Emerging markets carry much lower investment risks than commonly believed, with default rates similar to those in advanced economies, new statistics from the Global Emerging Markets Risk Database consortium revealed. The data shows private lending to over 10,000 entities in 169 countries had an average default rate of just 3.54% between 1994 and 2024, comparable to rates in developed nations.
Three new publications provide detailed insights from multilateral development banks and development finance institutions on credit risk performance across emerging markets and developing economies. The findings could help address the massive financing gap these countries face – more than $10 trillion by 2050 according to the Organisation for Economic Co-operation and Development
(OECD). Recovery rates also performed well, with private lending showing 72.9% average annual recovery.
Emerging markets and developing economies have long struggled to attract investment due to perceived higher risks and lack of reliable data. Many investors avoid these markets or demand higher returns to compensate for what they see as greater uncertainty. The GEMs consortium brings together development finance institutions to share credit risk data and provide more transparency. Previous publications offered less detailed information, making it harder for investors to properly assess opportunities. This data gap has contributed to the massive underinvestment in regions that need capital most for development and climate goals.
The statistics show strong performance across different types of lending, with sovereign and sovereign-guaranteed loans performing best at just 0.77% annual default rates and 95.1% recovery rates. Public entity lending to municipalities and state-owned companies averaged 2.61% defaults with 85.8% recovery rates, and this has been improving over decades. Gregor Cigüt, head of the GEMs Secretariat in Luxembourg, said “with trillions in annual investments needed to meet global development and climate goals, we must make EMDEs investable at scale.” The data covers lending to 167 sovereign countries over a 41-year period, with only 39 countries experiencing defaults.
The new publications include more detailed breakdowns by country, sector, region, and project type than previous reports. Financial sector loans showed the lowest default rates at 2.26% and highest recovery at 79.1%. While Sub-Saharan Africa had higher default rates at 6.05%, it also showed the highest recovery rates at over 78%. Cigüt noted that by providing detailed statistics for risk and investment professionals to use in their models, GEMs helps investors, rating agencies, and policy institutions better understand investment risks in regions that have been underserved by credit risk information.
