Resilience by Design

The changing global economic landscape is likely to expose the Middle East, North Africa, and Pakistan (MENAP) and Caucasus and Central Asia (CCA) regions to more frequent external shocks, putting a premium on resilient and flexible macroeconomic policy frameworks. By using empirical analysis and model-based scenarios, this paper highlights the important roles of policy frameworks in stabilizing MENAP and CCA economies against adverse global shocks. Two messages stand out from the analysis. First, as countries make progress toward diversifying their exports and deepening domestic financial markets, credible inflation-targeting monetary policy regimes that allow greater exchange rate flexibility could enable faster adjustment to adverse global shocks. Second, adopting strong fiscal rules could help better anchor long-term expectations, reduce risk premiums, and help support countercyclical fiscal responses.