How stronger institutions can rescue 1bn people from economic

By Uche Usim

A research by the International Monetary Fund (IMF) is sharpening the global conversation around economic fragility, warning that nearly one billion people living across 38 fragile and conflict-affected states remain locked in a cycle of weak growth, recurring shocks and deepening vulnerability, unless governments move decisively to strengthen institutions and core economic capacities.

The study, released on March 18 by economists, Paul M. Bisca, Alexei Miksjuk, Christian Mumssen and Gaëlle Pierre, argues that while fragility is complex and often rooted in conflict, governance breakdowns and social tensions, the right mix of economic policies can still serve as a powerful stabilising force.

Fragile states, the report notes, are not just domestic concerns. Their instability often spills across borders, triggering migration surges, disrupting trade routes and fuelling regional insecurity. In recent years, these pressures have intensified, compounded by global shocks and geopolitical tensions, including spillovers from the Middle East crisis.

At the heart of the issue lies an economic reality that fragile states consistently underperform.

Over the past two decades, the poorest among them recorded median growth of just 3.5 per cent. well below the 4.6 per cent seen in more stable economies. The gap widens further in countries where weak institutions coincide with conflict and heavy reliance on natural resources.

The persistent lag, according to the research, is driven by structural weaknesses. Productivity growth remains low, while both domestic and foreign investments are constrained by underdeveloped financial systems and policy uncertainty. The result is a cycle where limited growth reduces government capacity, which in turn undermines further development.

Compounding the challenge is a severe lack of fiscal space. Fragile states typically generate tax revenues equivalent to only about 10 per cent of their economic output, far below the 15 per cent threshold widely seen as necessary to sustain meaningful development. With such limited resources, governments struggle to fund basic services, invest in infrastructure or provide social safety nets.

At the same time, debt pressures are mounting. About three-quarters of the poorest fragile countries are either at high risk of debt distress or already experiencing it. Servicing these obligations consumes scarce public funds, leaving even less room for growth-enhancing investments.

External shocks, from food price spikes to global financial tightening, have further exposed these vulnerabilities. Many fragile economies are now grappling with “growth scarring,” where recovery from recent global crises remains weak and uneven.

In several cases, inflation has surged into double digits, eroding household incomes and deepening poverty.

Yet, despite the daunting landscape, the report offers a cautiously optimistic message: fragility is not irreversible.

“Sound economic policies cannot solve every dimension of fragility, but they can play a critical role in restoring stability, fostering growth and building trust between governments and citizens”, the authors note.

Central to this approach is strengthening the core functions of the state. This includes maintaining macroeconomic stability, delivering essential public services and supporting efficient, well-regulated markets, particularly in the financial sector.

Such reforms, the report argues, do more than improve economic performance. They help rebuild the social contract by demonstrating that governments can deliver tangible benefits. In fragile settings, where trust in public institutions is often low, this can be transformative.

One example highlighted is tax reform.

Even in difficult environments, improving tax administration can significantly boost revenues. When these funds are transparently reinvested into public services, it can enhance government credibility, encourage compliance and create a virtuous cycle of increasing revenue and trust.

However, implementing reforms in fragile states is far from straightforward. Political instability, limited administrative capacity and competing social pressures often make sustained policy execution difficult. Leaders must therefore build broad coalitions, across political, social and economic groups, to support reform agendas and ensure continuity.

The international community also has a pivotal role to play. The report calls for more tailored support, combining policy advice, technical assistance and financing that reflects the unique challenges of fragile environments.

The support is particularly critical in countries where fragility is intensifying or where the risk of conflict is rising. Early, targeted interventions can prevent economic and social pressures from escalating into full-blown crises.

For nations already deeply affected, sustained engagement is essential. Short-term fixes, the authors warn, are unlikely to deliver lasting results without parallel efforts to build institutional capacity and resilience.

Ultimately, the path out of fragility hinges on one central idea: trust.

By strengthening institutions, improving transparency and delivering consistent economic outcomes, governments can begin to rebuild confidence among citizens and investors alike. Over time, this can unlock investment, boost productivity and set countries on a more stable growth trajectory.

The stakes could hardly be higher. With a billion lives affected and the consequences of instability increasingly crossing borders, the urgency of action is clear.

The report inferred that fragile states can move beyond cycles of crisis, but only if they commit to the long, often difficult process of reform. In doing so, they not only improve their own prospects but also contribute to a more stable and prosperous global economy.