Fragile Five

By : Neha Dhyani

Updated : May 30, 2022, 15:28

The Fragile Five are a few selected countries that significantly depend on foreign investments to boost their growth. A well-known financial analyst Morgan Stanley coined the term in 2013.

Original Fragile Five Countries

The original five countries included in the Fragile Five -

  1. India
  2. Brazil
  3. Turkey
  4. South Africa
  5. Indonesia

Individuals and organizations interested in making international investments can get valuable knowledge and insights by learning about the financial health of the Fragile Five and the status of the list. In 2016, the list was changed, and Morgan Stanley named Mexico, Columbia, Turkey, Indonesia, and South Africa the Fragile Five. In 2017, it was altered to Egypt, Pakistan, Turkey, Qatar, and Argentina.

Criteria for Choosing Fragile Five

The original Fragile Five was selected based on the global economic recovery by Morgan Stanley. However, in recent years, several other criteria have been considered before choosing the countries.

Currently, there are six criteria and the area -

  • U. S dollar debt
  • Real rate deferential
  • Current account balance
  • Foreign holdings of government bonds
  • Inflation
  • The ratio of foreign exchange reserves to external debt
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History of Fragile Five

The financial crisis of 2008 drastically affected the economy of several countries. As the economies of developed countries like the United States were healing, investors started shifting the money from emerging markets back into the U.S. dollar.

The outflow of money mainly came from India, Brazil, Turkey, Indonesia, and South Africa. As a result, the countries' currencies, as mentioned above, started getting negatively affected because of the withdrawal. The value of the money began declining at a faster rate, making it difficult for these countries to bear the expenses of the account deficit and pay off foreign debt. Furthermore, the lack of new investment made it even more difficult to finance new developmental projects making their economies significantly vulnerable. The decline continued in the upcoming years. Nevertheless, these countries heavily depended on foreign investment before the 2008 financial crisis. They required investments made by other countries to work on indigenous developmental programs.

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How to get out of Fragile Five List?

There are different ways to get out of the Fragile Five. India was finally dropped off the list in 2017. There are several factors responsible for this. One of the leading reasons is a change in political power as it dramatically affects the economic conditions. With its exit from the Fragile Five, India performed well in the stock markets.

There are many resources available online and offline that investors can utilize to increase the returns on foreign investment. If India continues to stabilise its economy and take efficient measures, it won't have to enter the list again.

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FAQs on Fragile Five

Q1. What other criteria does the World Economic Forum take when compiling their Fragile Five list?

Ans. The World Economic Forum considers World Peace when compiling their Fragile Five list.

Q2. Whose economic stability does the Fragile Five depend on?

Ans. The Fragile Five depends on the stability of the U.S. economy.

Q3. Is India still part of Fragile Five?

Ans. No, India left the Fragile Five list in 2017.

Q4. Who coined the term Fragile Five?

Ans. Morgan Stanley coined the term Fragile Five.