Global Development Finance 2005 embraces three key challenges: • Managing the vulnerability inherent in global economic and financial imbalances • Confronting the risks posed by the growing market sensitivity of developing-country debt • Mobilizing and diversifying sources of finance for low-income countries In 2004 capital flows to the developing world reached levels higher than at any time since the crises of the 1990s. Low international interest rates allowed developing countries to restructure their debt on favorable terms. They also provoked a search for higher yields among international investors, whose appetite for risk was sharpened by the growing ability of capital markets to gauge risk in individual countries. Stronger creditworthiness ratings in many developing countries—reflecting improved macroeconomic, fiscal, and regulatory policies—contributed to investor confidence.
Presentation from April 6 press launches in Paris and Beijing.
" This recovery of financial flows is a welcome sign of renewed market interest in developing countries and a tribute to the substantial strengthening in economic fundamentals achieved in many countries. But we should also keep in mind that current global financial imbalances pose risks--of disorderly exchange rate movements, or of interest rate increases--that could threaten these gains. Developing countries need to prepare themselves for adjustments, some of which could be sudden "
— François Bourguignon, Senior Vice President and Chief Economist, The World Bank |
For the poorest countries, which lack ready access to market-based finance, official development assistance remains the most important source of external finance. But other capital flows and nontraditional sources of foreign exchange—workers’ remittances, grants from nongovernmental organizations, and aid from middle-income countries—have risen in importance. The favorable overall picture masks considerable country variation. Both foreign direct investment and debt reduction are highly concentrated in a few countries. In much of the developing world, the external debt of the public sector has continued to rise—often compounded by growing levels of domestically sourced debt. The overall picture also conceals vulnerabilities. Even if the present imbalances in global payments unwind in an orderly fashion, the developing world will have to adjust as interest rates return to their historical norms and growth slows in the industrial economies. If efforts toward orderly adjustment prove to be “too little, too late” in the eyes of the capital markets, a sudden shortage of finance, accompanied by spikes in interest rates, could severely shock indebted economies. The safest course for developing countries is to persevere with policies and reforms that promote economic growth under sustainable levels of debt—domestic and external. The World Bank’s annual review of recent trends in and prospects for financial flows to developing countries, Global Development Finance 2005, I: Analysis and Statistical Appendix is an indispensable resource for governments, economists, investors, financial consultants, academics, bankers, and the entire development community Global Development Finance 2005, II: Summary and Country Tables includes a comprehensive set of tables with statistical data for 136 countries that report debt under the World Bank Debtor Reporting System, as well as summary data for regions and income groups. It contains data on total external debt stocks and flows, aggregates, and key debt ratios, and provides a detailed, country-by-country picture of debt. Global Development Finance 2005 debt data are also available on CD-ROM, with 217 historical time series indicators from 1970 to 2003, and country group estimates for 2004. |
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