IMF Insights: Economic Policy as a Tool for Peace

By: Apoorva Kuppa, The Quinnipiac University Economics Research Team 

Photo by Levi Meir Clancy on Unsplash  

On March 13th, the IMF published their blog titled "How Sound Economic Policy Can Help Prevent Conflict." The blog highlights new research showing that macroeconomic policy can play a crucial role in preventing armed conflict, potentially saving lives, reducing displacement, and protecting economies from severe damage. Using policy simulations and machine learning-based conflict predictions, the study finds that every $1 invested in prevention (through economic stability, institutional strengthening, and community development) can save between $26 and $103 in conflict-related costs. 

With state-based conflicts at their highest level in 50 years, the IMF is increasing its focus on fragile and conflict-affected states. The research identifies three key areas of economic policy that effectively reduce conflict risk. First, stronger fiscal policies help lower the chances of violence when governments maintain balanced budgets and reinvest in services and development. Second, resilient labor markets reduce the likelihood of conflict, as high unemployment is closely linked to a greater risk of violence. Third, international financial support plays a crucial role, with IMF aid to struggling nations associated with a 1.5-4.0 percentage point drop in the risk of violence. 

Thus, the IMF emphasizes that early warning systems will be critical, particularly in fragile states where social tensions may not yet be visible. 

You can read more here: "How Sound Economic Policy Can Help Prevent Conflict"