9.0 What is a sustainable economy?

A sustainable economy⁴⁸⁴ is one in which people can pursue opportunities for livelihoods within a predictable system of economic governance bound by law. Such an end state is characterized by market-based macroeconomic stability, control over the illicit economy and economic-based threats to the peace, development of a market economy, and employment generation. Economic governance refers to the collection of policies, laws, regulations, institutions, practices, and individuals that shape the context in which a country’s economic activity takes place.⁴⁸⁵

9.1 What are the key economic challenges in societies emerging from conflict?⁴⁸⁶
Violent conflict can severely devastate an economy. Large-scale violence disrupts market activity by destroying infrastructure and critical production and processing facilities. Common features of a war-torn economy include macroeconomic instability, fragmented markets, limited access to credit, reduced confidence, depleted human capital, increased illicit economic activity, mine-littered lands, and debilitated economic institutions that are vulnerable to capture by predatory economic actors⁴⁸⁷ or spoilers. States may be captured by a political-criminal nexus sustained through hidden economic transactions, which threaten peace, governance, and development. Major hostilities also deplete the labor market by driving families from their homes and killing, traumatizing, or disabling millions of others. An overall decline in the well-being of the population is common, as the government diverts public service investments to finance military operations or the state collapses and is unable to make necessary investments.

9.2 Why is a sustainable economy a necessary end state?
Once violent conflict has ended, countries still face alarming risks of falling back into conflict. Broad consensus exists that sustainable welfare-enhancing economic growth has the potential to mitigate these risks by improving living standards, reducing inequalities among groups, increasing affordability of basic goods and services, and expanding overall opportunity.⁴⁸⁸ Economic opportunity and growth give the population a stake in peace, particularly local entrepreneurs. Although it is rarely the sole precipitating cause of violent conflict, economic failure has proven to be a key factor that can mobilize political and social grievances into large-scale violence. Without broad improvements in economic performance, peace is not sustainable.

9.3 What are the necessary conditions to achieve a sustainable economy?
Macroeconomic Stabilization is a condition in which monetary and fiscal policies are established to align the currency to market levels, manage inflation, and create transparent and accountable systems for public finance management. This condition requires a robust and enforceable legislative and regulatory framework to govern issues such as property rights, commerce, fiscal operations, and foreign direct investment.

• Macroeconomic Stabilization is a condition in which monetary and fiscal policies are established to align the currency to market levels, manage inflation, and create transparent and accountable systems for public finance management. This condition requires a robust and enforceable legislative and regulatory framework to govern issues such as property rights, commerce, fiscal operations, and foreign direct investment.
• Control Over the Illicit Economy and Economic-Based Threats to Peace is a condition in which illicit wealth no longer determines who governs, predatory actors are prevented from looting state resources, ex-combatants are reintegrated and provided jobs or benefits, and natural resource wealth is accountably managed.
• Market Economy Sustainability is a condition in which a market-based economy is enabled and encouraged to thrive. Infrastructure is built or rehabilitated, and the private sector and the human capital and financial sectors are nurtured and strengthened. Employment Generation is a condition in which job opportunities are created to yield quick impact to demonstrate progress and employ military-age youths, and a foundation is established for sustainable livelihoods. 
• Employment Generation is a condition in which job opportunities are created to yield quick impact to demonstrate progress and employ military-age youths, and a foundation is established for sustainable livelihoods. 

9.4 General Guidance for Sustainable Economy

9.4.1 Build host nation ownership and capacity. Consult broadly and create coordination mechanisms with the host nation population to build trust, prevent dependency, and ensure ownership, paying particular attention to women and minorities who may have special needs. Recognize that the civil service in line ministries makes up the core of the government workforce and must be trained and paid. Small business development—particularly in the agricultural sector—should build on and enhance host nation capacity. Even while peace negotiations are ongoing, start a dialogue with civil society and private sector representatives to build political consensus for the economic recovery program.⁴⁸⁹ Also be certain to recognize work that is accomplished by the population through strategic communications.⁴⁹⁰

9.4.2 Act only with an understanding of the local context. War-torn economies may share many characteristics, such as physical insecurity, weak state capacity to enforce taxes or regulate the economy, inability to adjudicate economic disputes, macroeconomic instability (volatile currency, high inflation), decreased production, a distorted labor market, a loss of human capital, informal economic activity, a drop in GDP, and a return to subsistence agriculture.⁴⁹¹ But there is no single strategy that can be applied across the board. Tailored, conflict-sensitive approaches are necessary to account for unique characteristics in the political and economic landscape.⁴⁹² The economic assessment should investigate key aspects of the specific context:⁴⁹³

• What is the extent of the disruption to commerce and general economic activity?
• What is the extent of damage done to physical infrastructure and social and political institutions?
• What is the competitive advantage of economic structures predating the conflict?
• What is the legacy of conflict-related economies?
• What is the state of livelihoods, including skills, capacity, motives, and access to resources?
• What is the state of macroeconomic policies and institutions and government resources?
• What is the state of industries, investment, trade, and markets?
• What is the potential impact of international actors on the domestic economy?

9.4.3 Prioritize to stabilize. Economic recovery programming should not be development as usual. Political imperatives and the need to maintain peace should trump goals of economic effciency in the immediate aftermath of violent conflict.⁴⁹⁴ Principles of inclusivity and balance can avoid perceptions of inequality in wealth distribution. While no consensus exists on the exact sequencing of economic reforms, most agree that more attention must be paid to macroeconomic stabilization, alongside emergency activities such as infrastructure rehabilitation or the reintegration of ex-combatants.⁴⁹⁵ S&R missions have typically postponed fiscal and monetary reform, which is key to creating favorable conditions for growth.⁴⁹⁶ Acting early in these reforms is vital, when political resistance tends to be low.⁴⁹⁷ Other economic priorities in these environments include addressing property rights by developing dispute resolution mechanisms and enforcing laws to combat organized crime and other destabilizing economic activity.

See Trade-off: Section 9.9.1, Economic efficiency vs. political stability.

9.4.4 Use a conflict lens. Be cautious that economic growth strategies do not reinforce or empower predatory economic actors. After violent conflict is over, these are often the key economic players that emerge and are frequently associated with crime and corruption. Also recognize that all economic recovery activity is fundamentally political in these societies. Understanding all actors and their complex political-economic relationships helps to avoid strengthening historical inequities that may have led to violent conflict in the first place.⁴⁹⁸ Every decision, from choosing which roads to rehabilitate first to choosing a currency, can have political ramifications. Always consider political impacts before taking action.

9.4.5 Recognize interdependence. Successful economic recovery depends on multiple aspects of the S&R mission, so be sure to address it comprehensively. For example, security is essential for expanding economic activity and allowing farmers or merchants to travel safely to the market place. A predictable legal framework for resolving property rights or contract disputes is key to encouraging business investments and preventing renewed conflict. Good governance over natural resource wealth is vital for boosting the effectiveness and credibility of the state and removing a persistent source of conflict. Recognize these linkages and coordinate economic strategies with those of security, the rule of law, governance, and social well-being.