The closure of the Strait of Hormuz has caused severe price spikes, which are hitting the world’s most vulnerable people the hardest. Since the start of this year, the price of Brent crude has risen by at least 41% ( topping US$100 per barrel ), that of urea ( a component in fertilizer ) by about 50% and container freight rates by 21%. Maritime insurance premiums have surged up to ninefold, and 29 African currencies have depreciated. And as if these shocks were not bad enough, the global financial system’s response has made matters worse.

Just when many economies need liquidity, financing conditions have tightened, risk premia have widened, and key tools for such emergencies are scheduled to be phased out. Mechanisms designed to absorb stress have instead amplified it. The global economy is not only more volatile than in the past, but also structurally vulnerable to geopolitical conflict, trade fragmentation, climate shocks, technological shifts and other broad forces that are overlapping and compounding in real time.

The current financial architecture was supposed to ensure stability by providing liquidity when capital retreats, cushioning economies when shocks hit and encouraging investment when uncertainty rises. But we have just witnessed the opposite. As capital has fled to safety, borrowing costs have climbed, and many countries have found themselves with even less fiscal capacity to respond to the shock.

For example, in Africa, financing conditions tightened as net oil‑importers faced surging fuel and food import bills. Yet one of the few instruments designed for such occasions, the International Monetary Fund ( IMF )’s Rapid Credit Facility for low-income countries, is set to phase out the higher access limits that were implemented during the Covid-19 pandemic. Meanwhile, middle-income countries borrowing under stress continue to pay extra under the IMF’s surcharge policy.

While the IMF defends this policy as necessary to encourage repayment and safeguard its resources, the policy is procyclical because surcharges are being levied on the largest outstanding balances, which invariably are held by economies under the most stress. Recent research maps the regressive effects of these dynamics. Just when countries need to be pursuing countercyclical measures ( such as stimulus in the face of a contraction ), the safety net shrinks and the cost of shock absorption spikes.

Moreover, the cost of capital has risen. After averaging 2.4% through the 2010s and touching a trough near 0.6% during the pandemic, the US 10-year Treasury yield has risen to approximately 4.36%, a level that increasingly appears structural rather than temporary. For emerging and developing economies carrying high debt loads, this raises the hurdle rate ( the minimum expected return on investment ) for every energy, infrastructure, food-system, and climate-resilience project. Again, the system is tightening financial conditions at precisely the moment when it should be loosening them.

But this is not an unintended consequence. The system is functioning as designed. It was built for a world of episodic shocks and orderly recoveries, not one characterized by persistent, overlapping sources of disruption. In this new world, procyclicality is no longer a minor flaw; it is a binding constraint on growth and stability.

Africa suffers the most from these dynamics, owing to its large investment needs, limited fiscal buffers and continued reliance on external financing. As climate, geopolitical, and other shocks increase debt burdens across the continent, health and education spending is crowded out. Many countries are advancing prudent, growth-enhancing domestic reforms, but these external forces undermine the results.

The situation calls for not just more financing or faster disbursement, but also built-in stabilizers to remove the clearest sources of procyclicality. In the case of the IMF, that means preserving emergency financing facilities, reactivating the Food Shock Window and eliminating procyclical surcharges on borrowers that rely on these facilities.

Similarly, for the World Bank, minimizing procyclicality means frontloading International Development Association financing, scaling up contingent credit lines ( with larger limits ) and other resources for vulnerable lower-middle-income countries, and expanding local-currency lending to reduce the foreign exchange mismatches that make depreciation episodes more painful. And for regional development banks and financial institutions, it means deploying trade finance and letters of credit to keep energy and fertilizer supply chains functioning.

More broadly, policymakers must start overhauling the global financial architecture to include predictable, rules-based instruments that disburse automatically when agreed indicators are breached, rather than waiting for governing board decisions months into a crisis.

By rechannelling the IMF’s international reserve asset, Special Drawing Rights, toward multilateral development banks as hybrid capital, we can turn idle reserves into resilience-building investments in vulnerable economies. By implementing the G20’s 2022 Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks, we can unlock an additional US$300 billion to US$400 billion in lending over the next decade without new capital from shareholders. And by revisiting the structure of shareholding, representation and quotas at international financial institutions, we can give the countries most exposed to global shocks a meaningful voice in setting the rules.

The issue is not a funding or liquidity shortfall. In a world marked by persistent disruptions, we are still relying on a system built for temporary shocks. But resilience cannot be improvised; it must be engineered into the system itself.

Hanan Morsy is the deputy executive secretary and chief economist at the United Nations Economic Commission for Africa and a member of the G20 Africa Expert Panel established under South Africa’s G20 presidency.

Copyright: Project Syndicate