Steady rise in debt accumulation in frontier markets

Frontier market (FM) debt grew significantly, rising over $45 billion in the first half of 2024 and reaching an all-time high of $3.7 trillion, $710 billion above pre-COVID levels. Government borrowing led this increase, with FM debt-to-GDP hitting 102%, its highest since 2021. Although some markets saw debt ratio declines, countries like Nigeria, Rwanda, and Kuwait reported sharp rises. Government debt remains the largest share of FM debt, particularly in countries like the Maldives and Zambia. Despite global challenges, frontier markets showed resilience, benefiting from eased funding conditions and re-engaging international debt markets.

Debt accumulation

Positive progress in sovereign debt restructuring, particularly in countries like Ghana, Zambia, and Sri Lanka, has improved investor sentiment toward frontier markets. However, with record-high debt amortization levels looming, an expected easing of central bank rates offers frontier markets a critical chance to accelerate structural reforms. These reforms should focus on domestic revenue mobilization, enhancing domestic financial intermediation, and developing capital markets to attract private capital and strengthen resilience to liquidity shocks. Furthermore, improving budget transparency and sustainable impact disclosures can help frontier markets secure affordable cross-border lending and support sustainable development goals.

Frontier markets and corporate bonds

In 2024, frontier markets (FM) saw a surge in corporate and sovereign bond issuance, totaling $140 billion by Q3. While local currency sovereign bond issuance declined, corporate bond issuance, mostly in hard currency, increased sharply—up 160% year-over-year to nearly $30 billion, the highest since 2018. Eurobond issuance also rose by 50%, with notable issuances from Romania, Ghana, and Zambia. Additionally, ESG (environmental, social, governance) debt issuance hit record levels, reaching $13 billion. This growth, led by Romania, Serbia, and Uzbekistan, expanded the FM ESG debt market to over $38 billion, with first-time issuers like Kuwait and Cote d’Ivoire contributing significantly. – Source: IIF

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