Inside the Fragility Trap: How Conflict and Weak Governance Undermine Economic Progress

The IMF warns that fragile states, marked by weak institutions, conflict and limited fiscal capacity, suffer slower growth and are far more vulnerable to economic shocks, trapping them in cycles of instability. Strengthening governance, rebuilding fiscal space and restoring core state functions are critical not only for exiting fragility but also for safeguarding global economic stability.

Fragility is fast emerging as one of the biggest threats to global economic stability. A new study by the International Monetary Fund, prepared by its Strategy, Policy, and Review Department with contributions from researchers linked to the World Bank, OECD, Center for Global Development, University of Oxford, Georgetown University and the Barcelona School of Economics, argues that fragile states are not on the margins of the global economy. They are central to its risks.

Today, 38 countries are officially classified as fragile and conflict-affected states. Together, they are home to about one billion people. But the report makes a broader point: fragility is not limited to war zones. It exists on a spectrum. Rising crime, weak institutions, social unrest, high inequality and political instability in many emerging and even advanced economies show that fragility can take many forms.

What Fragility Really Means

At its core, fragility reflects a breakdown in the relationship between citizens and the state. Governments struggle to collect taxes, deliver basic services, manage public finances, maintain stable prices or enforce the rule of law. Institutions are weak. Trust is low. Investors hesitate.

This creates what the IMF calls a “fragility trap.” Weak governance leads to poor economic outcomes. Poor economic outcomes deepen social tensions and political instability. That instability further weakens institutions. Many fragile countries have remained stuck in this cycle for two decades or more.

Conflict makes the trap even harder to escape. The early 2020s saw some of the highest levels of battle-related deaths since the end of the Cold War. Forced displacement has reached record levels. Fragile states are now home to a growing share of the world’s poorest and most food-insecure populations.

Slower Growth, Bigger Fiscal Struggles

The economic costs are clear. Fragile low-income countries have grown more slowly than their more stable peers over the past two decades. Productivity growth has been weak. Private investment is limited. Financial systems are shallow. Foreign investment is often concentrated in natural resources instead of broader industries.

Public finances are especially constrained. Fragile low-income countries typically collect only about 10 percent of GDP in taxes, far below what is needed to fund strong public services. External aid helps, but it rarely makes up the difference.

As a result, spending on health, education and social protection lags. Infrastructure gaps remain wide. Debt vulnerabilities are high, with many fragile countries at serious risk of or already in debt distress. Limited fiscal space makes it harder to invest in long-term development.

The situation is even more difficult in countries where fragility overlaps with conflict or where fuel exports are heavily dependent. In such cases, growth can stagnate for years, and economic volatility becomes the norm.

When Shocks Hit Harder

Fragility does not just slow growth. It also makes countries more vulnerable to external shocks.

The IMF’s analysis shows that when export prices fall or global conditions worsen, fragile economies suffer deeper and longer-lasting declines in output. Recovery takes more time. Governments often lack the fiscal space or foreign exchange reserves to cushion the blow.

The COVID-19 pandemic offered a stark example. Fragile states experienced severe economic scarring and had far less capacity to support households and businesses. When global food and energy prices surged in 2022, many fragile and borderline economies struggled to contain inflation, especially where monetary and exchange rate frameworks were weak.

This creates a dangerous feedback loop. Economic shocks increase unemployment and poverty. Social tensions rise. Trust in institutions falls. In some cases, unrest or conflict follows. Fragility deepens, leaving the country even less prepared for the next crisis.

A Path Toward Stability

Despite the challenges, the report does not suggest that fragility is inevitable or permanent. It outlines a practical policy agenda focused on strengthening three core government functions: maintaining macroeconomic stability, delivering public services effectively and supporting well-functioning markets.

In the short term, fragile states need to restore fiscal discipline, improve tax collection, strengthen public financial management and protect essential social spending. Building even modest fiscal and foreign exchange buffers can improve resilience.

Over the longer term, deeper institutional reforms are crucial. Strengthening governance, reducing corruption, reinforcing the rule of law and developing financial markets can help rebuild trust and support private sector-led growth.

International institutions also play a key role. As global aid budgets tighten and financial conditions become more restrictive, support must be carefully targeted and tailored to each country’s specific fragility risks.

The broader message is simple but powerful. Fragility is not just a humanitarian issue. It is a macroeconomic challenge with global consequences. In an interconnected world, instability spills across borders through migration, trade disruptions and financial contagion. Strengthening institutions in fragile contexts is therefore not only about helping vulnerable countries. It is about protecting global stability and shared prosperity.