Frontier markets fail to live up to economic potential, says World Bank

• Frontier markets account for just 3.1% of global capital flows and under 5% of global GDP despite hosting 20% of the world's population
• These economies now spend about 2.5% of GDP on debt interest payments—more than other emerging markets—with multiple African nations (Zambia, Ethiopia, Ghana) defaulting since 2020
• Investment growth per capita has dropped to 2% in the 2020s from over 4% in previous decades, hampered by 'reform fatigue' and weaker institutional improvements

Summary: Frontier Markets Underperform Despite Economic Potential

The World Bank reported that 56 frontier market economies have significantly underperformed in recent decades, with investment growth per person slowing to just 2% in the 2020s—less than half the rate of the previous two decades. Chief economist Indermit Gill described frontier markets as potentially "the biggest disappointment in economic development" over the past 25 years, excluding a few economies that achieved investment-grade status.

Key Figures:

• Frontier markets house 20% of the world's population but represent only 3.1% of global capital flows and under 5% of global GDP
• Populations expected to grow by 800 million over the next 25 years—exceeding growth in the rest of the world combined
• These economies now spend approximately 2.5% of GDP on debt interest payments, exceeding emerging markets and other developing economies

Structural Challenges:

The report highlighted underdeveloped domestic currency markets and insufficient lending from local financial institutions as critical obstacles to growth. Rising debt burdens have triggered sovereign defaults in Zambia, Ethiopia, and Ghana since 2020, all in Africa—a region hosting over one-third of frontier economies.

Success Stories:

While countries like Rwanda, Vietnam, Bulgaria, and Romania demonstrated strong performance, most frontier markets face declining foreign direct investment due to reform fatigue, weak institutions, and poor governance.

Outlook:

The World Bank emphasized the urgent need for fiscal discipline, institutional reforms, and improved debt management, particularly given rapid population growth and a less favorable global environment with higher interest rates and weaker commodity prices compared to 25 years ago.