November 18, 2008

The Impact of the Global Financial Crisis on the Development

Finance Prospects for LDCs

Doug HostlandDevelopment Economics Prospects Group

THE WORLD BANKTHE WORLD BANK

November 18, 2008

Main messages

Expect moderate decline in private capital flows in 2009

Very tight credit conditions expected to persist– private debt flows will fall dramatically from high levels

Mounting evidence of major global slowdown – curtail workers’ remittances – FDI flows expected to be more resilient

Impending fiscal pressures in high-income countries– from global slowdown & contingent liabilities – more difficult for donors to meet aid commitments

$ billions$ billions

0

200

400

600

800

1000

1991 1994 1997 2000 2003 2006 2009P

0

2

4

6

8

Net private debt and equity flows1990-2007, projected 2008-09

PercenPercentt

Percent of GDP(right axis)

Private capital flows expected to decline in 2009…

Source: World Bank Debtor Reporting System (DRS) and staff estimates.Source: World Bank Debtor Reporting System (DRS) and staff estimates.

$ billions$ billions

0

200

400

600

800

1000

1990 1993 1996 1999 2002 2005 2008P

0

2

4

6

8Projection revision

Net private debt and equity flows1990-2007, projected 2008-09

PercenPercentt

Percent of GDP(right axis)

Private capital flows expected to decline in 2009…

Source: World Bank Debtor Reporting System (DRS) and staff estimates.Source: World Bank Debtor Reporting System (DRS) and staff estimates.

- 4 0 - 3 0 - 2 0 - 1 0 0 1 0 2 0

B u r u n d iE r i t r e a

L e s o t h oG a m b i a , T h e

T o g oM a d a g a s c a r

M a l a w iV a n u a t u

M o z a m b i q u eC a m b o d i a

L a o P D RT a n z a n i a

N i g e rS e n e g a l

B u r k i n a F a s oC a p e V e r d e

E t h i o p i aH a i t i

G u i n e a - B i s s a uU g a n d a

M a l iB e n i n

S i e r r a L e o n eC o m o r o s

C e n t r a l A f r i c a n R e p u b l i cS u d a n

Z a m b i aG u i n e a

M a u r i t a n i aC h a d

Y e m e n , R e p .B a n g l a d e s h

N e p a lE q u a t o r i a l G u i n e a

A n g o l a

P e r c e n t

…amid large external imbalances

Current account / GDP in LDCs, 2008 (estimated)

Source: World Bank staff estimates.Source: World Bank staff estimates.

Emerging market sovereign bond spreads have widened dramatically…

0

500

1000

1500

J un-07 Oct-07 Feb-08 J un-08 Oct-08

Investment Grade

BB Index

B Index

Percent

Emerging market (EMBI Global) sovereign bond yieldsJan 2004 – Nov 13, 2008

Sept 15, 2008

Source: JPMorgan.Source: JPMorgan.

…raising financing costs significantly

0

2

4

6

8

10

2003M1 2004M1 2005M1 2006M1 2007M1 2008M1

Percent

Emerging market (EMBI Global) sovereign bond yieldsJan 2004 – Nov 13, 2008

June 2007

Source: JPMorgan and U.S. Board of Governors.Source: JPMorgan and U.S. Board of Governors.

Yield on 10-year US Treasury bills

Implied yield on EM sovereign bonds

0

5

1 0

1 5

2 0

2 5

3 0

3 5

2 0 0 4 M 1 2 0 0 5 M 1 2 0 0 6 M 1 2 0 0 7 M 1 2 0 0 8 M 1

$ billions (12-month moving average)

Bond issuanceBond issuance

Gradual downturn in credit cycle has been underway since mid-2007…

Bank lending to / bond and equity issuance by developing countriesJan. 2004 – Oct. 2008

Bank Bank lendinglending

Equity issuance

June 2007

Source: Dealogic Analytics.Source: Dealogic Analytics.

$ billions$ billions

-100

0

100

200

300

400

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009P-1

0

1

2

3

4

Net private debt inflows to developing countries1990-2007, projected 2008-09 PercenPercen

tt

Percent of GDP(right axis)

…private debt flows expected to decline sharply…

Source: World Bank Debtor Reporting System (DRS) and staff estimates.Source: World Bank Debtor Reporting System (DRS) and staff estimates.

$ $ billionsbillions

0

100

200

300

400

500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009P

0

1

2

3

4

Percent of GDP(right scale)

FDI inflows to developing countries1991-2007, projected 2008-10

…while FDI inflows exhibits resilience

Source: World Bank staff estimates.Source: World Bank staff estimates.

PercentPercent

$ billions$ billions

0

2

4

6

8

10

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008e

0

1

2

3

4

5

Share of total (right scale)

Cross-border bank loan commitments to LDCs1990-2007, estimated 2008

Bank lending to LDCs has continued to expand…

Source: Dealogic Analytics and World Bank staff estimates.Source: Dealogic Analytics and World Bank staff estimates.

PercentPercent

0 0.5 1 1.5 2

AngolaLiberia

LaosMozambique

ZambiaBangladesh

MaliUganda

MadagascarDjibouti

SudanSenegal

TanzaniaYemenGuinea

HaitiBurkina Faso

BeninEthiopia

Cape VerdeLesotho

MaldivesCambodia

RwandaSierra Leone

MalawiChad

Congo, Dem.Guinea-Bissau

$ billions

…but is concentrated in just a few countries

Cross-border bank loan commitments to LDCs, Annual average: 2003-08

Source: Dealogic Analytics.Source: Dealogic Analytics.

$ billions$ billions

0

5

10

15

20

2000 2001 2002 2003 2004 2005 2006 2007 2008e

Cross-border bank loansFDI inflowsWorkers' remittances

Remittances as well have expanded…

Source: World Bank staff estimates and Dealogic Analytics.Source: World Bank staff estimates and Dealogic Analytics.

0 10 20 30

LesothoHaiti

NepalBangladesh

Sierra LeoneCape Verde

SenegalTogo

Guinea-BissauUganda

Gambia, TheYemen, Rep.

CambodiaBeninSudan

MaliGuinea

ComorosEthiopia

NigerRwanda

MozambiqueVanuatu

Burkina FasoZambia

MadagascarTanzania

MauritaniaMalawi

Lao PDRBurundi

Percent

…but again is concentrated in a few countries

Workers’ remittances / GDP in 2007

Source: World Bank staff estimates.Source: World Bank staff estimates.

5% of GDP

$ billions$ billions

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008P

Cross-border bank loansFDI inflowsWorkers' remittancesNet ODA disbursements

LCDs are more dependent on foreign aid…

Source: World Bank staff estimates and Dealogic Analytics.Source: World Bank staff estimates and Dealogic Analytics.

billions of constant billions of constant $2005$2005

0

1 0

2 0

3 0

1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6

- 5

5

1 5

2 5

3 5

4 5L D C s h a r e o f t o t a l

( r ig h t a x is )

Net ODA disbursements net of debt relief

…which increased modestly in 2000-06…

Source: OECD DAC.Source: OECD DAC.

PercentPercent

Constant 2006 $ billions

0

20

40

60

80

100

120

1990 1993 1996 1999 2002 2005 2008P

0.0

0.1

0.2

0.3

Net disbursements of ODA, 1990-2007, commitments 2008-10

Percent of GNI in donor countries (right axis)

Percent

Debt relief

…but outlook bleak as donors face growing fiscal pressures

ODA less debt relief

Source: OECD DAC.Source: OECD DAC.