One shock after another: Why fragile economies are falling further behind?

For much of the global economy, the pandemic recession is over. In many fragile and conflict-affected situations (FCS), however, it never truly ended. Now, conflict in the Middle East has unleashed a new wave of global turmoil, triggering one of the largest energy shocks in recent history. Higher energy prices, rising uncertainty, and tighter financial conditions are weighing on emerging market and developing economies (EMDEs) broadly, but especially in FCS.

Five years after the pandemic, nearly 60 percent of FCS economies still have lower real per capita income than they did in 2019 (Figure 1A). In other EMDEs, the share is only 18 percent. This is not simply a slower recovery; it is a widening divide in economic fortunes. By historical standards, the gap is stark: five years after the global financial crisis of 2008-09, only about one-quarter of FCS economies had failed to recover their pre-crisis income levels.
 

Figure 1. Recessions and recovery in EMDEs

A widening divide

About 15 percent of the global population, more than one billion people, live in economies affected by fragility and conflict. Since the pandemic, successive shocks have deepened the divide between FCS that recovered and those that did not. This divergence is clearly reflected in the path of income levels. Among FCS economies still below their pre-pandemic income levels, median growth has been about 1 percent a year since 2021, roughly one-quarter the pace in those that have recovered. Real income per capita in this non-recovered group remains nearly 15 percent below its 2019 level (Figure 1B).
 

Figure 2. Food insecurity and government debt

Moreover, the human cost of these income losses is becoming increasingly visible. Nearly half of the extreme poor in FCS, about 182 million people, live in economies that have yet to recover from the pandemic. More than 60 percent of the FCS population and roughly two-thirds of the food-insecure are concentrated in these same economies (Figure 2A). Workers and young people are especially vulnerable: about 65 percent of the working-age population in FCS lives in economies that have not recovered from the pandemic recession.
 

Why many FCS did not recover

Even before the pandemic, many FCS economies were constrained by insecurity, limited fiscal space, and weak institutions. Since then, repeated shocks have pushed many of them further behind. Why did some recover while others did not? Three factors stand out: heavy debt burdens, conflict, and natural disasters.

Even before the pandemic, average government debt was slightly higher in FCS economies that failed to recover than in those that did. It has since risen to about 62 percent of GDP in this group, compared with about 36 percent among FCS economies that did recover (Figure 2B). Weak growth and high debt feed on each other, leaving less room to invest in infrastructure, health, education, and social protection. After repeated shocks, governments have little space to cushion new blows.

Conflict remains a central obstacle. Nearly 70 percent of FCS economies that have not regained their pre-pandemic income levels are in conflict, compared with about 35 percent among those that have recovered (Figure 3A). Violence destroys infrastructure, disrupts production and trade, displaces workers, and deters private investment. Its macroeconomic costs are often large and long-lasting: per capita income typically falls by about 20 percent within five years of the onset of high-intensity conflict.

Natural disasters are adding to these pressures. Floods, droughts, and storms are increasingly damaging crops, transport networks, and energy systems while putting further strain on already fragile public finances. In FCS economies, where production is often concentrated in a few sectors and vulnerabilities are high, even moderate disasters can inflict outsized damage. Between 2020 and 2025, disaster-related losses were almost three times larger in FCS economies than in other EMDEs. Among non-recovered FCS economies, average disaster-related losses were about five times those in recovered peers (Figure 3B).
 

Figure 3. Conflict and natural disasters

Untapped potential, and what it will take to realize it

Any diagnosis of FCS economies’ weak post-pandemic performance would be incomplete without noting their untapped potential. Several have rapidly growing working-age populations that could support stronger long-term growth (Figure 4A). Many are also rich in natural resources: nearly three-quarters of FCS economies are commodity exporters, and natural resource rents average about 13 percent of GDP, more than three times the average in other EMDEs (Figure 4B). In some cases, tourism and niche export sectors could also expand if security conditions stabilize and macroeconomic management improves.

Figure 4. Working age population and natural resource rents 

Turning this potential into growth requires stronger policies and institutions. Three priorities stand out. First, preventing conflict and addressing its drivers remains essential—no recovery strategy can succeed if violence repeatedly destroys lives, capital, and confidence. Second, restoring macroeconomic stability and rebuilding fiscal space are critical to support recovery and investment. Third, jobs need to move to the center of the policy agenda. In many FCS economies, rapidly growing youth populations make job creation both an economic imperative and a condition for social stability, especially where unmet aspirations can deepen fragility and fuel violence. In practice, this means investing in foundational infrastructure and human capital, improving the business climate through stronger regulatory frameworks, and mobilizing private capital.

Sustained international support is also essential, and it will often need to be delivered through strong partnerships tailored to country circumstances. Financing matters, but it cannot by itself overcome adverse political and security dynamics or substitute for domestic commitment to reform. The priorities of economies in active conflict differ from those of countries emerging from crisis, and both differ from those of countries where fragility risks are rising but have not yet become full-blown crises. Across these diverse settings, one lesson is clear: acting early matters. Monitoring fragility risks, investing in prevention, responding before crises escalate, and strengthening institutions can help prevent temporary shocks from becoming lasting losses.

One shock after another has kept recovery out of reach for far too many FCS economies, leaving them further behind. Conflict in the Middle East is adding to these pressures. Yet this cycle of shocks and stalled recovery need not define the future. Experience shows that strong growth is possible, even after severe conflict and repeated shocks. With the right policies and sustained support, FCS economies can build resilience and lay the foundations for job creation and stronger growth.