Transcript Percent of GDP

Global Development Finance 2007
The Globalization of Corporate Finance in Developing Countries
THEWORLDBANK
May, 2007
Key Messages
 Slowdown in global growth and rising interest
rates may induce a shift in benign financial
conditions facing developing countries.
 Private capital flows have continued to expand in
2006, but at a slower pace.
 The financial globalization of the corporate
sector in developing countries progressed.
 Soft landing expected; downside global risks
considerable.
 Turkey’s performance impressive but challenges
remain.
A moderation of global growth
Real GDP annual percent change
Forecast
8
Developing
7
6
5
4
3
2
1
-1
1980
1983
1986
Source: World Bank
1989
1992
1995
1998
2001
2004
2007
2009
A moderation of global growth
Real GDP annual percent change
Forecast
8
7
Developing
6
5
Developing ex.
China & India
4
3
2
1
-1
1980
1983
1986
Source: World Bank
1989
1992
1995
1998
2001
2004
2007
2009
A moderation of global growth
Real GDP annual percent change
Forecast
8
7
Developing
6
High-income
5
Developing ex.
China & India
4
3
2
1
-1
1980
1983
1986
Source: World Bank
1989
1992
1995
1998
2001
2004
2007
2009
U.S. trade balance improving
Balance on goods, oil and non-oil (%GDP)
Q4 2001 Q4 2002
Q4 2003 Q4 2004 Q4 2005 Q4 2006
-2
-3
-4
-5
-6
Oil balance
Non-oil balance
-7
Source: U.S. Department of Commerce.
Non-OPEC supply is coming on stream
Change in oil deliveries (y/y millions of barrels per day)
Other
OPEC
FSU
World
4.0
3.0
2.0
1.0
0.0
-1.0
OPEC as swing
producer
-2.0
-3.0
2002Q1
2003Q1
2004Q1
Source: International Energy Agency
2005Q1
2006Q1
2007Q1
Core inflation in high-income
countries: still some worries
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
-1.5
-2
Jan-02
United States
Euro zone
United Kingdom
Japan
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Resilience depends partly on continued
low long-term yields and spreads
Real long-term government bond yields
United-States
United Kingdom
Euro zone
Japan
Source: World Bank
Regional growth: slower but still rapid
in all regions
Percent change in GDP
2005
2006
2007
2008
2009
10
9
8
7
6
5
4
3
2
East-Asia &
Pacific
Europe &
Central Asia
Source: World Bank
Latin America Middle-East &
& Caribbean North Africa
South Asia
Sub-Saharan
Africa
Private capital flows have leveled off
Net private capital flows to developing countries
$ billions
Percent
Percent of GDP (right axis)
5.8% in 2005-6
700
$647 billion in 2006
600
6
5
500
4
400
3
300
2
200
100
1
0
0
1990
1993
1996
1999
2002
2005
More capital is going to East Europe and Central Asia
and to East Asia and Pacific regions
Total net private capital flows to developing countries
2000
Sub-Saharan
Africa
South Asia
5%
Middle East & 5%
North Africa
2%
2006
East Asia &
Pacific
15%
Sub-Saharan
Africa
6%
East Asia &
Pacific
28%
South Asia
6%
Middle East &
North Africa
4%
Europe &
Central Asia
26%
Latin
America &
Caribbean
47%
Latin America
& Caribbean
14%
Europe &
Central Asia
42%
Turkey has been attracting
disproportionate amounts of private
capital
Net private capital flows to Turkey
Percent of GDP (right axis)
12% in 2005-06
$ billions
50
Percent
13
40
10
30
7
20
4
10
1
0
-2
-10
-5
-20
-8
1990
1992
1994
1996
1998
2000
2002
2004
2006
Developing countries added record
amount to reserves in 2006



Reserves grew by $633 bn vs. by $345 bn in
2005 to reach close to $ 2 trillion
This reflected a current account surplus of $
348 bn (up by $ 92 bn on 2005) and net total
capital flows of $ 571 bn (up by $ 90 bn)
The balancing item (errors and omissions and
acquisition of foreign assets by DCs) was $ -286
bn vs $ -345 bn in 2005.
