2005年全球金融及经济发展：全球发展金融2005

分类：经济格式：pdf 日期：2005年11月07日

THE WORLD BANK
Global
Development
Finance
Mobilizing Finance and Managing Vulnerability
2005
I,ANALYSIS AND STATISTICAL APPENDIX
2005 The International Bank for Reconstruction and Development / The World Bank
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The cutoff date for data used in this report was March 18,2005,Dollars are current U.S,dollars unless
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Table of Contents
Foreword ix
Acknowledgments xi
Selected Abbreviations xiii
Overview and Policy Messages,Mobilizing Finance and Managing Vulnerability 1
Capital flows to developing countries continued to recover,but at a slower pace 2
The world economy is slowing 3
Growing global imbalances pose risks for emerging market economies 4
The complexity of developing-country debt poses new challenges 5
Meeting poor countries’ financing needs requires recognition of the countries’
special challenges 8
Chapter 1 Financial Flows to Developing Countries,Recent Trends and Near-Term Prospects 13
Capital flows to developing countries 13
Capital flows from the private sector 15
Capital flows from the official sector 22
Annex,Recent trends in workers’ remittances to developing countries 28
Notes 29
References 29
Chapter 2 Global Outlook and the Developing Countries 33
Global growth 34
Global imbalances,currencies,and inflation 38
World trade 40
Commodity markets 43
Risks and policy priorities for the global economy 44
Notes 47
References 48
Chapter 3 Global Imbalances and Emerging Market Economies 51
The mixed effect of exchange-rate fluctuations 52
Global monetary tightening,higher interest rates 52
Potential volatility in emerging-market spreads 54
Capital flows and reserve accumulation 56
Promoting stability in global capital flows 61
Notes 63
References 63
v
GLOBAL DEVELOPMENT FINANCE 2005
Chapter 4 Complex Challenges in Developing-Country Debt 67
The change since the 1990s 68
External debt trends in emerging markets 72
The rise of domestic debt markets 76
Balancing external and domestically financed debt 81
No room for complacency,despite improvements 85
Notes 85
References 86
Chapter 5 Meeting the Financing Needs of Poor Countries 89
The external financing environment in poor countries 90
Other developing countries as a source of finance for poor countries 99
Meeting the Monterrey challenge—an agenda for donors and recipients 102
Sound economic and pro-poor policies in recipient countries 109
Notes 110
References 111
Statistical Appendix 115
Tables
1.1 Net capital flows to developing countries,1996–2004 14
1.2 Regional composition of net FDI inflows to developing countries,2002–4 16
1.3 Regional composition of net portfolio flows to developing countries,2002–4 19
1.4 Net official development assistance (ODA) from principal donor
countries,1990–2003 23
1.5 Net bilateral ODA and special purpose grants,1990–2003 24
1.6 Projected increases in ODA from DAC donors,2003–6 26
1A.1 Workers’ remittances to developing countries,1990–2004 28
1A.2 Developing countries with highest remittance flows,2001 and 2003 29
2.1 The global outlook in summary 35
3.1 Current account balances in developing countries,2000–4 57
3.2 Ratios of foreign-exchange reserves to imports and external
short-term debt in emerging market economies,2004 59
3.3 Reserve carrying costs in emerging markets 60
4.1 Selected indicators of the burden of external debt,1997–2002/3 69
4.2 Corporate and financial sector comparison for Asian crisis countries,1998 and 2003 71
4.3 External indebtedness of top 20 debtors,1997 and 2003 74
5.1 Net capital flows to poor countries,1990–2004 90
Figures
1.1 Financial flows to developing countries,1990–2004 14
1.2 Financial flows to developing countries as a percentage of GDP,1990–2004 15
1.3 Current account balance of developing countries,1976–2004 15
1.4 Financial flows to developing countries from the private sector,1990–2004 16
1.5 Net equity flows to developing countries,1990–2006 16
1.6 Share of net FDI inflows to low-income and least developed
countries,1990–2004 17
vi
T ABLE OF CONTENTS
1.7 FDI outflows from developing countries,1990–2004 17
1.8 Equity price indexes,2003–4 19
1.9 Net private debt flows to developing countries,1990–2004 20
1.10 Gross private flows to developing countries,1990–2004 20
1.11 Emerging-market bond spreads,1997–2004 21
1.12 Official debt flows and foreign aid grants,1990–2004 22
1.13 ODA as a percentage of GDP in recipient countries,1990–2003 23
1.14 ODA as a percentage of GNI in DAC donor countries,1990–2006 25
1.15 Percentage of ODA disbursed to Sub-Saharan Africa,1990–2003 26
1.16 ODA and grants from nongovernmental organizations,1990–2003 26
2.1 Developing-country and world growth,1980–2007 34
2.2 Slowing industrial production,September 2003–May 2005 36
2.3 Regional growth projections,2003–7 36
2.4 Estimated global imbalances in current accounts,2004 38
2.5 Financing the U.S,current account,net flows by asset type,2000,2002,and 2004 38
2.6 Appreciation of developing-country currencies against the dollar between
January 2002 and February 2005 39
2.7 Interest rates and the weakening dollar,1995–2005 40
2.8 Very low real interest rates in the United States,1997–2005 40
2.9 Rising consumer inflation,2000–4 40
2.10 Slower trade growth,2003–5 41
2.11 World semiconductor sales and East Asian technology exports,1997–2005 41
2.12 Real effective revaluations of developing-country exchange rates,2002–5 42
2.13 Commodity prices,2000–4 43
2.14 Developing-country demand and commodity prices,2003 and 2004 43
2.15 Metals—Low stocks mean higher prices,1995–2005 44
2.16 Terms-of-trade gains to developing countries from commodity price changes,2001–4 44
2.17 Effects of higher interest rates on GDP growth,2005–7 46
2.18 The dollar in historical perspective,1970–2004 47
3.1 Impact of dollar depreciation on debt service ratios,2002–4 52
3.2 Short-term policy rates in developed countries,2002–4 53
3.3 Short-term policy rates in major emerging markets,2002–4 53
3.4 Movement of real Federal Fund Rates,1991–2004 53
3.5 U.S,Treasury implied forward rates 54
3.6 Estimated additional debt service burden due to increase of one percentage
point in U.S,interest rates 54
3.7 Change in sovereign bond spreads following increase of 200 basis points
in U.S,interest rates,by degree of indebtedness of country 57
3.8 World current account surpluses as shares of U.S,current account deficit,2004 57
3.9 Capital flows,current account balances,and reserve accumulations
in developing countries,1980–2004 57
3.10 Global foreign-exchange reserve accumulation,1999–2004 58
3.11 Foreign-exchange reserves in developing countries,1999–2004 58
3.12 Foreign official assets in the United States,1980–2003 60
4.1 Composition of developing countries’ external debt,1990–2003 69
4.2 Developing countries’ total public sector debt,1990–2003 70
4.3 Burden of public debt,external vs,domestic,1990–2002 70
4.4 Credit quality of emerging markets,1997–2004 71
vii
GLOBAL DEVELOPMENT FINANCE 2005
4.5 Change in net private debt flows (long-term plus short-term) of crisis
countries and others,1994–2003 72
4.6 Total external debt of developing countries,1990–2003 74
4.7 Composition of outstanding external debt of developing countries,1970–2003 74
4.8 Substitution of bond financing for bank credit,1990–2002 75
4.9 Volatility in acquisition of new debt,1994–2003 75
4.10 Bank credit to developing countries,1970–2003 76
4.11 Composition of outstanding market-sourced debt in the developing world,1970–2003 76
