The Role of the IMF in Fragile and Conflict-Affected States

An Interview with Franck Bousquet, Deputy Director, International Monetary Fund

The International Monetary Fund (IMF) recently published a Strategy for Fragile and Conflict-Affected States (FCS). FCS are home to almost 1 billion people and pose some of the greatest challenges—and opportunities—for the global economy. The new strategy firmly establishes macroeconomic stability in FCS as a central issue for the IMF that will be a growing area of importance over the coming years and decades. Erol Yayboke from the CSIS Project on Fragility and Mobility sat down with Franck Bousquet, the IMF deputy director responsible for engagement with FCS, to discuss the strategy.

The conversation has been edited for brevity and clarity.

EY: Thank you for joining me, Franck. Can you talk about why this strategy and why now?

FB: I would like first to take a step back and emphasize how important this engagement is with our most vulnerable members. About 20 percent—one-fifth—of our members are, in fact, classified as FCS, which is significant. We should also recognize the spillovers from fragility and conflict in FCS, which threaten economic and social stability in neighboring countries and regions. It is important to emphasize that the IMF has had a longstanding engagement with these FCS through our core activities. Over the past decades, we have been supporting those countries, not only by providing policy advice and significant financing, with $20 billion since 2010 to 28 FCS, but also by strengthening the capacity of key macroeconomic institutions in areas such as public financial management, central bank operations, debt management, and anti-corruption, which are so critical in those settings. This is one important area of support from the IMF to those countries, which is about strengthening the capacity of institutions to become more resilient, with a focus on macroeconomic aspects in line with our core competencies.

Now, the new strategy is important because it builds on this strong engagement and helps at different levels. First, it helps to better tailor the engagement of the IMF based on an analysis of the key drivers of fragility and conflict. Second, it helps us to be closer to our member countries on the ground. Third, it helps us play a more active and dynamic role with other partners working on FCS.

Last but not least, we should not forget that FCS are the ones that have been most impacted by Covid-19. In 2020, GDP per capita for FCS declined by 7.5 percent, and projected per capita incomes will not recover to near their 2019 levels until 2024. More recently, they have been impacted by the consequences of the war in Ukraine. For instance, think about the food insecurity situation today in many of those countries. Those crises have a significant impact on income, debt, and inflation and, as a result, FCS have a significant risk of divergence, meaning they are falling even further behind the rest of the world and not meeting the Sustainable Development Goals.

EY: Can you dive a little bit deeper into the various tenants of the strategy itself? Also, who is the audience for this? Who do you expect to be reading it?

FB: I would say there are three critical elements in the strategy. The first one is the greater tailoring of our engagement and instruments to the country-specific manifestation of fragility and conflict. What does that mean? In the strategy, we have proposed a number of measures that help us to better tailor and be more “fit for purpose” by recognizing the specific challenges that these countries are facing—challenges of low capacity of macroeconomic institutions, but also in terms of security, instability, reforms, or governance, for example. All these need to be factored in the design of programs, including conditionalities, as well as in capacity development, for instance. This first element relies on what we call country engagement strategies. These will be developed at the country level, because each fragile country is fragile in its own way. The country engagement strategies will help take into account the specific constraints and better inform our engagement in the short but also medium and long term.

The second element of the strategy, which is very important, is that we will be in closer proximity to our most vulnerable members. We know that exiting fragility and building resilience takes time. Therefore, under the strategy, the IMF will be expanding its presence in its most vulnerable member countries to enhance our support to the authorities who are in the driving seat to better respond to all the challenges they face and support them to progressively build the capacity of key institutions. We are not only expanding our coverage of countries by being present in more of those FCS, but also by adding more experts in capacity development who will be based in-country and in our regional centers. We are also recruiting an additional 40 local economists in all these countries so that we can better engage on a daily basis with authorities and with all the other local partners.

The last pillar of the strategy is enhancing partnerships to amplify our impact in those countries. We know very well that partnership is essential in any set of countries, but especially in those being impacted by fragility and conflict. In addition to country authorities, partnership with organizations with different mandates is essential, including development partners but also humanitarian, peace, and security actors. The strategy is really trying to highlight the importance of what we call “mission-driven partnership.” For example, when you are supporting countries impacted by forced displacement, partnership with the United Nations High Commissioner for Refugees (UNHCR) is essential. When you are supporting fragile states which are being impacted by food insecurity—which is so important today—partnership with the World Food Program (WFP), for instance, but also, of course, the World Bank, with whom we are working very closely. The whole UN system is critical.

EY: Can you talk a bit more about the strategy’s emphasis on staffing? It will be useful for the implementation of the strategy, but I think there are some broader lessons to be learned here too.

