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Frontier Market Economies: Promise, Performance, and Prospects

Washington, DC: World Bank

🛡CC BY 3.0 IGOPermitted use with attribution

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Source: World Bank Open Knowledge Repository ↗ · Report an issue

Shared byRajesh Sundaram›

Abstract

Frontier markets—a subset of emerging market and developing economies characterized by meaningful but limited access to international financial markets—have considerable promise. Already home to one-fifth of the world’s population, but only 5 percent of its output, today’s frontier markets are projected to account for most of the global population increase to 2050. Many frontier markets have large natural resource endowments. Relative to other developing economies, they also have more physical capital, healthier and better-educated workforces, and stronger institutions. Access to international markets provides financing opportunities. Outcomes in frontier markets will be pivotal for global job creation and development progress. As a group, frontier markets’ economic outcomes since 2000 have not fully delivered on this promise, however. Per capita output and investment growth in the median frontier market halved between the 2000s and the early 2020s. Poverty reduction progress has slowed. Financial openness has increased, and frontier markets’ share of global capital flows has risen, but financial integration remains partial. Surges in capital inflows support growth but are often followed by disruptive stops. Although sovereign debt maturities have increased, the composition of frontier markets’ debt implies vulnerabilities. Around 40 percent of frontier markets have defaulted since 2000. In the five years from 2020, frontier markets experienced more defaults than all other economies combined. To capitalize on frontier markets’ potential, a multi-faceted policy approach is required. Some frontier markets have fared better than others, and faster-growing frontier markets since 2000 share some key features: stronger investment growth, more improved institutions, and better-contained government debt. Advancing financial integration while improving oversight capacity, developing local financial markets, and enhancing policy buffers can help harness investment; expanding and diversifying exports can support resilience and development. Bolstering macroeconomic stability and enhancing policy credibility can provide a platform for effective financial integration. Catalyzing investment and productivity growth, including via strong foundational infrastructure, is essential to helping frontier markets capitalize on their market access, demographic potential, and resource endowments.

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