4.12 Public debt stocks in emerging markets,1997 and 2002 77
4.13 Stock of outstanding domestic bonds,by sector,1993–2002 77
4.14 Share of domestic debt in total public debt in selected Asian countries,1990–2003 79
4.15 Stock of domestic bonds outstanding in emerging markets,by region,1993–2002 79
4.16 Share of domestic debt in total public debt in selected Latin
American countries,1990–2003 80
4.17 Distribution of volatility in risk premium for selected developing countries 83
4.18 Average credit quality,by region,1999–2004 84
5.1 Shift from aid toward FDI in poor countries,1990–2003 91
5.2 ODA to poor countries relative to total ODA,1990–2003 91
5.3 Sectoral distribution of ODA to poor countries,1990–2002 93
5.4 Natural resource availability and ratios of FDI to GDP in poor countries,1990–2003 94
5.5 Improving risk conditions in poor countries,1985–2003 97
5.6 FDI in oil- and mineral-exporting poor countries,1990–2003 98
5.7 Global military spending and aid,1992–2003 102
5.8 Change in volatility of aid,1970–2002 106
5.9 Volatility of different components of aid,remittances,and FDI,1990–2002 106
Boxes
1.1 Measuring capital flows in dollars versus as a percentage of GDP 18
1.2 Implementation of the Heavily Indebted Poor Countries (HIPC) Initiative 25
1.3 Aid in the wake of the Asian tsunami 27
3.1 Asset prices and unanticipated news 55
3.2 Determinants of emerging-market spreads 56
3.3 Developing countries as exporters of capital—a new twist on the Bretton
Woods system 59
4.1 Currency valuation effects have significant impacts 73
4.2 The role of short-term bank credit in trade financing 75
4.3 Foreign investment in developing countries’ domestic debt markets 78
4.4 Assessing the risk of external versus domestic debt 84
5.1 Wide variations in the mix of external financing in poor countries 92
5.2 Growing financing role for NGOs 94
5.3 Workers’ remittances to poor countries 95
5.4 The rise,fall,and recovery of FDI to poor countries,1990–2003 96
5.5 Realizing the development promise of trade 97
5.6 Collapse in international bank lending to poor countries 98
5.7 UNDP,Japan,and triangular cooperation 101
5.8 New sources of financing 105
5.9 Securitization of future workers’ remittances and other external flows 108
viii
Foreword
T
HE GLOBAL ECONOMY IS AT A
turning point,Growth has peaked,and pres-
sures to address global imbalances are grow-
ing,exposing important risks facing both developed
and developing countries as the needed adjustments
occur,Whether or not the rebalancing occurs in an
orderly fashion will have a crucial impact on
whether recent improvements in developing-
country performance can be sustained—and
whether progress towards the Millennium Develop-
ment Goals (MDGs) can be accelerated,The stakes
are large.
Global economic performance over the last
year provides continuing evidence of the growing
interdependence of developed and developing
countries,Global growth was high,in part from
record expansion in developing countries,which
have been benefiting from favorable global condi-
tions and from years of domestic policy improve-
ments,Financial flows to developing countries
during 2004 reached levels not seen since the onset
of the financial crises of the late 1990s,And devel-
oping countries’ increasing integration with the
global financial system continues to raise their
stake in the health and resilience of that system,
But the strong recovery has also given rise to
sizable global financial imbalances that will have
to be addressed,If the global growth cycle has in-
deed peaked,the likely scenario involves contin-
ued (though slower) growth and an orderly reduc-
tion in imbalances,But there are also risks—of
higher-than-expected interest rates,of abrupt and
disorderly exchange-rate movements,and of a
pronounced global slowdown that could encour-
age protectionist sentiments and curtail expansion
of trade and investment linkages between devel-
oped and developing countries,
The resilience of developing-country financial
positions will be tested as global conditions tighten,
with special concern for the vulnerability posed by
increased debt burdens,which have been at the
heart of the financial crises over the last decade.
There is some good news here—aggregate exter-
nal debt indicators are down,many developing
ix
.
countries have improved their capacity to manage
debt,and many countries have acted aggressively
to address the weaknesses that contributed to pre-
vious crises,But external debt burdens have risen
in more than half of emerging market economies,
and,in many,domestic borrowing has risen dra-
matically as well,Although the shift from external
to domestic borrowing can reduce vulnerability to
external shocks,it also carries risks from possible
overborrowing or inadequate supervision,The
central policy message is that excessive borrowing
is risky,regardless of the source,and that efforts to
avoid the discipline required by external borrow-
ing by switching to domestic sources will fail,
Emerging market economies are also vulnera-
ble to the possible impact of larger-than-expected
increases in interest rates (which would translate
into higher borrowing costs) and possible capital
losses on dollar-denominated assets from dollar
depreciation,The impact could be particularly
acute for economies in which reserve accumula-
tion far exceeds normal prudential levels,which
entails fiscal costs as monetary authorities issue
low-yield securities to absorb the excess liquidity
created by reserve accumulation,
For low-income countries,the major vulnera-
bilities stemming from the current global environ-
ment are linked less to the evolution of interest
rates and exchange rates and more to the future
of flows of aid from bilateral and multilateral
sources,While the challenge of generating suffi-
cient aid to help low-income countries reach the
Millennium Development Goals (MDGs) remains
large,there are some encouraging signs of
progress,as some donors have increased their
commitment levels and aid flows have turned up-
wards,But concerns persist about whether these
increases are large enough,and whether adequate
flows are reaching areas that need them most,such
as Sub-Saharan Africa,As the global community
reevaluates progress towards the MDGs in the
coming year,donors and recipients alike must
remain focused on the imperative of generating
resources that can be effectively used in developing
GLOBAL DEVELOPMENT FINANCE 2005
countries that have supportive policy and institu-
tional environments,
Equally encouraging is the growing evidence
that financial flows other than official aid are
growing—from rapid expansion in private invest-
ment (including substantial growth in South-South
investment flows),to private grants,to other
sources of foreign exchange such as workers’ remit-
tances,While such flows can not and should not
substitute for sustained and targeted official aid,
they nonetheless highlight the growing options and
opportunities open to low-income countries.
Global Development Finance is the World
Bank’s annual review of the external financial
conditions facing developing countries,The current
volume provides analysis and summary tables on
selected macroeconomic indicators and financial
flows,A separate volume contains detailed,stan-
dardized,external-debt statistics for 136 countries.
More information on the analysis,including
additional material and sources,is available at
www.worldbank.org/prospects,A companion on-
line publication,Prospects for the Global Economy,
is available in English,French,and Spanish at
www.worldbank.org/globaloutlook.
