Transcript Mobilizing Finance and Managing Vulnerability

Global
Development
Finance 2005
Mobilizing Finance and
Managing Vulnerability
Paris and Beijing
April 2005
Outlook for developing countries
 Growth among developing countries is slowing
to a more sustainable but still robust pace.
 Global imbalances remain a serious source of
risk.
 Slower growth and higher interest rates could
jeopardize developing country finances.
Current context: economic activity is slowing
Percent change in industrial production, 3 month moving average, annual rate
10
Developing
Countries*
6
High-income
countries
2
Sep-03
-2
Dec-03
* Data exclude China
Source: World Bank
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Current context: Interest rates are rising
10-year U.S. treasury yield, percent
4.75
4.50
4.25
4.00
3.75
3-Jan
17-Jan
Source: World Bank
31-Jan
14-Feb
28-Feb
14-Mar
Factors contributing to the slowdown
 Rising interest rates
 High oil-prices
 High-tech cycle
 Administrative efforts to slow growth in
China
The forecast:
A return to more sustainable growth
GDP percent change, annual rates
Forecast
Developing countries
6
High income countries
5
4
3
2
1
0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Source: World Bank
Almost all regions grow faster than in
the past
GDP, per cent change from previous year
Latin-America
Caribbean
Sub-saharan Africa
8
7
6
5
4
3
2
1
0
South Asia
8
7
6
5
4
3
2
1
0
8
7
6
5
4
3
2
1
0
19802002
2003
2004*
2005
2006
19802002
2007
Europe & Central
Asia
2003
2004*
2005
2006
2007
East-Asia Pacific
8
6
5
4
3
2
1
0
2003
2004*
2005
* estimate
Source: World Bank
2006
2007
2003
2004*
2005
2006
2007
Mid-East North Africa
8
7
6
5
4
3
2
1
0
7
19802002
19802002
8
7
6
5
4
3
2
1
0
19802002
2003
2004*
2005
2006
2007
19802002
2003
2004*
2005
2006
2007
Emerging tensions in commodity markets
Index, January 2002=100
240
Energy
220
200
180
160
Metals and Minerals
`
140
120
Agricultural
products
100
80
1998
1999
Source: World Bank
2000
2001
2002
2003
2004
2005
Signs of accelerating inflation
Consumer inflation, percent change, y-o-y
7
6
Developing countries
5
4
3
OECD countries
2
1
1999
2000
Source: World Bank
2001
2002
2003
2004
2005
Global Imbalances are placing pressure
on the dollar
Current account balances, $millions, estimates for 2004
200
0
-200
-400
-600
-800
United
States
Euro
Area
Source: World Bank
Japan
China Other East Middle Europe Latin
Other
Asia East &
and America
North Central
and
Africa
Asia Caribbean
Low U.S. interest rates have contributed to
dollar weakness
Difference between U.S. and Euro 6-month interbank rate, €/$ exchange rate
€/$
1.6
Percent
3.5
Interest rate spread
3
1.4
2.5
Euro / $
1.2
2
1.5
1.0
1
0.5
0.8
0
0.6
-0.5
0.4
-1
0.2
1995
-2
-1.5
1996
1997
Source: World Bank
1998
1999
2000
2001
2002
2003
2004
2005
A modest depreciation so far
Real effective exchange rate, 1970 - 2004
120
110
100
Period average
90
80
70
1970
1975
Source: World Bank
1980
1985
1990
1995
2000
2004
Unless resolved, global imbalances remain
a serious source of risk
 Interest rates could rise by even more if:
– Investor’s expect further $ depreciation
– If their appetite for risk declines
– Central bankers cease accumulating $ at the
same rate as in the past
 Higher rates would slow growth in developing
countries and deteriorate the balance sheets of
both low and middle-income countries would
deteriorate.
