IMF Working Papers

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Jocelyn Boussard, Chiara Castrovillari, Tomohide Mineyama, Marta Spinella, Bilal Tabti, and Maxwell Tuuli. "Global Shocks Unfolding: Lessons from Fragile and Conflict-affected States", IMF Working Papers 2024, 214 (2024), accessed November 6, 2024, https://0-doi-org.library.svsu.edu/10.5089/9798400290824.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the consequences of global shocks on a sample of low- and lower-middle-income countries with a particular focus on fragile and conflict-affected states (FCS). FCS are a group of countries that display institutional weakness and/or are negatively affected by active conflict, thereby facing challenges in macroeconomic policy management. Examining different global shocks associated with commodity prices, external demand, and financing conditions, this paper establishes that FCS economies are more vulnerable to these shocks compared to non-FCS peers. The higher sensitivity of FCS economies is mainly driven by procyclical fiscal responses, aggravated by the lack of effective spending controls and timely access to financial sources. External financing serves as a source of stability, partially mitigating the adverse impact of global shocks. This paper contributes to a better understanding of how conditions of fragility, which are on the rise in many parts of the world today, can amplify the effects of negative exogenous shocks. Its results highlight the diverse nature of underlying sources of vulnerabilities, spanning from fiscal and external buffers to institutional quality and economic structure, with lessons applicable to a broader set of countries. Efficient and timely external financial support from external partners, including international financial institutions, should help countries’ counter-cyclical responses to mitigate adverse shocks and achieve macroeconomic stability.

Subject: Commodities, Commodity prices, Income, National accounts, Prices, Technology, Technology transfer

Keywords: Commodity prices, External financing, Fragile and conflict-affected states (FCS), Global, Global shocks, Income, Low-income countries, Technology transfer

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