Promise and Pressure: How Frontier Markets Could Shape the Next Phase of Global Growth

Frontier markets have vast demographic and resource potential and growing access to global finance, but weak investment, fragile institutions, and volatile capital flows have limited their growth. With stronger policies, deeper financial systems, and better governance, they could become a major driver of global jobs and economic growth.

Frontier market economies are becoming one of the most important yet least understood parts of the global economy. A new analysis by the World Bank Group, prepared by its Prospects Group as part of the Global Economic Prospects report, argues that these countries will play a decisive role in global growth and job creation over the coming decades. Frontier markets sit between emerging markets and poorer developing economies: they have some access to global financial markets, but their economies and institutions are still catching up.

Together, frontier markets are home to about 1.8 billion people, more than one-fifth of the world’s population. Over the next 25 years, they are expected to account for most global population growth, at a time when workforces in advanced and many emerging economies are shrinking. This demographic reality alone makes their economic future a global concern.

Big Potential, Modest Results

On paper, frontier markets have much going for them. More than 230 million young people are expected to enter the workforce by 2035. Many countries are rich in natural resources, from energy and metals to tourism assets. Their populations, on average, are healthier and better educated than those in other developing economies. Combined with growing access to international finance, these factors should support rapid growth.

Yet the World Bank’s findings show that results have fallen short of expectations. Over the past 25 years, growth in frontier markets has been uneven and often disappointing. Today, income per person in the typical frontier market is less than one-third of that in the average emerging market, a wider gap than at the start of the 2000s. After strong growth in the early 2000s, momentum slowed sharply, especially after the mid-2010s and the shocks triggered by the COVID-19 pandemic. In fact, since 2020, about 40 percent of frontier markets have moved further away from high-income status rather than closer to it.

Investment and Jobs: The Missing Link

A major reason for this slowdown is weak investment. Growth in investment per person has more than halved since the 2000s, limiting the buildup of factories, infrastructure, and productive capacity. While education and health outcomes have continued to improve, they have not been enough to compensate for slower investment and productivity growth.

Poverty has fallen significantly since 2000, with poverty rates in frontier markets more than halving. But progress has slowed over the past decade, and poverty remains far higher than in emerging markets. With millions of young people entering the labor force each year, the challenge is not just growth, but growth that creates enough productive jobs.

Finance: Opportunity and Risk

Access to global financial markets is both a strength and a weakness for frontier markets. Inclusion in major bond and equity indexes has attracted foreign investment, and economic growth often rises during periods of strong capital inflows. But these inflows are volatile. Investment surges are frequently followed by sudden stops, especially in portfolio flows, leading to sharp slowdowns, currency pressures, and financial stress.

Although frontier markets are generally less tied to global financial swings than advanced or emerging economies, their insulation weakens during global crises. At the same time, domestic financial systems remain underdeveloped. Banks charge high interest spreads, long-term financing is limited, and local capital markets are shallow. This makes it harder to turn foreign capital into lasting investment and productivity gains.

Debt, Institutions, and a Way Forward

Rising public debt adds to the risks. Government debt and debt-servicing costs have increased steadily in frontier markets, often faster than revenues. Borrowing relies heavily on foreign currency and short-term financing, making countries vulnerable to exchange rate shocks. Since 2020, frontier markets have accounted for more sovereign defaults than all other country groups combined.

Weak institutions compound these problems. While there has been some improvement in controlling corruption and improving the investment climate, bureaucratic quality has largely stagnated. Poor governance raises borrowing costs, discourages investment, and limits the benefits of natural resource wealth.

Still, the report stresses that success is possible. Frontier markets that have grown faster share common traits: stronger investment, better governance, lower borrowing costs, and tighter control of public debt. Their development paths differ, from energy and manufacturing to services and tourism, but all are focused on job creation. Several have even reached high-income status.

The message is clear. Frontier markets are not destined to fail, but progress will require deeper financial systems, stronger institutions, stable economic policies, and sustained investment in people and infrastructure. If they get this right, frontier markets could become a major engine of global growth in the decades ahead.