Financial flows to developing countries
continue recovery in 2004
$ billions
Total net capital flows
350
300
250
200
Net private flows
150
100
Net official flows
50
0
1990
1992
1994
1996
1998
2000
2002
2004
Developing countries continue to export
capital
Current account surpluses as percent of GDP
3
All developing countries
2
1
0
-1
-2
-3
-4
Low-income countries
-5
-6
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Large portion of capital flows channeled into
reserve accumulation…
$ billions
500
Change in
reserves
400
300
200
Total capital flows
100
0
-100
Current account balance
-200
1980
1984
1988
1992
1996
2000
2004
…Leading to record levels of reserves
in developing countries
$ billion
1800
Low-income countries
1600
Other middle-income countries
1400
China
1200
1000
800
600
400
200
0
1999
2000
2001
2002
2003
2004
…While reserves in some countries
exceed standard levels
Venezuela, Rep Bol de
India
Egypt
Indonesia
China
Brazil
Russian Federation
Argentina
Pakistan
0
6
12
18
Reserves as months of imports
24
A modest recovery in FDI inflows to
developing countries in 2004
$ billion
FDI as a share of GDP
percentage
200
4
150
3
Other middle
income
Top 5
100
2
Low income
50
1
0
0
1999
2000
2001
2002
2003
Share of GDP
2004
Top 5: China, Brazil, Mexico, Russian Federation, and Chile
FDI to poor countries still dominated by
flows to resource exporters
Percentage of recipients’ GDP in 28 poor countries
10
8
Oil and Mineral exporters
6
Other poor countries
4
2
0
1990
1992
1994
1996
1998
2000
2002
Reported FDI outflows from developing
countries highlight growing integration
$ billion
percentage
45
0.6
40
0.5
35
Percent of GDP
30
0.4
25
0.3
20
15
0.2
10
FDI outflows
0.1
5
0
0
1990
1992
1994
1996
1998
2000
2002
2004
Bond issuance surges while net bank
lending remains flat
$ billions
70
Net bond flows
60
50
40
30
20
10
0
-10
Net bank lending
-20
1990
1992
1994
1996
1998
2000
2002
2004
ODA from DAC donor countries is
increasing
ODA as a percent of GNI (projections:2004-2006)
Percent
Projections
0.35
Total ODA/GNI
0.30
0.25
0.20
0.15
Bilateral ODA/GNI
0.10
0.05
Bilateral ODA less special purpose grants/GNI
0.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
… But net impact is limited
ODA in 2003:
$69 billion
ODA increase in 2003:
$10.7 billion
Real increase
Other
Inflation changes
Exchange rate changes
Administrative costs
Emergency and
disaster relief
ODA in 2002
Debt forgiveness
Technical
cooperation
Continuing evidence of shift from
loans to grants
$ billions
Foreign aid grants
50
40
30
20
10
0
-10
Net debt flows from official sector
-20
-30
1990
1992
1994
1996
1998
2000
2002
2004
Upturn in long-term U.S. interest rates
poses risks…
Percent
10-year U.S. yield
5.0
4.0
3.0
2.0
1.0
0.0
Jun-04
Fed Fund target
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
…With borrowing spreads at record low
levels
Basis points
1000
900
800
700
600
EMBI global bond spreads
500
400
300
Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05
…Especially for highly-indebted and
more vulnerable emerging markets
Average change in spreads (bps)
from 200 basis point increase in U.S. benchmark rates
70
60
50
40
30
20
10
0
<40
40-60
61-80
External debt/GNI (%)
>90
Growth in domestic debt poses new
opportunities and challenges
$ billion
900
External
Domestic
600
300
0
1997 2002
Asia
1997 2002
Latin America
1997 2002
Europe
Risks to poor countries come through
financing needs…
Percent
4
ODA/GDP in the poorest countries
3
2
1
ODA/GDP in all developing countries
0
1990
1992
1994
1996
1998
2000
2002
…As aid flows fail to keep pace with
other financing sources
Percentage of recipients’ GDP in 28 poor countries
10
8
ODA
Workers’
remittances
6
4
FDI
2
0
-2
Current account balance
-4
-6
1990-92
2000-03
Policy can help
1. Policy measures—in the U.S., Europe, and
Asia—can facilitate global rebalancing and
reduce downside risks.
2. Risks to developing countries call for continued
sound macro policies and prudent borrowing.
3. Meeting poor countries’ financing needs
requires increased aid and renewed efforts to
augment other financing flows.
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