FB: At the end of the day, staff are the most important resource of any organization. There is a whole section in the strategy that ensures that IMF staff will be supported, well-equipped, and will have the right incentives to work in those FCS. So, concretely, this means that over the next few years, the focus will be on having more presence on the ground. That is quite important, but it is not enough. It is also important to help staff working on FCS to have the right skills in those specific settings, in terms of how to best partner with organizations such as the International Committee of the Red Cross (ICRC) in conflict situations, or UNHCR to support countries dealing with refugee crises, or WFP on how to best take into account food security, which is macro-critical. All of this will be embedded into a new curriculum for staff working in FCS.

Finally, it is important for staff to have the right incentives to work on FCS. We have a new policy at the IMF which directly links promotion to a certain level with the number of years of experience in FCS or low-income countries. This also shows the commitment of the organization to supporting its most vulnerable members. The IMF will also be providing additional support to staff by setting up a community of practice within the organization so that experts can share their challenges, but also their experience of what works well in FCS. All of this takes time, but is very important in the long run.

EY: How do you measure the success of the implementation process? How do you ensure that a strategy like this does not just become another nice document that sits on the shelf?

FB: The strategy itself has already benefited from an in-depth consultation process. We have reached out to 55 organizations covering the humanitarian-development-peace nexus and have received significant input and feedback over the last year. The collaboration process was very important to ensure that we would not just be writing a strategy paper, but that we would take advantage of this engagement to incorporate useful guidance from key partners outside the IMF. As a result, the strategy was approved by the board in March and received significant support from the international community, from countries themselves, and also humanitarian, security, and peace actors who had been involved in this consultation process. Now, we move on to the second point of measuring success—there is a matrix in the strategy which presents the different measures of how implementation is being executed, which will guide the monitoring of this strategy. Ultimately, we want to achieve visible measurable success in the countries we support.

But, at the end of the day, we also know that humility in working in these countries is quite important. There are many factors outside the IMF’s control in terms of peace and security, so it is also essential to be agile and readjust the strategy as needed over the course of the year. While we are taking measures to improve our effectiveness, we also recognize that we are just one actor, among many others, and that the situation is often very fluid in these countries. We have to manage expectations and realize that coalitions with actors with different mandates are also critical. For the IMF, it is also about helping countries achieve macroeconomic stability so people can build up savings to secure their livelihoods and thrive as well as for businesses of every size to have the confidence they need to invest. This means growth needs to be inclusive—that we are going to lift people out of poverty—and also that we protect the most vulnerable when those countries are impacted by shocks. The endgame for the international community—including the IMF—is helping countries become more resilient, exiting fragility, and ending conflict.

EY: When you think about 10-15 years from now, how will the IMF have changed the way it does business? If the strategy has been effective, what will have changed within the IMF?

FB: I think about it at different levels. First, we will have more staff and experts on the ground, engaging more regularly with the country authorities. The second aspect is that the engagement would be enhanced, more tailored to the specific countries’ situations, with programs which would better account for the specific drivers of fragility and conflict under a longer-term approach. Our engagement would also build more on partners present on the ground. All that would be considered a success for our engagement with this set of countries. Now, despite all this, we need to be humble and realize that we are just one player among many; success relies on many factors. Situations also change rapidly, and it is always important to adapt.

EY: What are the types of tailored tools that these FCS need?

FB: Well, first, there is a link between, on one end, peace and stability, and on the other, macroeconomic stability. At the foundation of this strategy is this link, which goes both ways between peace and stability, and macroeconomic stability. Research shows that those FCS have lower growth rates, lower per capita GDP, higher inflation, and much more extreme poverty than other countries. It is clear that fragility significantly affects fiscal monetary external balance. But it goes the other way around as well. Macroeconomic stability and inclusive economic growth are essential to reducing fragility and promoting resilience. The IMF has a role to play by making sure that strong, accountable institutions will be effectively implementing macroeconomic, monetary, central banking, and financial policies. That is essential for preventing state fragility from turning into a failure. The IMF has a role not only in terms of strengthening institutions, but also in terms of providing financing. These instruments are being tailored to fully consider the key drivers of fragility and incorporate constraints. Better tailoring means realizing the impact and the link between peace, stability, and macroeconomic stability.

EY: Do you have any last words of wisdom on the strategy?

FB: Three quick points. First, FCS need support more than ever. There is a significant risk of divergence for those countries, and also risks of spillover to other countries and regions. Second, the IMF has a long-standing engagement with FCS and is improving its engagement by getting closer to our members on the ground and further tailoring our engagement and instruments to the unique circumstances and challenges of these countries. Finally, we are stepping up in terms of leveraging partners with different, and in fact, complementary, mandates. Humility is important—we are just one actor among many others. Progress may not be linear, but it is important that we do our part to support our most vulnerable members, and we are committed to doing so.

Erol Yayboke is a senior fellow with the International Security Program and director of the Project on Fragility and Mobility at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Erol Yayboke
Director, Project on Fragility and Mobility and Senior Fellow, International Security Program