So-called “frontier market” economies, long viewed as the next wave of global growth engines, have largely failed to realize their economic potential over the past decade, according to a new World Bank study that points to slowing investment, rising debt burdens and weak financial market development.
The report finds that average investment growth per person in frontier markets during the 2020s has fallen to less than half the pace recorded in the 2010s, a sharper slowdown than in other low- and middle-income economies. Frontier markets comprise mostly middle-income countries seen as more developed than low-income economies but less integrated into global finance than emerging markets.
“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 World Bank Group’s chief economist and senior vice president for development economics.
Gill noted that frontier markets generally outperform other developing economies in education, life expectancy, policy quality and institutional strength, and that many are rich in natural resources. “But they haven’t converted these advantages into advancement,” he said, describing them as the “developing world’s lowest-hanging fruit.”
Frontier markets are home to about 1.8 billion people, roughly one-fifth of the global population, and are expected to add nearly 800 million more residents over the next 25 years. More than one-third of these economies are located in sub-Saharan Africa. Many also hold critical minerals used in renewable energy technologies, telecommunications and consumer electronics.
For global investors, frontier markets have traditionally offered diversification benefits. Over the past 25 years, stock markets in these economies have moved largely independently of global financial conditions, which accounted for only about one-eighth of their market volatility—far less than in advanced or emerging economies, the report said.
Yet despite these advantages, frontier markets have struggled to attract sustained investment. Over the past 25 years, growth in investment per person has steadily declined, falling to about 2% in the 2020s. Today, frontier markets account for just 3.1% of global capital inflows and less than 5% of global economic output.
Although many frontier markets have made progress in liberalizing financial regulations—becoming about half as open as advanced economies, up from one-fifth in 2000—actual financial market development has lagged. Domestic currency markets remain underdeveloped, and banks tend to lend less to households and businesses than their counterparts in emerging markets.
Fiscal pressures have also intensified. Government spending has risen as a share of gross domestic product, while revenues have stagnated, driving up debt levels. On average, frontier markets now spend about 2.5% of GDP on net interest payments, more than emerging markets or other developing economies. Nearly 40% of frontier markets defaulted at least once between 2000 and 2024, and since the COVID-19 pandemic they have accounted for more sovereign defaults than all other countries combined.
Despite the broader underperformance, some frontier markets have recorded notable successes. Vietnam has become one of the world’s fastest-growing economies over the past quarter century, while Rwanda has emerged as a leading economic performer in sub-Saharan Africa following its recovery from civil war in the 1990s. Four frontier markets—Bulgaria, Costa Rica, Panama and Romania—have achieved high-income status since 2012.
“These economies will play an important role in addressing the jobs challenge facing developing countries,” said Ayhan Kose, the World Bank Group’s deputy chief economist and director of the Prospects Group. Frontier markets, he said, will account for nearly one-fifth of the 1.2 billion young people in developing economies expected to enter the workforce over the next decade.
Kose said top-performing frontier markets followed different development paths but shared common strategies, including growth-oriented policies, infrastructure investment, stronger fiscal management and institutions that attract private capital. In those economies, per capita incomes in the top quarter nearly quadrupled over the past 25 years.
The report concludes that simply opening markets will not be enough for frontier economies to fulfill their promise. Sustained progress, it says, will depend on deeper financial market development and stronger institutional safeguards to manage growth and investment effectively.
