Assessing vulnerability to prevent crises

For decades, vulnerable nations have sought a more accurate and impactful means to evaluate their need for global assistance. Can the new Multidimensional Vulnerability Index (MVI) live up to its promise and more effectively help these countries prepare for risks and threats?

Data and monitoringGlobal

Madagascar, a boy takes shelter from the “Tioka” wind. The impetus to create a vulnerability index has been driven by the small island developing states to recognise their extreme exposure to risks, especially climate change. ©UNICEF Madagascar/Safidy Andrianantenaina

It is widely agreed that countries most in need of concessional resources (i.e. finance provided below the market rate) cannot be identified only by gross national income (GNI) per capita. Vulnerable countries often face contractions in national wealth due to economic and environmental shocks, particularly natural hazards. As the frequency and severity of such shocks increases, vulnerable countries also require a broader and sustained allocation of resources.

“Vulnerability” is the risk of a country being durably affected by shocks, whether economic, social, or environmental. It depends on the likely magnitude of the shocks, the country’s exposure to them, and its ability to cope with them (its “resilience”).

If vulnerability is to be used to guide allocation of resources, a quantitative and appropriate index is needed. The search for such an index within the United Nations began three decades ago, driven by small island developing states who sought recognition of their extreme vulnerability, particularly with respect to climate change. Meanwhile, since 2000 the Committee for Development Policy (CDP – a subsidiary body of the UN’s Economic and Social Council) has recognized and measured vulnerability to identify least developed countries. 

This process saw:

After weeks of discussion following the latest report, a consensus recently appeared for a resolution on the MVI to be presented at the UN General Assembly in September. 

However, the conceptual framework and principles underpinning the MVI have barely been applied in the various vulnerability indices developed to date, with the exception of CDP’s Economic and Environmental Vulnerability Index and the Commonwealth Secretariat’s Universal Vulnerability Index. FERDI has contributed to the various steps of this evolution by many works reflected in this article, including:

The MVI conceptual framework

It is important to distinguish between “structural” and “general” vulnerability. 

Structural vulnerability includes only those factors that do not depend on a country’s current policies, and are entirely determined by external conditions. Only structural vulnerability is relevant for guiding resource allocation. For this reason, the MVI established by the high-level panel is an index of structural vulnerability.

General vulnerability results not only from exogeneous or structural factors, but also from non-structural factors, notably those resulting from current country policy. The high-level panel report proposed to supplement the MVI with a tool called the Vulnerability-Resilience Country Profile (VRCP). The VRCP can take various kinds of vulnerability into account and provide a better characterization of the factors specific to each country.

In addition to the criteria that any composite indicator needs to meet (availability, statistical reliability, and transparency of its components), three distinctive conditions are required to design the vulnerability index. It should be: 

  • multidimensional, covering the three main dimensions of vulnerability: economic, environmental (mainly climatic), and societal
  • universal: applicable to all developing countries, not just a particular category of country
  • able to separate structural factors from those dependent on current country policy 

This third feature is crucial for the index to be considered as a possible criterion of aid allocation, as it avoids or minimizes “moral hazard” (that is, countries setting policies that do not reduce vulnerability and are likely to lead to them receiving more aid).

The chief arguments for using such a structural vulnerability index as a main criteria for aid allocation are:

  • international justice (as a response to structural handicaps)
  • effectiveness (as aid is marginally more effective in countries facing shocks)
  • transparency (by avoiding multiple discretionary exemptions and specific funding mechanisms to address particular needs linked to vulnerabilities)

Can the MVI live up to its promise?

The MVI is currently based on two pillars: structural vulnerability and lack of structural resilience. Each pillar is made up of 13 indicators covering the three main dimensions mentioned above.

As far as structural vulnerability is concerned, the principles of universality and multidimensionality have been relatively well respected in the MVI. The criterion of exogeneity (structural factors) is naturally the most difficult to meet. This is because the distinction between what comes from current policies and what is inherited (and therefore constitutes a structural factor) can sometimes be blurred. However, this criterion has also been respected, despite a few debatable components (see The Multidimensional Vulnerability Index under the lights: for what purpose?).

The treatment of “resilience” is more questionable. One reason lies in the artificial symmetry the MVI report has introduced between the three dimensions of structural vulnerability and those signifying lack of structural resilience. In fact, the main structural factors of resilience (infrastructure and human capital) are essentially the same whatever the category of shock. The distribution of components between the three supposed dimensions of resilience does not rely on a clear rationale.

These choices, added to some other debatable technical points in the aggregation of the resilience index, explain some of the anomalies in the final country rankings. Nepal, for instance, is judged to be less vulnerable than India. These anomalies have drawn the attention of several countries. However, the relative position of the country groups does not seem to have raised strong criticisms.

There are many avenues for improvement. Indeed, the MVI is now presented as a “living tool.” The UN must be able to iterate the MVI, considering the scientific criticisms that it will possibly generate. At the same time, it must keep and promote the principles on which the MVI was initially expected to rely (universality, multidimensionality, and exogeneity). This is essential if financial institutions are to seriously consider this type of index as a criterion for allocating resources.

The MVI will not replace GNI per capita in the resource allocation formula ­– the latter will remain an important criterion. But income will be combined with vulnerability, so that the impact of vulnerability on concessional resource allocation should be stronger for poorer countries.

The MVI is not perfect, and it is open to debate whether it will achieve its intended objective. But it can be easily improved, notably in the choice of indicators and more importantly in the treatment of the structural resilience pillar. It then could be a useful tool to advance to a more preventive – rather than curative – treatment of vulnerability.

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