Economics & Development

Over the past few decades, fiscal policy has been about 30 percent more procyclical and about 40 percent more volatile in commodity-exporting emerging markets and developing economies (EMDEs) than in other EMDEs. Both procyclicality and volatility of fiscal policy—which share some underlying drivers—hurt economic growth because they amplify business cycles. Structural policies, including exchange rate flexibility and the easing of restrictions on international financial transactions, can help reduce both fiscal procyclicality and fiscal volatility. By adopting average advanced economy policies on exchange rate regimes, restrictions on cross-border financial flows, and the use of fiscal rules, commodity-exporting EMDEs can increase their gross domestic product per capita growth by about 1 percentage point every four to five years through the reduction in fiscal policy volatility. Such policies should be supported by sustainable, well-designed, and stability-oriented fiscal institutions that can help build buffers during commodity price booms to prepare for any subsequent slump in prices. A strong commitment to fiscal discipline is critical for these institutions to be effective in achieving their objectives.

Fragility, conflict, and violence (FCV) have upended development progress. Overlapping and mutually reinforcing crises, including worsening climate challenges, ideological polarization and extremism, growing economic disparities, and weak governance and corruption, have all exacerbated the frequency and severity of conflicts. Civil wars, interstate conflicts, and violence and crime in both low- and middle-income countries have profound welfare impacts inside affected countries and destabilizing effects across borders through irregular migration and forced displacement and the disruption of trade and supply chains. Global poverty reduction and shared prosperity have slowed since 2014 with significant risks of reversing, which the World Bank attributes to lower economic growth, the COVID-19 pandemic, high inflation, and increased conflict and fragility. As a result, global extreme poverty is above the level of 2018, calling into question the achievement of the World Bank Group’s objective of ending extreme poverty by 2030. The Bank Group introduced its Strategy for Fragility, Conflict, and Violence 2020–2025 (FCV strategy) in February 2020 to enhance its effectiveness in supporting countries in addressing the drivers and impacts of FCV The evaluation responds to a request by the Bank Group Boards of Directors to inform the development of a new Bank Group FCV strategy. It seeks to distill findings and lessons from the Bank Group experience with the implementation of the 2020–25 FCV strategy to inform the preparation of a new Bank Group FCV strategy. Given this objective and to optimize IEG’s value add, this evaluation is focused on providing timely findings and lessons for the new strategy.