Fran?ois Bourguignon
Chief Economist and Senior Vice President
The World Bank
x
Acknowledgments
T
HIS REPORT WAS PREPARED BY THE
International Finance Team of the World
Bank’s Development Prospects Group
(DECPG),Substantial support was also provided
by staff from other parts of the Development Eco-
nomics Vice Presidency,World Bank operational
regions and networks,the International Finance
Corporation,and the Multilateral Investment
Guarantee Agency,
The principal author was Jeffrey Lewis,with
direction by Uri Dadush,The report was prepared
under the general guidance of Fran?ois Bour-
guignon,World Bank Chief Economist and Senior
Vice President,The principal authors of each
chapter were:
Overview Jeffrey Lewis,with contributions
from the International Finance
Team and Andrew Burns
Chapter 1 Douglas Hostland,Dilek Aykut,
Neil Bush,Mansoor Dailami,
Himmat Kalsi,Eung Ju Kim,Jeffrey
Lewis,and Dilip Ratha
Chapter 2 Andrew Burns
Chapter 3 Mansoor Dailami,Jeffrey Lewis,
and Eung Ju Kim
Chapter 4 Himmat Kalsi and Jeffrey Lewis
Chapter 5 Neil Bush,Dilek Aykut,Douglas
Hostland,Eung Ju Kim,Jeffrey
Lewis,Dilip Ratha,and Neeltje Van
Horen
Preparation of the statistical appendix was
managed by Eung Ju Kim,with inputs from Mick
Riordan,Milko Iantchev,and Dilek Aykut of
DECPG,and the Financial Data Team of the De-
velopment Data Group (DECDG),led by Ibrahim
Levent and including Nevin Fahmy,Shelly Fu,and
Gloria R,Moreno,The financial flow and debt
estimates were developed in a collaborative effort
between DECPG and DECDG,The main macro-
economic forecasts were prepared by the Global
Trends Team of DECPG,led by Hans Timmer and
including John Baffes,Andrew Burns,Maurizio
xi
.
Bussolo,Betty Dow,Annette de Kleine,Fernando
Martel Garcia,Don Mitchell,Mick Riordan,and
Shane Streifel,The technical aspects of the forecast
were handled by Milko Iantchev,while Ketaki
Jain,Denis Medvedev,and Caroline Diaz-Bonilla
provided additional technical support,
The outlook for Sub-Saharan Africa was
carried out in cooperation with Celine Kauffman
(Organisation for Economic Co-operation and
Development [OECD] Development Centre),with
input from Delfin Go,Milan Brahmbhatt provided
input for the East Asia and Pacific outlook,Other
contributors to regional outlooks included
Guillermo Perry (Latin America and the Caribbean),
Ejaz Syed Ghani (South Asia),Ali Mansoor (Europe
and Central Asia),and Mustapha Nabli (Middle
East and North Africa),Background notes and
papers were prepared by Paul Masson and Jean
Jose Padou (University of Toronto) and Neeltje
Van Horen,The online companion publication,
Prospects for the Global Economy,was prepared by
Andrew Burns,with the assistance of the Global
Trends team,The Web site was designed by Hager
Ben-Mahmoud,Oxana Michenko,and Kavita
Watsa,The data platform,graphics engine,and Web
interface were produced by Reza Farivari,Sarubh
Gupta,David Hobbs,Shahin Outadi,Raja Reddy
Komati Reddy,Malarvizhi Veerappan,and Cherin
Verghese.
The report also benefited from the comments
of the Bank’s Executive Directors,made at an in-
formal board meeting on March 8,2005,
Many others provided input,comments,guid-
ance and support at various stages of the report’s
preparation,Kevin Barnes,Barbara Mierau-Klein,
Vikram Nehru,Malvina Pollock,and Philip Suttle
(J.P,Morgan Chase) were discussants at the
Bankwide review,In addition,within the Bank,
comments and help were provided by Alberto
Agbonyitor,Paloma Anos-Casero,Jorge Araujo,
Amarendra Bhattacharya,Milan Brahmbhatt,Nina
Budina,Christopher Juan Costain,Jean-Jacques
Dethier,Mark Dorfman,Shahrokh Fardoust,
Norbert Fiess,Alan Gelb,Coralie Gevers,Ejaz
GLOBAL DEVELOPMENT FINANCE 2005
Ghani,Indermit Gill,Doris Herrera-Pol,Gregory
Ingram,Philippe Le Houerou,Ali Mansoor,
Susan McAdams,Celestin Monga,Christopher
Neal,Richard Newfarmer,Julia Nielson,Akihiko
Nishio,Brian Pinto,David Rosenblatt,Francis
Rowe,Carlos Silva-Jauregui,Mark Sundberg,Eric
Swanson,Ekaterina Vostroknutova,Yan Wang,and
Gianni Zanini.
Outside the Bank,several people contributed
through meetings and correspondence on issues
addressed in the report,These include,Brian
Hammond and Simon Scott (OECD Development
Assistance Committee); Alfonso Qui?onez,Sheila
Donovan,Carlos Humud,Santos Mahung,Carlos
Paldao,and Antoine Chevrier (Inter-American
Agency for Cooperation and Development);
Hiroshi Yoneda and Lori Merritt (Japan Interna-
tional Cooperation Agency); and Steven Radelet
(Center for Global Development).
Steven Kennedy edited the report,Maria
Amparo Gamboa provided assistance to the team.
Dorota Nowak managed production and dissemi-
nation activities by DECPG,Book design,editing,
and production were coordinated by Melissa
Edeburn and Cindy Fisher of the World Bank
Office of the Publisher.
xii
Selected Abbreviations
AGFUND Arab Gulf Program for United Nations
Development Organizations
AGOA African Growth and Opportunity Act
(United States)
ASEAN Association of Southeast Asian Nations
BADEA Arab Bank for Economic Development
in Africa
BIS Bank for International Settlements
CAC Collective action clause
CPIA Country Policy and Institutional
Assessment (World Bank)
DAC Development Assistance Committee,
OECD
DPR Diversified payment rights
DRS Debtor Reporting System (World Bank)
EBA Everything But Arms (European Union)
EMBI Emerging Markets Bond Index
EU European Union
FDI Foreign direct investment
G-3 Group of Three (European Union,Japan,
United States)
G-7 Group of Seven (Canada,France,Germany,
Italy,Japan,United Kingdom,
United States)
G-8 G-7 plus Russian Federation
GAVI Global Alliance for Vaccines and
Immunization
GDP Gross domestic product
GNI Gross national income
GNP Gross national product
HIPC Heavily Indebted Poor Countries Initiative
IACD Inter-American Agency for Cooperation
and Development
IBRD International Bank for Reconstruction
and Development
xiii
.
