Executive Summary
Countries face an increasingly complex risk landscape. The impact of a single shock—an earthquake, a food crisis, or a disease outbreak—can amplify existing stressors or potentially initiate a cascade of shocks, leading to larger and more sustained impacts on lives, livelihoods, and development outcomes. With the potential to cause significant economic impacts, complex crises can hinder progress in poverty reduction, especially in low-income and fragile countries.
The ongoing COVID pandemic is a prime example of a complex crisis with considerable adverse consequences on economies in both high- and low-income countries. Not only is the pandemic reducing the ability of countries to respond to wider threats, the occurrence of any additional shocks (whether natural, political or economic) during the COVID crisis is likely to hinder the recovery process, further entrench existing vulnerabilities, and significantly roll back development gains.
The Global Crisis Risk Platform (GCRP) was endorsed by the Board of Executive Directors in 2018 to strengthen the World Bank’s ability to identify, mitigate and respond to complex crises1. One of the core objectives of the GCRP is to support the identification of countries facing compound risks to inform prioritization and investments in risk management. While risk monitoring tools exist within and outside the Bank, there currently is no in-house multidimensional risk-monitoring system to support the Bank’s institutional capacity to identify compound risks. Where they exist, in-house risk monitoring approaches vary across sectors, and end users (primarily CMUs and Bank management) receive information about risks from different sources, with different frequency, and in different formats.
To contribute to the GCRP’s vision, the GCRP Compound Risk Monitor (CRM) presented in this note builds on existing risk monitoring efforts to support the identification and monitoring of compound risks. More specifically, the CRM is an early warning system based on a simple flagging methodology – highlighting countries experiencing changing risk conditions across multiple dimensions of compound risk. Its design is guided by the need for simplicity, transparency and flexibility – providing decision makers with easily interpretable and relevant data-driven analysis. As such, the CRM is not meant as a precise index of compound risk, nor is it meant to forecast future compound crises. It should be seen as a means of highlighting countries and regions requiring increased vigilance given heightened compound risk levels across key risk dimensions.
From a conceptual point of view, the CRM breaks compound risk down into six dimensions: i) natural hazards, ii) food security, iii) conflict and fragility, iv) macro-fiscal dynamics, v) socio-economic vulnerability, and vi) health risks. These six dimensions can be seen as preconditions (or catalysts) likely to contribute to compounding effects. Each dimension integrates aspects related to exposure, vulnerability and response capacity. For each dimension of compound risk, the CRM provides three country-level outlooks: a) an overview of a country’s predisposition to specific threats, typically based on an evaluation of structural conditions and underlying capacities related to each risk dimension (“underlying vulnerability”); b) a dynamic view of changing risk conditions – signaling countries that are experiencing (or are expected to experience) worsening/intensification of risk conditions (“emerging threats”); and c) a combined score that weighs emerging threats against a country’s underlying vulnerability (“overall compound risk”). The latter outlook can be seen as a high-level approximation of the level of vigilance needed in considering whether emerging threats are likely to materialise into compound crises.
The CRM aims to support the Bank’s institutional capacity to monitor risks that threaten countries’ efforts to end extreme poverty and boost shared prosperity. Its main use case is in providing Bank Management, Regional Management, IDA Management and Country Management Units (CMUs) with systematic updates on the global risk landscape and flag ‘hotspots’ of concern – countries and regions where the potential for compound risk is intensifying. In addition, it can support client dialogue on risk management, by presenting a holistic view of country-level risk. While the CRM is not a turnkey solution to all risk monitoring needs, it serves as an important decision-support tool as part of the menu of risk analytics tools available to WB management and staff.
The CRM is the first of a suite of outputs focused on compound risk under the GCRP program. In particular, information from the CRM database will be made accessible to WB stakeholders through an interactive dashboard (see Box 1). The dashboard will enable easy visualization of CRM outputs, facilitating interpretation and allowing users to tailor insights from the CRM to their individual needs. Through the dashboard, the CRM will act as an aggregator of risk information, compiling risk information produced and used across the WB and directing users to sector-specific risk analyses and resources. As part of the GCRP program, the CRM will also feed into regular horizon scanning exercises that will combine its data-driven outputs with detailed qualitative insights from sector and regional experts to develop regular compound risk briefings tailored to the needs of target users.
The purpose of this note is to present the methodological considerations underlying the CRM and provide examples of the outputs it can produce. The paper outlines the indicators underlying the CRM and the methodology adopted to aggregate these indicators into compound risk scores along six dimensions. It also highlights areas for further consideration in refining the CRM going forward.
The GCRP Board paper is available at: http://documents1.worldbank.org/curated/en/660951532987362050/pdf/GCRP-Board-Paper-26-June-FINAL-06272018.pdf↩︎