Economics

Jun 17, 2026 Vera Songwe  and Mahmoud Mohieldin

When investors say there are no “bankable” projects in developing economies, they are typically referring less to project quality than to the cost of capital. But the assumptions driving up risk premia are not supported by the evidence, and until this changes, the misallocation of capital will continue to undermine development.

YAOUNDÉ/CAIRO—Evidence of markets’ systematic overestimation of risk in developing economies has been piling up for years. The latest addition is the new release of the Global Emerging Markets (GEMs) Risk Database, which shows a sharp disconnect between developing economies’ default and recovery outcomes and prevailing market assumptions.