ICRG International Country Risk Guide
IDA International Development Association
(World Bank)
IFC International Finance Corporation
IFF International Finance Facility
IFFIm IFF for Immunization
IFI International financial institution
IMF International Monetary Fund
LICUS Low-income countries under stress
JICA Japan International Cooperation Agency
LIBOR London interbank offered rate
MDG Millennium Development Goals
MFA Multi-Fibre Arrangement
MIGA Multilateral Investment Guarantee Agency
NEPAD New Partnership for Africa’s Development
NERICA New Rice for Africa
NGO Nongovernmental organization
ODA Official development assistance
OECD Organisation for Economic Co-operation
and Development
OPEC Organization of Petroleum-Exporting
Countries
PPP Purchasing power parity
PRSP Poverty reduction strategy paper
S&P Standard and Poor’s
SDDS Special Data Dissemination Standard (IMF)
UN United Nations
UNCTAD United Nations Conference on Trade and
Development
UNDP United Nations Development Programme
WARDA West Africa Rice Development Association
WEO World Economic Outlook (IMF)
WTO World Trade Organization
Overview and Policy Messages,Mobilizing
Finance and Managing Vulnerability
2
004 WAS A ROBUST YEAR FOR THE
global economy,especially for developing
countries,which recorded their fastest growth
in more than three decades,The global recovery
strengthened,with much of the momentum coming
from the United States and Asia (notably China),
and broadened,with a pickup in Latin America,
acceleration in Japan,and modest recovery in the
European Union (EU),Driven by favorable global
conditions and strong domestic performance at
home,developing countries continued to attract
capital in 2004,although more slowly than in 2003.
Favorable global economic and financial con-
ditions over the past few years,along with domes-
tic policy initiatives,have improved economic
fundamentals in most developing countries,
strengthening their external positions and making
them less susceptible to external pressures,But sig-
nificant global financial imbalances suggest the
need for adjustment,History has shown time and
again that financial crises often take markets and
policymakers by surprise,The Asian crisis that
erupted in mid-1997 offers a striking example—
large exchange-rate exposures on balance sheets in
the corporate,financial,and public sectors were
not widely recognized until after the fact,
Valuable lessons can be learned from these
past episodes,One is that there is a tendency for
financial markets and policymakers to miss the
warning signs and overshoot,making the neces-
sary adjustment larger when it does occur,Over-
shooting has contributed to,boom-bust” cycles
in global financial markets,which have impeded
economic development in many regions,In the
current context,the memory of past mistakes
raises the question of whether the strong pickup
in capital flows to developing countries over the
1
.
last two years can be sustained over the medium
term.
Emerging market economies with access to
global finance are particularly vulnerable to changes
in interest and exchange rates that may occur as
markets anticipate and adjust to policy measures in-
tended to relieve the yawning imbalances,Countries
that have accumulated large dollar-denominated
reserve holdings face acute pressures and large po-
tential investment losses from the weakening dollar,
though their dollar-denominated debt burdens may
ease,Those that have failed to take advantage of
recent favorable conditions to lighten their debt
burden may face debt-servicing difficulties as
conditions worsen,All countries,whatever their
circumstances,stand to benefit from a better under-
standing of the complex challenges that are chang-
ing the borrowing environment (both external and
domestic) and the options open to policymakers.
The risks are somewhat different for low-
income countries that are more reliant on official
and concessional sources of external finance,Offi-
cial aid flows are vulnerable to growing fiscal pres-
sures in donor countries,while private flows will
come to reflect tightening global conditions,Keep-
ing growth on a sustainable path as the global
recovery evolves will therefore be a major factor in
attaining the Millennium Development Goals
embraced by the world’s leaders at the UN Millen-
nium Summit in 2000.
The theme of this year’s edition of Global
Development Finance—mobilizing finance and
managing vulnerability—embraces three key
challenges:
Managing the vulnerability inherent in global
economic and financial imbalances,
GLOBAL DEVELOPMENT FINANCE 2005
Confronting the risks posed by the new com-
plexities in developing country debt,and
Mobilizing and diversifying sources of finance
for low-income countries with more limited
access to international capital markets,
Capital flows to developing
countries continued to recover,
but at a slower pace
T
he strong recovery of capital flows to devel-
oping countries that began in 2003 carried
over to 2004,albeit at a reduced pace,Total pri-
vate and official net debt flows totaled a record
high of almost $325 billion,up significantly from
$200 billion during 2000–2,The pickup is more
modest after taking into account factors such
as inflation,economic growth,and the sizable
depreciation of the dollar against most major
currencies,Net capital flows to developing coun-
tries equaled 4.5 percent of their gross domestic
product (GDP) in 2004,up slightly from 4.3 per-
cent in 2003,but significantly below highs ex-
ceeding 6 percent reached in the mid-1990s
(chapter 1).
Developing countries continued to export
capital and accumulate reserves
Drawing on healthy trade balances,developing
countries have continued to generate large current
account surpluses,a dramatic turnaround from
past decades,Combined with expanding capital
flows,the growing surpluses contributed to accel-
erating accumulation of foreign reserves by devel-
oping countries—from $292 billion during 2003
to $378 billion during 2004,Although the largest
reserve accumulation was concentrated in Asia,
the phenomenon was widespread,More than
three-quarters of developing countries reporting
reserve changes (101 of 132) accumulated reserves
during the year,A sizable portion of this new accu-
mulation is invested in U.S,Treasuries,indicative
of the growing stake of developing countries in the
global financial system.
FDI inflows increased modestly,but outflows
surged
FDI inflows to developing countries increased
during 2004,partly offsetting the decline during
the previous two years,While the concentration
of FDI flows remains high (five emerging market
economies account for 60 percent of FDI and
88 percent of the increase),the share flowing to
low-income countries reached 11 percent,the
highest in 15 years,Reported FDI outflows from
developing countries surged dramatically,reach-
ing an estimated $40 billion in 2004 (from only
$3 billion in 1991),The bulk of the FDI outflows
originated in countries that have been major re-
cipients of inflows in recent years,In response to
greater foreign competition,domestic firms in
those countries have launched an aggressive
search for markets abroad—often elsewhere in
the developing world.
Private debt flows showed strong gains from
record levels of bond issuance
Net international bank lending continued to
decline as net bond flows rebounded sharply,
reaching a record high in 2004,Gross bond is-
suance surpassed gross bank lending for the first
time,although bank lending remains available to
a larger group of countries,The strong gains in
bond issuance over the past two years reflect both
supply and demand factors—ample global liquid-
ity,low advanced-country interest rates promoting
a,search for yield,” and a broad-based improve-
ment in credit fundamentals in many emerging
markets,Apart from some short-lived volatility in
April–May (as the tightening of U.S,monetary
policy began),emerging-market bond spreads fell
steadily during 2004,reaching a near-record low
by the end of the year.
Official aid continued to shift from
loans to grants
Recent figures confirm the continuing structural
shift in official development assistance (ODA) from
loans to grants over the last several years,While bi-
lateral aid grants have risen annually since 2001,net
official lending,largely multilateral,has declined
dramatically,falling from $27 billion in net inflows
to developing countries,to $25 in net outflows in
2004,The largest factor underlying this shift has
been a $30 billion net decline in lending by the Inter-
national Monetary Fund (IMF),reflecting repay-
ment of sizable crisis-related disbursements made in
2001,But net lending by the World Bank also fell by
$9 billion over the period,as several countries
2
OVERVIEW AND POLICY MESSAGES
repaid large structural adjustment loans,and other
Bank loans were repaid ahead of schedule.
While ODA figures for 2004 are not yet avail-
able,promising signs of expansion since the
March 2002 Monterrey Conference on Financing
for Development are evident,with an increase in
2003 of around $10 billion to $69 billion (although
after accounting for inflation and exchange rate
changes,the real increase was only 5 percent).
Sub-Saharan Africa has received 60 percent of the
increases in ODA disbursements over the five-year
period from 1998 to 2003,However,with most of
these funds allocated to postconflict situations,the
increase in development aid has been small.
