Transcript No Slide Title

Global Development Finance 2001
Building Coalitions for Effective
Development Finance
The context
• Global uncertainties in the short-term
- deceleration of growth
- emerging market crises
- heightened interaction between financial markets
and real economy
• Strong medium-term prospects
- technology
- policy flexibility
- greater commitment to global challenges
This presentation covers
• The macro outlook
• Private capital flows
- Trends
- Implications for developing country growth
• Concessional resource transfers
- Trends and effectiveness
- Debt relief
- International public goods
Macro outlook
• Sharp slowdown
• Early recovery
• Important risks
Sharp slowdown in world GDP growth
(percent change)
6
Developing
5
World
4
Industrial
3
2
1
0
1997
1998
1999
2000
Source: World Bank data and projections.
2001
2002
2003
Cycle should be short-lived
• Interest rate reductions
• Anticipation of tax cut in U.S. and Europe
• Technology helps shorten inventory cycle
Diversity in regional growth performance
Percent
8
2000
2001
6
4
2
0
East Asia
South Asia
Source: DECPG staff estimates.
Latin
America
ECA
MENA
Africa
Risk factors
United States
2.5
NASDAQ (rhs)
2.3
2.1
4.0
3.4
Delinquency rates (lhs)
1.9
2.8
1.7
2.2
1.5
1.6
Q1 98
Q2 98
Q3 98
Q4 98
Japan
12.0
Q1 99
Q2 99
Q3 99
Q4 99
Q1 00
Q2 00
Q3 00
Q4 00
Q1 01
1.8
TOPIX (rhs)
1.6
10.0
8.0
1.4
Debt of failed
businesses (lhs)
6.0
1.2
4.0
1.0
2.0
0.8
0.6
0.0
Q1
98
Q2
98
Q3
98
Q4
98
Q1
99
Q2
99
Q3
99
Q4
99
Q1
00
Q2
00
Q3
00
Q4
00
Q1
01
Index
¥ trillion
Index
Percent
4.6
Trends in capital flows
• Capital flows down relative to GDP
• Developing countries improve creditworthiness
• But lose share of global flows
Private capital flows in relation to
GDP and trade
15
Crises
Thailand
Russia
Brazil
Mexico
10
Percent
Private capital flows/
Recipients’ exports
Private capital
flows/
Recipients’ GDP
5
0
1990
1991
1992
1993
1994
1995
1996
Note: Private capital flows are net of amortization.
1997
1998
1999
2000
Reduced external vulnerability
Region and indicator (ratio)
1996
1997
1998
1999
a
2000
All developing countries
Short-term debt to total debt
54.3
52.2
46.9
45.3
46.5
Reserves to short-term debt
138.4
130.8
164.2
184.2
204.3
Short-term debt to total debt
61.1
53.4
45.2
43.1
44.3
Reserves to short-term debt
127.0
126.7
233.2
325.3
377.9
Short-term debt to total debt
52.4
53.2
49.4
46.8
47.1
Reserves to short-term debt
116.4
106.4
104.4
105.3
104.4
East Asia and Pacific
Latin America and Caribbean
a. Short-term debt and total debt are as of September 2000.
Source: Bank for International Settlements, Global Development Finance
Country Tables and sources cited therein, IMF International Financial
Statistics and World Bank staff estimates.
Developing countries lose share in
international FDI
Global
1200
Developing countries
Top 10
FDI
1000
LDCs
Mergers and acquisitions
800
600
400
200
1999
1998
1997
1996
1995
1994
1993
1992
1991
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
Note: Top 10 refers to the developing countries with the largest FDI (or M&A) flows.
Private flows and growth
• Private capital flows reinforce growth
• Volatility has high costs
• No “race to the bottom”
Capital flows to GDP ratio
(percent)
7
Top 10*
6
5
4
Middle income
3
2
Low income
1
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
* Refers to the ten developing countries with the largest net capital flows.
Note: Capital flows are net of amortization.
