How Fragile States Can Gain by Strengthening Institutions and Core Capacities

IMF Blog, March 18, 2026

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Some 1 billion people across 38 fragile and conflict–affected states experience lower economic growth and are more vulnerable to shocks than those in other countries.
Fragility and conflict spill across borders through cross-border insecurity, migration and refugee flows, and trade disruptions.
The situation has worsened in recent years and may be further complicated by economic spillovers from the conflict in the Middle East.
Fragility often involves weak state capacity, governance challenges, social tensions, poverty and inequality, and high vulnerability to shocks such as food-price hikes.
Conditions associated with fragility can also emerge in other low-income countries, emerging markets, or some advanced economies.

Median economic growth for the poorest fragile states averaged 3.5 percent versus 4.6 percent for their more stable counterparts in 17 of the past 20 years.
Growth was even lower where institutional fragility was coupled with conflict and abundant natural resources.
Weaker productivity growth and more limited foreign and domestic investment underlie slower growth in the poorest fragile states; investment is hindered by underdeveloped financial systems.
Median ratio of tax revenue to economic output in the poorest fragile states is about 10 percent.
IMF research indicates that if low-income countries have a tax ratio below 15 percent, they will find it extremely hard to foster growth, strengthen institutional capacity, and achieve development goals.
Some three quarters of the poorest fragile states are at high risk of, or in, debt distress.
Low fiscal and foreign exchange reserves constrain the ability to support economies in downturns and to stabilize when needed.
Many of these countries experienced growth scarring after recent global shocks; some suffer from double-digit inflation.

Economic policies cannot solve fragility alone but can significantly contribute by:
- Promoting sustainable growth and job creation.
- Prioritizing key spending while keeping debt on a sustainable path.
- Tackling inflation to stabilize economies.
Strengthening the core functions of government is central to progress:
- Stabilizing the economy.
- Delivering public services.
- Supporting efficient markets, including financial sector development.
Strengthening institutions and core capacities helps build trust, strengthen the social contract, and deliver visible benefits that can increase legitimacy.

National leaders face the key challenge of building and sustaining broad coalitions to support effective policies and reforms.
Even in difficult contexts, reforms can create a virtuous circle (example: better tax administration can raise revenues → improve public services and fiscal transparency → strengthen legitimacy → enhance tax compliance → raise more revenue).
The poorest fragile states face acute resource constraints that limit public spending and crisis response capacity.

International support is important and should be tailored:
- Policy advice.
- Capacity development.
- Financing.
For countries with intense fragility and high risk of conflict, targeted support is especially critical.
Early and targeted support for countries facing growing risk of fragility can prevent deterioration into worse crises.

Sound economic policies and reforms are crucial for the wellbeing of people in fragile states.
Priority actions center on strengthening institutions, building trust, and reducing vulnerability so that countries can leave fragility behind.

Authors: Paul M. Bisca, Alexei Miksjuk, Christian Mumssen, Gaëlle Pierre — March 18, 2026.