Five bilateral donors have increased disburse-
ments to levels exceeding the United Nations (UN)
target of 0.7 percent of GNI; four additional donors
have specified explicit time tables for meeting the
UN target over the next few years,ODA as a share
of gross national income (GNI) in donor countries
is projected to rise from 0.25 percent in 2003 to
0.30 percent in 2006—implying a 9 percent annual
increase in ODA in real terms,well above that
achieved over the past two years (6 percent).
The world economy is slowing
The growth cycle is peaking
T
he year 2004 was a record year for developing
countries,with aggregate growth of 6.6 per-
cent,While very strong growth in China (and to a
lesser extent in Russia and India) contributed im-
portantly to this result,growth was strong through-
out the developing world,However,high-frequency
data suggest that global growth began slowing in
the second half of the year,and this trend is pro-
jected to continue into 2005 and 2006,Persistently
high oil prices,rising interest rates as a result of
monetary tightening,and a waning fiscal stimulus
from efforts to address the 2000/01 recession are
projected to dampen domestic demand and slow
growth among high-income countries,These same
forces,plus softening import demand in the devel-
oped world,are expected to slow the pace of ex-
pansion in low- and middle-income countries,Nev-
ertheless,their growth should continue to outpace
industrial economies by a wide margin—partly
because of continued strong growth in China and
India,Indeed,notwithstanding the slowdown,eco-
nomic growth in low- and middle-income countries
will remain above the rising trend for much of the
past two decades,As a result,commodity prices are
expected to ease only slowly,and inflation pres-
sures will continue to build in a number of develop-
ing countries.
Global imbalances and major currencies
are stabilizing
A combination of a somewhat tighter fiscal policy
and higher interest rates in the United States is pro-
jected to halt and even reverse the widening current
account deficit,Higher U.S,interest rates will in-
crease the willingness of private-sector investors to
hold dollars,and the two effects should slow the
currency’s tendency to depreciate,Co-movements
among the currencies of developing countries and
the compensating effect of an appreciation of the
euro have left the real effective exchange rate of
most developing countries broadly stable,However,
the large swings in the bilateral exchange rates of the
major industrialized economies impose adjustment
costs on firms that are expected to augment trade
growth.
Significant downside risks persist
A reduction in the pace at which central banks are
accumulating dollars,a weakening in investors’
appetite for risk,or a greater than anticipated
pickup in inflationary pressures could cause inter-
est rates to rise farther than projected,provoking a
deeper-than-expected slowdown or even a global
recession,If the dollar were to depreciate by more
than projected,it would likely undershoot its long-
run equilibrium level,Should it remain low for an
extended period,this could induce a costly restruc-
turing of world industry that would have to be un-
done in following years as the dollar returned to
its equilibrium level,Finally,the slowdown in
global growth could sap policymakers’ desire to
pursue further trade liberalization,which has been
a major motor of the improved performance of de-
veloping countries over the past half decade.
Sensible policy can reduce the probability
and severity of such adverse scenarios,Tighter
U.S,monetary and fiscal policy,a relaxation of
European monetary policy (relative to the United
States),and a managed appreciation of some Asian
currencies would reduce the likelihood of a sharp
depreciation in the dollar or an abrupt hike in
interest rates by reducing global imbalances,
3
GLOBAL DEVELOPMENT FINANCE 2005
increasing demand for dollars,and lowering infla-
tionary pressure in developing countries,To mini-
mize the impact of a weaker-than-projected out-
come,developing countries should ensure that debt
and spending obligations will remain affordable,
even if output and tax revenues slow substantially
and interest rates rise,While a coordinated re-
sponse would be ideal,the policies described above
would be beneficial for each economic grouping—
even if adopted unilaterally.
Growing global imbalances pose
risks for emerging market economies
D
espite recent strong performance,developing
countries face substantial risks from trends in
the global economy,The channels through which
events in global financial markets affect develop-
ing countries reflect the changing character and
growing significance of developing countries’ in-
ternational financial relationships,Not only is
there concern about the traditional sensitivity of
emerging-market finance to cyclical developments
in international capital markets,but,for some
countries,the carrying costs of large accumula-
tions of foreign exchange reserves raise new
challenges,Looking ahead,the possibility of,dis-
orderly” adjustments of external payments imbal-
ances in the global economy could pose acute risks
to emerging markets.
Exchange-rate volatility and higher interest
rates could affect the cost and availability
of capital
While the baseline outlook for the global economy
(chapter 2) is for an orderly adjustment in global
imbalances in external payments,less salutary out-
comes are possible,One key implication of a more
disorderly adjustment scenario for emerging mar-
ket economies is that it would likely bring an end
to the favorable economic and financial environ-
ment that has supported a strong rebound in capi-
tal flows over the last two years,The most likely
consequence would be a widening of credit
spreads on emerging-market bonds,which in turn
could adversely affect the flow of debt.
On the positive side,a weaker dollar reduces
the net external debt burden (measured in local
currency) of countries with dollar-denominated
debt,For example,in the 100 or so developing
countries whose exchange rate is not pegged to the
U.S,dollar,the dollar’s slide since 2002 has re-
duced average ratios of debt to gross national
product (GNP) and debt service to exports by
about 1 percentage point.
Global tightening of monetary policy as major
industrial economies move to a neutral stance will
have an impact on market interest rates,Rising in-
terest rates,in turn,will likely slow global eco-
nomic growth,as increases in short-term policy
rates lead to higher borrowing costs (although this
effect has been modest to date,as long-term yields
in the United States have not increased as in previ-
ous monetary tightenings).
How market interest rates respond to future
changes in monetary policy—particularly in the
United States—and how such reactions spill over
to emerging bond markets is taking on consider-
able significance,With emerging-market bond
spreads at record lows (which suggests that mar-
kets may be underestimating credit risks),an un-
expected deterioration in global conditions could
lead to a precipitous widening of those spreads as
investors adapt their expectations and reduce their
risk appetite,With gross bond financing surpass-
ing bank financing in 2004 for the first time,the
impact of sharply higher spreads on emerging
markets would be substantial,
Borrowing costs would rise if such pressures
lead credit-rating agencies to downgrade their rat-
ing of emerging-market borrowers,It is estimated,
for example,that for the,typical” low-investment-
grade borrower,a one-notch downgrade raises
borrowing costs an average of 80 basis points.
This effect could be accentuated for more vulnera-
ble countries,For example,for countries with
high external debt levels,a 200-basis-point in-
crease in U.S,rates (the approximate increase cur-
rently anticipated) would bring an additional in-
crease of 65 basis points (on top of the 200),For
countries with low debt,the incremental impact is
only around 6 basis points.
Excessive reserve accumulation has costs
Not all of the increase in capital inflows has been
directed to productive domestic investment or
consumption,Some has been channeled into foreign
exchange reserves,Recent record levels of reserve
accumulation across a broad range of developing
countries reflect several motives,insuring against
abrupt reversals of capital flows,liquidity consider-
ations related to exchange-rate management and
4
OVERVIEW AND POLICY MESSAGES
creditworthiness concerns,and,for some,relieving
upward pressure on a fixed exchange rate to help
maintain trade competitiveness.
