Macroeconomic Challenges of Fragility and Policies for Stability and Growth

In 2025, fragile and conflict-affected (FCS) included 38 economies that are home to 1 billion people. The recent shocks have intensified fragility-related pressures even in more stable economies. This paper provides a comprehensive discussion of macroeconomic challenges and policies under fragility, expanding on the existing literature and drawing on the implementation of the IMF’s 2022 FCS Strategy. It finds that fragility is associated with slower long-term economic growth amid impaired government functions, including weak public service provision, low tax revenues, and underdeveloped financial sector. In the short term, fragility heightens economies’ vulnerability, with external shocks (such as terms of trade changes) having a stronger and longer-lasting impact. These effects are particularly pronounced in cases when institutional fragility is compounded by conflict or structural characteristics such as fuel export dependence or small country size. The paper argues that strengthening core government functions—macroeconomic stabilization, public service delivery, and market-based resource allocation—is essential to improving macroeconomic performance and addressing fragility, provided institutional and socio-political constraints are accounted for. International financial institutions can support countries’ efforts to mitigate and overcome fragility through tailored policy advice, capacity development, financing, and stronger partnerships with humanitarian, development, and peace organizations.