lockstep. In pursuing their individual mandates, the three institutions’ guidance and activities can end up delivering confusing—and sometimes outright conflicting—messages to partner country governments and civil society.
Drawing on work done jointly with CGD, New York University’s Center on International Cooperation (CIC) just released a paper by Marc Jacquand that makes the case for better IFI-UN coordination in fragile states to better identify macroeconomic and political vulnerabilities, anticipate the tipping points that can arise from their interaction, and structure preventive support accordingly. In this blog, we discuss some of the key issues that the CIC paper—and our joint work—raise and plot a course for future research and analysis.
Macro-political tipping points—exacerbated by COVID
In recent years, there have been a couple of important pivots in the way many donors seek to approach fragile states. The first is a shift to focusing on prevention—helping to address the underlying drivers of fragility before countries reach acute crisis. The second is a more explicit acknowledgement that fragility often has political roots based in the choices powerful elites make to pursue exclusionary—or even predatory—policies to increase their own gains at the expense of others. The resultant social vulnerabilities, and often instability, interact with economic and structural vulnerabilities to create a complex set of risks that requires multi-faceted intervention.
The challenge is that interventions can seemingly work at cross purposes. Countries on the precipice of macroeconomic instability (inflation, runaway budget and trade deficits, the inability to provide basic government services) may find that the necessary remedial actions (belt tightening, currency depreciation, price interest rate hikes) risk fracturing any modicum of social peace that exists. Keeping away from the economic tipping point may mean nearing the political tipping point—and vice versa.
The pandemic only exacerbates these dynamics, prompting huge new spending needs alongside new sources of popular discontent (e.g., lockdowns, job losses, new health risks) and, in some cases, additional strains to the social compact where governments have used the COVID response as an excuse to crack down. There is, then, a renewed sense of urgency to understand better macro-political linkages—and then think through how to prioritize and sequence reforms and manage trade-offs to avoid escalation to political or economic crisis—or both.
The case for coordination
The IFIs and the UN will be key partners to many fragile countries as they navigate these vulnerabilities. Each carries its distinct role and mandate. The UN takes a more politically engaged approach to its development, humanitarian, and peacebuilding work, while the World Bank—focused on growth, development, and resilience—and the IMF—pursuing balance of payments and macroeconomic stability—are restricted from political engagement and less directly involved in peace and security issues. As a result, the three institutions’ objectives, priorities, and theories of change don’t always align—and may even compete with one another. Coordination is key to ensure political and economic advice move fragile states away from tipping points and not inadvertently toward them.
There is a solid foundation upon which to build. All three multilateral institutions have undertaken recent efforts to recalibrate their work in fragile states. For instance, the UN just underwent a peacebuilding architecture review, the World Bank is beginning to implement its new Fragility, Conflict and Violence strategy and has introduced new tools to direct financing to fragile states, and the IMF has begun to internalize the recommendations from a recent internal evaluation that suggest adaptations for operations in fragile contexts.
There is a history of collaboration to build upon, too. Contact between the three institutions has increased, as have exchanges around analysis and programming, especially between the UN and the World Bank. The two Bretton Woods institutions have a long history of cooperation “across 19th Street” and in country with mixed results. The UN and IMF’s relationship—and their involvement in one another’s issues—has been somewhat more selective. But country teams often interact on the ground, and high level dialogue between headquarters also exists.
The way forward
The CIC paper identifies several steps along the path toward better IFI-UN collaboration in their work with fragile states. Fundamentally, the three institutions need to develop a better, shared understanding of (1) the range of risks each fragile country faces—including those outside an individual institution’s direct mandate—and the relationship between them, and (2) the power relations and incentive structures between various actors and coalitions and who stands to gain or lose from decisions about resource control and distribution. This calls for strengthened political economy and multi-dimensional risk analysis, as well as institutionalized cross-institution interaction around their findings. The institutions must recognize that parallel but uncoordinated action risks further destabilization and fragility.
To actualize any shared analysis, the institutions will need to work better together both in country and at headquarters. This requires recognizing—and seeking to overcome—current barriers to coordination. Some of these barriers reflect institutional differences—including different modes of engagement, different primary government interlocutors (whose priorities may differ from one another), and different geographical centers of decision-making (largely in country for the UN, whereas the IMF is more centralized, and the World Bank is a bit of a mix). Other barriers are shared, in varying degrees, across institutions—things like lack of staff incentives to pursue external coordination, pressure to move funds/take action quickly, and lack of knowledge about the other institutions and the issues they address.
The paper concludes with several practical steps the three institutions might consider to improve collaboration, including systematically bringing other institutions’ input and analysis into planning and key decision points, holding regular tripartite meetings in country and establishing more dialogue among the three headquarters, seeking opportunities for joint communication of key messages to governments and the citizenry, exploring staff incentives for collaboration, and establishing a robust joint research agenda.
In the end, we see three objectives in pursuing our joint work with CIC—alongside colleagues at the World Bank, IMF and UN, as well as in countries:
- to increase understanding of the nexus of political and economic challenges that fragile states face;
- to align institutional interventions so they reinforce stability rather than push towards economic or political tipping points; and
- to have the international community work hand in glove with country authorities and civil society to find durable actions to set countries on a road of recovery and sustained growth.
There has long been scope for increased attention to IFI-UN collaboration. The pandemic—with its multiplier effects on political and economic risk—only creates more urgency.