Although these motives are justifiable under
some conditions,one outcome is that current
reserve levels in several countries exceed by a large
margin the conventional measures of reserve ade-
quacy,That excess leads to concerns over the cost
and the sustainability of current policies,particu-
larly (i) the quasi-fiscal cost associated with central
banks’ sterilized intervention operations to offset
the expansionary monetary impact of higher re-
serves,and (ii) potential capital losses on dollar-
dominated reserve assets (chapter 3).
The quasi-fiscal burden reflects the difference
between what the foreign-currency reserve assets
earn and what the central bank must pay on
domestic securities issued to offset their expan-
sionary monetary impact,This burden can be
substantial—the gap between the two rates,under
prevailing market conditions,can be as high as
6–8 percent,with each percentage point costing
the central bank an additional $100 million annu-
ally for each $10 billion in reserves,Moreover,
where domestic financial markets are still under-
developed,there are institutional limits on cen-
tral bank capacity to pursue such sterilized market
operations,India has a shortage of available in-
struments to use in sterilization operations,
Korea has run up against limits on the amount of
securities it can issue,and state-owned banks in
China have reached the limits of their capacity to
purchase additional securities at below-market
rates,
The capital loss costs relate to the valuation
and management of the central bank’s portfolio
of reserve assets,While most central banks are
engaging professional asset managers,an esti-
mated 70 percent of reserves are held in dollar-
denominated assets (individual country estimates
are generally not available),implying that a sharp
drop in the dollar could translate into a corre-
sponding drop in the domestic value of the reserve
holdings,
Looking ahead,countries accumulating sub-
stantial excess reserves will have to reconcile the
benefits of higher reserves with the potential for
capital losses and growing quasi-fiscal carrying
costs,Even when costs are hidden (for example,by
requiring banks to hold domestic assets at below-
market yields),the domestic macroeconomic
consequences are very real,as countries reach the
limit of their ability to sterilize the impact of large
reserve accumulations.
Clear policy challenges are emerging
For developing countries,the greatest challenge
is to continue taking advantage of current favor-
able financing conditions,while pursuing the
necessary domestic macroeconomic and struc-
tural reforms necessary to promote long-term
stability in their external financing sources,This
would involve:
Renewed commitment to macro stabilization
and structural reforms that have laid the foun-
dation for the recovery and vigorous expan-
sion of capital flows since 2002,
In high-reserve countries,reevaluation of
the sustainability and costs of rapid reserve
accumulation,both in terms of domestic
macroeconomic management and increased
vulnerability to changing external conditions.
These countries need to consider how to man-
age appreciation of their currencies against
the major currencies,to share the global
adjustment burden.
Continuing efforts to improve asset and liabil-
ity management,especially by lengthening bor-
rowing maturity,retiring high-cost debt,diver-
sifying the currency composition of debt,and
hedging currency exposure as much as possible.
Pushing forward with efforts to strengthen
the health and soundness of the domestic
financial system through measures to improve
prudential regulations,enhance banks’ capi-
talization,develop local bond markets,and
remove incentives for excessive foreign cur-
rency intermediation.
The complexity of developing-
country debt poses new challenges
M
uch has changed since the wave of financial
crises rocked emerging market economies
and disrupted global financial markets from the
mid-1990s up until 2002,Many countries that
were at the center of earlier crises have made signif-
icant progress in improving prudential and regula-
tory policies and structures whose weaknesses con-
tributed to the crisis,Fiscal policies have generally
5
GLOBAL DEVELOPMENT FINANCE 2005
been more prudent,although concerns persist
about the sustainability of public debt in several
countries,Inflation has fallen,Greater exchange
rate flexibility has reduced the likelihood that an
exchange-rate crisis will become a debt crisis and
raised awareness of the risks inherent in currency
mismatches,Since 1996,19 developing countries
have shifted to floating exchange-rate regimes.
Overall,the improved disposition of investors to-
ward developing countries has been reflected in the
trends in average credit quality,which has risen
steadily since early 2002,The number of countries
carrying formal credit risk ratings (around 60) is
now almost four times higher than in the mid-
1990s.
The dynamics of external debt have been
transformed
The debt-related crises of the 1990s,which were
concentrated in a small group of emerging market
economies,have induced changes in debt dynam-
ics in many developing countries,A rapid expan-
sion in bond finance,pursued most aggressively in
countries that experienced severe debt pressures or
crises in the 1990s,has increased vulnerability to
changing market conditions in global markets
(over which individual countries can exercise little
control) and domestic circumstances,which can
quickly translate into higher borrowing costs
through their impact on spreads (chapter 3) or re-
duced capital availability,Furthermore,the enor-
mous increase in the number of stakeholders that
has accompanied the shift into bonds has compli-
cated the resolution and management of crises.
International capital markets today are more
attuned to,and more discriminating about,devel-
opment finance than in the past,This in turn im-
poses a degree of discipline on borrowing through
greater transparency,a more substantial flow of
information,increased market research,and finer
distinctions in credit risk,Overall,these develop-
ments have reduced the systemic risk in market-
based emerging market finance,
Similarly,the international financial architec-
ture,which aims to prevent defaults and facilitate
orderly debt restructuring,has been strengthened.
Collective action clauses have been introduced in
some bond financing transactions,and discussions
over a code of conduct continue,The Capital
Adequacy Accord (Basel II) offers the potential to
strengthen the banking sector and enhance the
ability of banks to take on and sustain riskier lend-
ing,through measures to mitigate and manage
risk,Joint international efforts on statistics and
monitoring are improving the quality and quantity
of information available for use in managing ap-
proaching crises,
But while efforts to strengthen the interna-
tional framework for dealing with financial dis-
tress have started to yield results,much remains to
be done,For example,the adoption of collective
action clauses can help facilitate debt restructur-
ing,but their impact is still quite limited,as they
apply only to bond debt,are not adopted in all
new issues,and do not apply to pre-2002 debt.
External debt burdens have eased for some,
but not for most
Developing countries’ burden of external debt
(public and private) declined from a peak of 45 per-
cent of GNI in 1999 to an estimated 39 percent in
2003,This improvement occurred despite an in-
crease of almost $207 billion in the nominal value
of external debt,It therefore reflects the impact of
stronger developing country performance,since the
late-1990s,GNI has grown three times faster than
external debt,Other indicators of developing coun-
tries’ vulnerability to interest and exchange rates
have improved as well,ratios of debt to exports
dropped from 135 percent in 1997 to 125 percent
in 2003.
Amid the overall improvement,the debt cir-
cumstances of individual countries differ consider-
ably,The reduction in aggregate debt burden has
been driven by large improvements in a few coun-
tries (representing about 30 percent of outstanding
debt),But in two-thirds of middle-income coun-
tries,the debt burden increased between 1997 and
2002,For nine emerging market economies in this
group (Argentina,Brazil,Indonesia,Philippines,
Poland,Russian Federation,South Africa,and
Turkey),the average deterioration in the debt/GNI
ratio was 21 percentage points,Currency revalua-
tion effects also loom large for countries with large
dollar-denominated debts (chapter 3),more than
offsetting the underlying reduction in debt stocks
through repayment for some countries.