1998
Growing divergence between middle
and low income countries
(annual GDP growth rates)
7
6
5
4
3
2
1
0
1970s
1980s
Low Income
Middle Income
1990s
Top 10*
* Refers to the ten developing countries with the largest net capital flows.
Capital flows volatility reduces growth
Per capita growth rate, unexplained
part
percent
8
6
4
2
0
-2
-4
-6
-3
-2
-1
0
1
2
3
Volatility
Note: The regression line controls for other determinants of growth
4
7
160
6
140
Pollution index (rhs)
120
5
100
4
80
3
60
2
1
FDI (lhs)
FDI
0
40
20
0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Particulate air pollution (SPM+ug/m3)
FDI (1998 US$ billions)
Pollution levels have fallen, while FDI has
increased: Sao Paulo State, Brazil
More aid and more effective aid
• Slight rise in aid flows since 1997
• Better policy performance
• Better aid allocation
Aid has risen modestly since 1997
US$ billion
50.0
% of donor GNP
0.36
Aid in US$ billions (lhs)*
47.5
0.34
0.32
45.0
0.30
42.5
40.0
0.28
0.26
Aid as a percentage of donor GNP (rhs)
0.24
37.5
35.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
* Net of technical cooperation grants.
0.22
0.20
Improved policy performance
over the 1990s
Index (1-6)
5
1991
1999
4
3
2
1
0
IDA only
countries
Low income
countries excl.
IDA
Source: DECPG staff estimates.
Lower middle
Upper middle
income countries income countries
Poor performers received less aid
...In 1998 poor performers are
receiving less aid than better
performers.
0.3
0.3
0.2
0.2
Aid/GDP
Aid/GDP
Between 1992 and 1994, on
average, poor performers received
more aid than better performers...
0.1
0.1
Lowest third
Middle third
0
Top third
Low Middle
policy policy High
policy
Country
performance
Lowest third
Middle third
0
Low Middle
policy policy High
policy
Developing country
income groups
Source: OECD and World Bank.
Country
performance
Top third
Developing country
income groups
The increasing coordination challenge
Theil's index
67
19 -69
70
19 -74
75
19 -79
80
19 -84
85
19 -89
90
19 -94
95
-9
8
19
s
90
19
70
19
19
1960s 1970s 1980s 1990s
60
s
0
0.7
s
5
0.9
0.8
80
10
1
19
15
1.1
100
90
80
70
60
50
40
30
20
10
0
s
Number of recipient countries
Number of donors
20
Note: The Theil index in Panel C is a statistical measure of the extent of concentration of aid
by sector. Higher values of the index indicate that aid is spread over a greater number of sectors.
Source: OECD Development Assistance Committee.
The Heavily Indebted Poor Countries
initiative
• A new start: quicker pace, more relief
• Tie to policy reform: key for success.
• Eventual cost of initiative: $28.6 billion (net present
value).
The declining HIPC debt burden
percent
25
Debt service/exports
Debt service/fiscal revenue
20
15
10
5
0
1998
1999
2000
2001-05
Note: Ratios for 1998 and 1999 are debt service paid to exports or revenue: ratios for 2000
onwards are debt service due after HIPC assistance to exports or revenue. Data refers to the
22 HIPCs that reached decision points by end-December.
Source: Country authorities and World Bank/IMF staff estimates.
International public goods
• $5 billion a year of aid flows
• Growing trend
• But incentives more important than finance
Growing share of development assistance
to international public goods
50000
40000
15
30000
10
20000
5
US$ million
Per cent of total ODA
20
10000
0
0
1970s
Core expenditure (lhs)
1980s
Early 1990s
Complementary expenditure (lhs)
Late 1990s
Total Aid expenditure (rhs)
Principles for public goods
• Complementarity
• Leverage
• Incentives for responsible action
The agenda
• Investment climate
• Volatility safeguards
• More aid: better performers & the poor
• More donor specialization & coordination
• High leverage in public goods provision
• IFIs: specialization, subsidiarity, convening role.