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November 18, 2008. The Impact of the Global Financial Crisis on the Development Finance Prospects for LDCs Doug Hostland Development Economics Prospects Group THE WORLD BANK. Main messages. Expect moderate decline in private capital flows in 2009 - PowerPoint PPT Presentation
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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.