The share of foreign direct investment (FDI)
and portfolio equity in the finance mix of many
developing countries has grown in recent years—a
6
OVERVIEW AND POLICY MESSAGES
trend that enhances stability,Equity flows ac-
counted for 80 percent of total external financing
during 1999–2003,compared with just 60 percent
during 1993–98.
The composition of external debt has changed,
with an increase in private borrowing
Developments in international capital markets and
developing countries,as well as expansion in the
investor base,have helped facilitate the private
sector’s access to international capital markets,As
a result of greater private borrowing,the share of
public sector debt in total external debt declined
from 82 percent during 1990–95 to 69 percent
during 1996–2003,At the same time,the public
sector’s emphasis on domestic sources of financing
has increased,
The reduction in the public debt share might
appear to lower sovereign vulnerability,but as the
Asian crisis demonstrated,excessively risky pri-
vate sector behavior can precipitate a crisis—and
the subsequent cleanup often blurs the lines be-
tween public and private.
The rise in domestic debt partly offsets the
reduced burden of external debt
Debt from domestic sources has grown rapidly in
emerging market economies,largely through the
development of domestic bond markets,In many
countries where external debt burdens have stabi-
lized or fallen,domestic public debt burdens have
increased (chapter 4),As a result,in many devel-
oping countries,the burden of public sector debt
remains high,calling into question the apparent
improvement associated with falling external
indebtedness.
The extent of the shift from external to do-
mestic debt has varied across regions,In Asia,fol-
lowing the market-forced retrenchment of credit
that occurred during the crisis,the switch was
rapid and intentional—the ratio of domestic to ex-
ternal debt rose from close to parity in 1997 to 3
to 1 in 2002,Initial domestic debt buildup was
driven by crisis responses (often bailouts or recapi-
talizations of failing banks),while more recent in-
creases have been driven by conscious policies to
reduce reliance on external debt (and,for many,a
buildup in foreign exchange reserves),Elsewhere,
the picture is more mixed—in Latin America,for
example,the decline in external financing since
1999 has not been matched by as large an increase
in domestic financing.
Greater domestic borrowing by the private
sector also poses dangers,High levels of domestic
credit to the private sector have been the precursor
to many financial crises,The risk is particularly
great when perceptions of risk motivate swift
changes in global asset allocations,beyond what is
warranted by underlying fundamentals,The bur-
den imposed by private sector bailouts,especially
in the financial sector,can lead to a buildup of debt
for the public sector as well,In addition,the corpo-
rate sector’s engagement in derivative-type transac-
tions can pose contingent liabilities that are at
times unanticipated,often for lack of information.
But the deepening of local bond markets
brings many benefits,Local bond markets help
finance government deficits,compensate for the
effects of holding large,low-yield reserves,and fa-
cilitate domestic monetary policy by providing a
liquid debt market to facilitate operational aspects
of monetary policy,They also strengthen the do-
mestic financial system—bond markets comple-
ment structured financing and stimulate competi-
tion,while the infrastructure required to support
them (clearing and settlement systems,regulatory
and legal frameworks) makes the entire financial
system more efficient,Domestic debt markets also
offer an increasingly attractive destination for for-
eign investors and have encouraged an important
catalytic role for international financial institu-
tions,which have often taken the lead in initiating
borrowing in developing-country currencies.
The need to balance external and domestically
financed debt has created new challenges
With the shift in the balance of external and do-
mestic debt,new challenges have emerged,On the
positive side,lower external debt reduces vulnera-
bility to external shocks (related to exchange rates
or interest rates),which in turn builds confidence
among international investors,It also can relieve
pressure on exchange rates and raise credit ratings,
leading to lower external borrowing costs and
even increased asset demand as the economy
moves into a risk class more open to institutional
investors,
But the switch to domestic debt heightens other
risks—notably the uncertainties of rolling over
short-term debt (because maturities of domestic
7
GLOBAL DEVELOPMENT FINANCE 2005
debt are generally shorter than those of external
debt),and associated interest-rate risks,To mini-
mize risk,domestic borrowing,like external bor-
rowing,must be based on sound measures for
managing public debt,a capable tax system,and
effective regulatory and legal environment for
domestic financial activity,Exchange-rate manage-
ment remains particularly crucial,because interna-
tional demand for domestic assets will be critically
affected by perceptions of the soundness of ex-
change-rate policy and concerns over volatility and
convertibility,Finally,any temptation to borrow
excessively from domestic sources needs to be re-
sisted,A debt crisis sparked by excessive domestic
borrowing can be just as devastating as one created
through external borrowing,and a domestic debt
problem can quickly grow to affect external debt.
Despite the growing sophistication of interna-
tional capital markets and a steady growth in the
capacity of central banks and monetary authori-
ties in developing countries,significant weak-
nesses remain both in the international architec-
ture that has evolved to regulate those markets
and in the quality of data available on the fast-
growing domestic debt markets in many emerging
market economies,Improving the monitoring
and dissemination of information on public and
private domestic debt flows should remain a pri-
ority for international institutions and national
authorities.
Meeting poor countries’ financing
needs requires recognition of the
countries’ special challenges
P
oor countries are operating in an external fi-
nancing environment of growing complexity.
Although ODA is still the major resource flow for
many countries,many others now receive growing
private capital flows (FDI and private debt flows,
sometimes originating in other developing coun-
tries) or other nontraditional private resource
flows (workers’ remittances and grants from non-
governmental organizations [NGOs]),Understand-
ing the differential availability of the new mix of
financing resources to individual poor countries
will be essential to efforts to maximize aid effec-
tiveness and achieve development objectives—
notably the MDGs (chapter 5).
Sources of external finance have changed
Since the early 1990s,the relative importance of
ODA as a source of external financing for poor
countries has declined,in part due to the end of
the Cold War and waning support for client states,
but also because of growing global integration
through the liberalization of financial flows,trade,
and migration,Aggregate figures mask enormous
variation among the 28 countries considered in
this study,ODA dependence ranges from a high of
36 percent of GDP in Mozambique to 2.2 percent
in Bangladesh.
But other forces were at work as well,While
ODA was declining,other sources were rising,FDI
rose from only 0.4 percent of GDP to 2.7 percent of
GDP in 2003,reflecting improving performance
and a sounder investment climate,FDI has been of
considerable importance for many poor countries—
including Lesotho,Mauritania,Moldova,and
Mozambique,Nonetheless,much FDI to poor
countries still flows to enclave mining and natural
resources projects,which may limit benefits and
add to volatility.
While not technically a capital flow,private
transfers (including NGO grants and workers’ re-
mittances) have become relatively more important
in poor countries than in other developing coun-
tries,Both are large,stable sources of foreign ex-
change for poor countries and may be more likely
than other capital flows to reach poor households.
In addition,the size and stability of such current
account flows (especially workers’ remittances)
over time may facilitate poor countries’ access to
capital markets through securitization.
Flows from other developing countries
have grown
The traditional view of developing countries
as reliant solely on financing from industrial
economies is increasingly outdated,While the
final report from Monterrey mentioned the
importance of cooperation between developing
countries only briefly,the available data suggest a
different perspective,with respect to poor coun-
tries,other developing countries (especially larger
ones such as Brazil,China,India,Saudi Arabia,
and South Africa) are increasingly important
financial players.
