IMF Advocates for Stronger Institutions Amid Slowing Growth and Rising Debt Risks
The International Monetary Fund (IMF) has issued a stark warning, calling for the urgent strengthening of institutions and core economic capacities in fragile and conflict-affected states. The Fund highlights that weak governance, low revenues, and escalating debt vulnerabilities are set to continue suppressing economic growth and increasing exposure to shocks, with implications that extend far beyond national borders.
Global Impact of Fragility
In a recent blog post, the IMF revealed that approximately one billion people across 38 fragile and conflict-affected countries are experiencing lower economic growth and greater vulnerability compared to more stable economies. The effects of fragility often spill across borders through insecurity, migration, refugee flows, and trade disruptions. The situation has worsened in recent years and could be further complicated by economic spillovers from ongoing conflicts in the Middle East.
Economic Policies as Critical Tools
While economic policies alone cannot resolve fragility, they remain critical tools for promoting stability and rebuilding trust. The IMF stated: “While economic policies do not present easy solutions and cannot tackle all issues alone, they can significantly contribute to addressing fragility by promoting sustainable growth and job creation, prioritising key spending while keeping debt on a sustainable path, and tackling inflation.”
Fragility is often driven by weak state capacity, governance challenges, social tensions, poverty, inequality, and exposure to shocks such as rising food prices. These factors deepen uncertainty and constrain governments already operating with limited resources.
Lagging Economic Performance
The report found that economic performance in fragile states has consistently lagged behind that of more stable countries. For the poorest among them, median growth averaged 3.5 per cent compared to 4.6 per cent in stronger economies over the past two decades. Even weaker outcomes were recorded in countries facing both conflict and institutional fragility.
Slower growth reflects weak productivity and limited investment flows, largely due to underdeveloped financial systems. Constrained fiscal space continues to limit governments’ ability to invest in infrastructure, public services, and social protection.
Low Revenues and Debt Distress
The IMF noted that tax revenues in many fragile states remain critically low, with a median tax-to-GDP ratio of about 10 per cent, far below the 15 per cent threshold considered necessary to support growth and development. Countries below this level would find it “extremely hard to foster growth, strengthen institutional capacity, and achieve development goals.”
Rising financing needs have pushed many of these countries into precarious debt positions. About three-quarters of the poorest fragile states are either at high risk of debt distress or already in it, a situation compounded by weak fiscal buffers and limited foreign exchange reserves. These vulnerabilities have left many economies unable to respond effectively to recent global shocks, leading to prolonged periods of weak growth and, in some cases, double-digit inflation.
Call for Action and Reforms
The IMF stressed that addressing fragility is essential not only for affected countries but also for regional and global stability. It urged governments to prioritise policies that strengthen core state functions such as economic management, service delivery, and the development of efficient markets. “Ultimately, sound economic policies and reforms are crucial for the well-being of the people in fragile states,” the Fund said, adding that such reforms help build trust, strengthen the social contract, and create opportunities for citizens.
The report also highlighted the importance of political will, noting that national leaders must build broad coalitions to support reforms, even though such measures can be difficult to implement. Consistent reforms can create a virtuous cycle of improved governance, stronger institutions, and higher revenue mobilisation. For instance, improved tax administration could boost revenues, which in turn can be channelled into better public services and more transparent fiscal systems, thereby enhancing public trust and compliance.
International Support Needed
The IMF further called on the international community to scale up support for fragile states through targeted policy advice, capacity development, and financing, particularly for countries facing heightened risks of conflict. It emphasised that early and well-targeted interventions are critical in preventing countries from sliding deeper into crisis.
Although the analysis focuses on fragile and conflict-affected states globally, its findings resonate with Nigeria’s current realities, where low revenue mobilisation, rising debt pressures, and inflation continue to test economic stability and reform efforts.
