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23-01-2026
LONDON: Frontier market economies have failed to live up to their potential in recent decades, suffering from a sharp slowdown in investment growth while domestic capital markets remained underdeveloped, the World Bank said on Tuesday.
Examining 56 smaller and riskier emerging economies, the Washington-based lender said in its latest report that average investment growth per person in the 2020s had slowed to 2% less than half the pace of the previous two decades.
“Excluding a handful of economies that have become investment grade over the past 25 years, frontier markets may well be the biggest disappointment in economic development,” said Indermit Gill, the bank’s chief economist.
Population surge
Frontier economies are home to a fifth of the world’s population but account for just 3.1% of global capital flows and less than 5% of global GDP. Their populations are also expanding rapidly and are expected to increase by 800 million over the next 25 years, more than the rest of the world combined.
Some, such as Rwanda after the 1990s civil war, fast-growing Vietnam and EU members’ Bulgaria and Romania, have become success stories but for many others the outlook is gloomy, with economic data and capital flows flashing warning signs.
While frontier markets have made progress in opening their financial systems, domestic currency markets remain underdeveloped, and lending from local banks and financial institutions crucial for growth continues to lag more established emerging economies.
Government spending as a share of GDP has risen, but revenues have stayed flat, swelling debt burdens and contributing to a wave of sovereign defaults. Zambia, Ethiopia and Ghana have all defaulted since the pandemic erupted in 2020, all in Africa, a region that hosts more than a third of frontier market economies.
“They need investment, they need, of course, FDI (foreign direct investment) and they need to manage their debt much more effectively given the kind of demographic challenge in many countries,” Ayhan Kose, the World Bank’s deputy chief economist, told media.
Typical frontier markets now spend about 2.5% of GDP on interest payments more than emerging markets or other developing economies.
Greater fiscal discipline and pushing ahead with reforms will be key to navigating a backdrop of slower trade growth and weaker commodity prices than 25 years ago, Kose said.
“There was a reform fatigue in some of these economies,” said Kose. “You don’t see meaningful improvements in institutions, in governance and all of these things add up, and you end up with, you know, much weaker FDI.”
The International Monetary Fund’s latest economic forecasts due next week will show the global economy’s continued resilience to trade shocks and “fairly strong” growth, IMF Managing Director Kristalina Georgieva told media on Thursday.
In an interview during a visit to Kyiv to discuss the IMF’s loan to Ukraine, Georgieva suggested the IMF could again revise its forecasts slightly upward as the World Bank did this week.
In October, the IMF edged its 2025 global GDP growth forecast higher to 3.2% from 3.0% in July as the drag from US tariffs was less than initially feared. It kept its 2026 global growth outlook unchanged at 3.1%.
Asked what the January forecasts would show after the upgrade in October, Georgieva said: “More of the same, that the world economy is remarkably resilient, that trade shock has not derailed global growth, that risks are more tilted to the downside, even if performance now is fairly strong.” (Int’l News Desk)
