1 November 2012

Fragility Needs More Financial Resources

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Fragile countries require more financial support to stand a chance of improving their fortunes, Shantayanan Devarajan, the World Bank's Chief Economist for the Africa Region, said Thursday at the ongoing African Economic Conference in Kigali, Rwanda.

"The present thinking about countries facing political instability is that we say we shouldn't give them much money because that money will be stolen and badly used. But what we are saying is maybe that is a mistake because if you give them less money, then they continue to be in that fragile state," Devarajan said.

"So you need some money to actually be able to do a few things to be able to get out of it. Now there is no guarantee that they will do it, but we need to think about the way we are currently behaving. The way we are currently doing things tends to squeeze these countries," he added.

Devarajan co-authored a paper with Noro Aina Andrimihaja, an economist in the World Bank's Africa Region, and Matthias Cinyabuguma, an Assistant Professor of Economics at the University of Maryland-BC, on how to avoid what they call "fragility trap". The paper was presented as part of the discussion titled "Inclusive Growth" on Day 3 of the four-day conference.

In the paper, they define the trap more characteristically as a state of political instability and violence, insecure property rights and unenforceable contracts, and corruption, and conclude that these three features "conspire to create a slow-growth-poor-governance equilibrium trap into which these fragile states can fall."

What is worse, they add, "fragility seems to be persistent: the probability that an African fragile state in 2001 remained fragile in 2009 was [95 per cent]. Globally speaking, 35 countries defined by the World Bank as fragile in 1979 were still fragile in 2009."

A number of experts, however, expressed ambivalence both at the definition of fragility and the suggestion that countries that were already squandering whatever little they were getting needed to correct their wastefulness.

"It is very difficult to objectively define what fragility is. So we are dealing with a concept which is very complex and it is intractable if you want. So, in a way, we don't know exactly what we are talking about," said Janvier Nkurunziza, an economist with the UN Conference on Trade and Development (UNCTAD).

"Fragility and conflict, in my view, are not necessarily about the lack of financial resources. These problems are in many times political. So I think political incentives are one way of looking at the question.

"How do political incentives play out in terms of keeping a country on a growing path or keeping them into the fragility trap? So the issue might not be just about the availability of resources but their use," Nkurunziza said.

Experts warn against misdiagnosing the problem of countries classified as fragile. The issue, they say, might not actually be whether these states qualify for aid, but rather whether aid money is used effectively. As such, aid delivery mechanisms in these countries need to be reviewed so that each aid dollar is put to effective use.

While Devarajan doesn't disagree, he says these countries are already getting very little money as it were, which raises its own constraints in allocations.

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