A new SDR allocation: Combatting deepening fragility concerns

8 December 2022

Non Violence Sculpture at UN Headquarters in New York. Credit: Marco Rubino/ Shutterstock

While over 150 civil society organisations have joined the UN Conference on Trade and Development and Barbados’ Prime Minister Mia Mottley in calling for a new $650 billion general allocation of Special Drawing Rights (SDRs; see Inside the Institutions, What are Special Drawing Rights?) to support climate action and pandemic recovery, little attention has been devoted to the proposal’s potential contribution to the prevention of violent conflict. Given the costs of social unrest and political instability, particularly in economically important middle-income countries, a new SDR allocation would strongly contribute to global conflict prevention efforts and to the IMF’s mandate to ensure global financial stability. It would enable debt distressed and fiscally constrained states to act to forestall increasing discontent with, among other things, rising food and energy crises by increasing or maintaing social protection spending.

In February, the IMF released its long-awaited Strategy for Fragile and Conflict-affected States (see Observer Autumn 2022, Summer 2018). The strategy highlights that, “Supporting fragile and conflict-affected states (FCS) is an important priority on the international policy agenda,” and stresses that, “The economic impact of the COVID-19 pandemic has been most severe in FCS…Debt and inflationary pressures have also mounted. FCS are at a significant risk of falling behind in their post-pandemic recovery [and] achieving the Sustainable Development Goals.” Reflecting the importance of the topic in the international agenda, the launch of the IMF’s FCS strategy followed the February 2020 release of the World Bank’s 2020-2025 Fragility Conflict and Violence (FCV) strategy, which was informed by the joint United Nations and World Bank 2018 Pathways to Peace report.

All three reports underscore constrained state capacity and legitimacy as potential root causes of fragility and violence. Both the World Bank and IMF strategies also stress the links between climate change and fragility, with the Fund emphasising that “most of the bottom 35 countries ranked according to their vulnerability to climate change and readiness to improve resilience are FCS.” The IMF’s strategy adds that, “Women and girls face specific and heightened vulnerabilities in FCS contexts, deepening fragility.” Taking into account these diverse and interlinked factors, the document reflects the IMF board of directors’ agreement with the strategy’s assertion that “the implications of fragility and conflict are macro-critical and relevant to the Fund’s mandate—both in terms of the long-run economic impact on members, but also because spillovers originating in FCS can undermine macroeconomic stability and growth prospects in neighbouring countries and regions.”

Welfare spending led to reductions in conflict in Latin America between 1970 and 2010Patricia Justino, Institute of Development Studies and Bruno Martorano, United Nations University

Worsening economic outlook and inequality crisis exacerbate fragility and instability risks

In May, an IMF assessment of global social unrest trends made clear that increased protests and social instability trends have once again gathered pace after a decline during the pandemic, driven by curbs on mobility and mass gatherings. The assessment noted that while the causes of social unrest are complex, “steep price increases for food and fuel have been associated with more frequent protests in the past,” adding that, “any rise in social unrest could pose a risk to the global economy’s recovery, as it can have a lasting impact on economic performance.”

The IMF’s concerns are shared by political risk consultancy Verisk Maplecroft, whose June report stressed that “middle-income countries will bear the brunt of social discontent” arising from the current economic conditions. Additionally, a 2018 paper by Patricia Justino and Bruno Martorano found that, “Welfare spending led to reductions in conflict in Latin America between 1970 and 2010″, and that “increasing state capacity to provide social welfare programmes may improve political stability.” Making similar links, Monica Erwér of Swedish women’s rights organisation Kvinna till Kvinna Foundation stresses, ”the Fund must ensure its gender and fragility strategies are not siloed, as women and girls are disproportionally affected by conflict and, as the fragility strategy recognises, ’Policies that promote gender equality…build resilience in many FCS, prevent relapse into conflict, and foster transitions from fragility to stability.’”

Oxfam’s November blog was clear about the consequences of the debt crisis on states’ capacity to meet the needs and expectations of their citizens, highlighting that “three-quarters of all countries globally are planning further [social spending] cuts totalling US$7.8 trillion dollars.”

In light of the current trends, a new SDR allocation would support the conflict prevention strategies and goals of key IMF shareholders such as the US and European Union states. A new SDR allocation would likewise support the African Union’s Agenda 2063 Aspiration 4, a peaceful and secure Africa, and the G7’s efforts to mitigate the “threat [the] climate change and biodiversity crises pose…to international peace and stability.”