Equity flows account for the lion share
700
Net private flows
$647 billion in 2006
$ billions
600
$234
Debt
500
Debt
36 %
Portfolio equity
400
$94
FDI
300
200
$325
100
0
-100
1990
1992
1994
1996
1998
2000
2002
2004
2006
Equity
64 %
Bank lending dominates the expansion in
private debt flows
Net private debt flows to developing countries
$ billions
250
200
150
Short-term debt flows
Bank lending
Bond flows
Net private debt flows
100
50
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-50
-100
Governments have continued to reduce
their external debt…
Total value of public external debt
buyback operations in 2006
$ billions
Public external debt as a share of GDP in
developing countries
Percent
40
10
8
39% in 1999
35
6
30
4
25
2
23% in 2006
20
0
Brazil
Mexico
Venezuela
Peru
Others*
* Including Philippines, Nigeria, Colombia,
Panama, and Uruguay
1998
1999
2000
2001
2002
2003
2004
2005
2006
…while increasing their domestic debt
Public debt as a share of GDP in 28 emerging market economies
Percent
External
Domestic
40
30
20
10
0
1998
1999
2000
2001
2002
2003
2004
Source: World Bank staff calculations based on JP Morgan
2005
2006
Increased M&A by emerging market
firms ..
Cross-border M&A transaction by developing countries
Number of deals
Total value of deals
$ billion
800
100
90
700
Services
Manufacturing
Primary
600
400
80
Services
Manufacturing
Primary
70
500
$56
60
400
50
40
300
250
200
30
$32
20
100
10
50
0
1990
1993
1996
1999
2002
2005
$13
0
1990
1993
1996
1999
2002
2005
…and record IPO transactions (led by China)…
Capital raised through Initial Public Offerings (IPOs) by companies in
developing countries
$ billions
$71 billion
75
60
Other
Countries
45
30
China
15
0
2002
2003
2004
2005
2006
Corporate bond issuance now exceeds
sovereign borrowing
Bond issuance by developing countries
$ billions
140
Corporate
120
Sovereign
100
$88 billion
80
60
40
$43 billion
20
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Firm-level borrowing is up substantially…
External debt contracted by corporations in developing countries
$ billions
$293 billion
300
250
200
Other regions
East Asia and Pacific
Latin America and the Caribbean
Europe and Central Asia
150
100
50
0
2002
2003
2004
2005
2006
Sharp increase in some emerging market equity
prices could be a signal of asset overvaluation
MSCI equity price index (Jan. 2000 = 100)
Latin America
320
280
EM Europe
240
200
EM Asia
160
Global
Composite
120
80
40
0
2000M1
2001M1
2002M1
2003M1
2004M1
2005M1
2006M1
2007M1
Emerging market bond spreads may have
moved into complacent territory
JP Morgan EMBI Global Bond Spreads
Basis points
Brazil
Mexico
Peru
Apr-07
Argentina
Panama
Sep-98
Turkey
Jun-97
Croatia
Colombia
Poland
Thailand
Korea, Rep.
China
Malaysia
0
200
400
600
800
1000
1200
1400
1600
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ECA: External positions could come under
pressure
Current account deficit (% of GDP)
Percent
25
20
15
10
5
0
Inflation is a concern in several developing
countries
Consumer price inflation, year-over-year percent change
2004 Inflation
Inflation end 2006
Kenya
Paraguay
Egypt, Arab
Mauritius
Ukraine
Argentina
Uganda
Turkey
Pakistan
Botswana
Kazakhstan
India
South Africa
Barbados
Estonia
Lithuania
Morocco
Malaysia
Chile
Burkina Faso
-1
1
Source: World Bank
3
5
7
9
11
13
15
17
Key challenge ahead: managing the risk
of an abrupt turn in the credit cycle
 Consequences would be severe in some countries
 Risk under-priced in markets with large imbalances and/or
incipient inflation?
 Inadequate information relating to new
instruments, borrowers and creditors
 Structured financial products & hedge funds/private equity
 External debt increasingly in corporate sector
GDP growth in Turkey is moderating
year-on-year percent change
10
9
8
7
6
5
4
3
2
1
0
Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 2005 2006 2007f
But Current Account Deficit Remains High
Percent share of GDP and US current dollar value
USD million
(right axis)
4
16,000
2
8,000
0
0
-2
-8,000
-4
-16,000
-6
-24,000
Percent of GDP
(left axis)
-8
-32,000
-40,000
-10
2000
2001
2002
2003
2004
2005
2006
2007f
Public debt profile has improved but
remains a source of vulnerability
Central government debt as percent share of GDP
80
Domestic debt
70
60
50
40
External
debt
30
20
10
0
2000
2001
2002
2003
2004
2005
2006