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The Erne County boss said Sunday's 0-14 to 0-11 McKenna Cup semi-final defeat by Tyrone was the latest example of a lack of belief hindering his players.
"We have got to get over the psychological hurdle or barrier where you don't really believe," he said.
"You say it but don't really believe you can take on this team and win."
After mixed results during McGrath's first season in charge of 2014, Fermanagh made huge progress in 2015 as promotion to Division Two of the Football League was followed by a stirring run to the All-Ireland quarter-finals where they put up a creditable performance against eventual champions Dublin.
That led to a belief that the Ernemen were capable of doing ever better in 2016 but while they managed to maintain their Division Two status, the championship was ultimately to prove a disappointment.
After beating Antrim in the Ulster preliminary round, many pundits though the Ernemen had the capability of beating Donegal in the provincial quarter-final but in the end were well beaten 2-12 to 0-11 by Rory Gallagher's side.
Fermanagh then had Mayo on the ropes as they led 1-10 to 1-4 at half-time in round two of the qualifiers at Castlebar only to eventually succumb 2-14 to 1-12 - admittedly not helped by a controversial second-half penalty awarded to the home side.
For his part, McGrath has expressed concern about a pattern of failure in big games.
"You can look at our recent history over the last number of years and look to a number of big games against very, very good teams - elite opposition - and you could legitimately say: 'That got away...this one got away'.
"To a lesser extent, maybe you could say the same about today's (Sunday's) game but you do get to the stage where you don't like hearing that script being fed out time and time again.
"Until we as a group, management and players, collectively say: 'No. There is an end to this'.
"We have to simply get other this psychological issue."
McGrath says the Fermanagh players "must accept that this issue is there, face it, deal with it and sort it out".
"Until we do, these (post-match) interviews will follow the same pattern.
"You have got to ask the players to examine their consciences and try and see where the optics really are and see if we can deal with them and help them eliminate them.
"It's not easy. People get paid a lot of money to deal with these problems but we have to try."
Fermanagh manager Pete McGrath says his players must scale the "psychological hurdle" of believing that they are good enough to beat the elite county teams.