With wealth increasing and administrative cap-
ital controls being eased in the 1990s,developing
8
OVERVIEW AND POLICY MESSAGES
countries have also emerged as significant
sources of FDI outflows,in the form of invest-
ments by developing country firms—usually in
other developing countries,Because of proximity,
cultural similarities,and similar cost structures,
developing country firms may have advantages in
certain FDI projects,Companies from other de-
veloping countries bought assets in a broad
range of privatization deals during the 1990s,in
sectors ranging from mining to agro-business to
telecommunications.
Similarly,although aggregate numbers are still
small (and available data limited),ODA providers
are becoming more diverse,With the emergence of
new donors such as China,Brazil,South Africa,
and India,the scope of South-South development
assistance is growing,with innovative approaches
such as triangular cooperation (developed-country
financing of South-South technical cooperation)
receiving greater emphasis,
Finally,the South is the primary destination
for poor-country migrants—a large portion of
poor-country migrants in Africa and South Asia
migrate to another developing country,As a re-
sult,other developing countries (not industrial
economies) are the major source of workers’ re-
mittances to the poor countries,The countries
with the highest remittance shares are all adjacent
to larger,wealthier developing countries,an inter-
dependence that creates both opportunities and
risks.
An agenda for financing the Millennium
Development Goals
As other sources of finance grow,the development
community must continue to play the leading role
in mobilizing the external resources on which de-
veloping countries are depending to achieve the
MDGs,Action is needed on four fronts,
First,donors must fulfill commitments al-
ready made (at Monterrey and afterwards) to sub-
stantially increase ODA and other resources
needed to achieve internationally agreed develop-
ment goals,Meeting those commitments will re-
quire overcoming mounting fiscal pressures in
many donor countries and avoiding distractions
surrounding shifting strategic considerations—
so that aid can be channeled to the places that
need it most,Much of the enhanced aid effort
must be directed toward Africa,where the MDGs
will only be met by 2015 if rates of progress in-
crease considerably,The Commission for Africa
recently urged a doubling of aid to Sub-Saharan
Africa,And in February 2005,the G-7 finance
ministers reaffirmed their countries’ commitments
to helping the developing world,particularly
Africa,achieve the MDGs by 2015,That goal is
one of two main themes for discussion at the G-8
leaders’ summit scheduled for July 2005.
Second,donors should pursue efforts to make
aid flows more reliable,Recognizing that aid is
more effective when it is allocated preferentially
to countries that demonstrate a capacity to absorb
additional aid and to use it well,and that aid can-
not be expected to stabilize economic fluctuations
in recipient countries,volatility per se is inimical
to aid effectiveness,Aid has been observed to be
more volatile than GDP in recipient countries,
and more volatile than some other sources of
foreign exchange,Efforts to make it less volatile
(through vehicles such as the International Fi-
nancing Facility,for example) could enhance its
effectiveness.
Third,donors (both developed and develop-
ing) and recipients should press for better donor
coordination,selectivity,and country ownership
to improve the effectiveness of aid,and increase
the focus on results,Significant progress has been
made on this agenda over the last decade,but
there is still enormous duplication among donors
and a wide variation among them in terms of se-
lectivity,As efforts are made to scale up interven-
tions to achieve the MDGs,the relevance of initia-
tives targeting coordination and effectiveness will
grow even further,
Fourth,the development community should
support policies that could facilitate better market
access for poor countries and encourage invest-
ment through expanding risk-mitigation instru-
ments to stimulate and build on private-sector
participation,Most important,poor countries
themselves need to pursue effective economic and
pro-poor policies,There is clear and growing evi-
dence of a link between reforms in governance,an
improved investment climate,and growth in re-
source inflows of all types—FDI,official flows,
and even remittances,Poor countries should con-
tinue their efforts to improve the investment cli-
mate not only to attract more resources,but also
to ensure their effective use.
9
GLOBAL DEVELOPMENT FINANCE 2005
As a final point,the question of whether ro-
bust growth in developed and developing coun-
tries can be sustained over the medium term has
potentially important implications for attaining
the MDGs,A central concern underlying the
global economic outlook over the medium term
is whether the current large external payments
imbalances will unwind in an orderly manner.
Collective policy actions by developed and devel-
oping countries alike will continue to play a
prominent role,A multifaceted,cooperative
approach involving all countries is essential to
rebalance the world economy on a path of sus-
tainable growth.
10
1
Financial Flows to Developing Countries:
Recent Trends and Near-Term Prospects
T
HE GLOBAL RECOVERY BROADENED
in 2004,boosting world gross domestic
product (GDP) by an estimated 3.8 percent—
the highest rate in four years and up sharply from
2.5 percent in 2003 and 1.7 percent in 2002.
1
Grad-
ual realignment of stimulative monetary policies in
many advanced countries led to modest increases in
short-term interest rates during the year (particu-
larly in the United States),but long-term rates
remained low in most advanced and developing
countries,particularly when adjusted for inflation.
Macroeconomic objectives were attained in most
developing countries,and progress was made on key
structural reform initiatives,These favorable exter-
nal and domestic factors contributed to strongly im-
proving economic fundamentals,as reflected in a
record expansion in developing-world GDP growth
(6.6 percent in 2004,much higher than the global
average),upgrades in credit ratings,and a reduction
in emerging-market bond spreads to near record
lows by the end of the year.
Against this favorable backdrop,capital flows
to developing countries continued to expand in
2004,following a strong rebound in 2003,This
chapter examines key developments and emerging
trends in the various components of capital flows
and considers the outlook for continued short-
term gains,Among our main findings:
The pickup in capital flows to developing
countries over the past two years has coin-
cided with a dramatic improvement in their
current account balances,Developing coun-
tries continue to export capital to developed
countries (mostly the United States) in the
form of rapidly growing accumulations of
foreign reserves.
13
.
Flows of foreign direct investment (FDI)
into developing countries have become in-
creasingly concentrated,while FDI outflows
from developing countries have increased
dramatically,
Most emerging market economies have taken
advantage of favorable financing conditions
over the past few years to restructure their debt.
Strong gains in private capital flows over the
past few years have been partly offset by de-
clining official flows arising from large repay-
ments to bilateral and multilateral creditors,
Within official flows,the shift from loans to
grants has accelerated,with the decline in net
official lending more than offset by the in-
crease in bilateral aid grants,but not to the
extent of official aid commitments,More re-
sources are needed to support efforts to reach
the MDGs.
Capital flows to developing countries
Capital flows continue recovery,
but pace slows
N
et capital flows increased by $42 billion in
2004,continuing the recovery that began in
2003,although at a slower pace than the $81 bil-
lion rebound of 2003 (figure 1.1 and table 1.1).
Private and official net debt flows reached a record
high of $324 billion in 2004,up significantly from
$200 billion during 2000–2 and just above the
$323 billion level reached in 1997.
The pickup in net capital flows over the past
two years appears more modest after taking into
account inflation,economic growth,and the size-
able depreciation of the dollar against most major
GLOBAL DEVELOPMENT FINANCE 2005
currencies,The offsetting impact of these factors
can be captured by measuring capital flows as a
percentage of GDP in the recipient countries (fig-
ure 1.2),From this perspective,recent perfor-
mance has been less robust,net capital flows to
developing countries equaled 4.5 percent of their
GDP in 2004,up slightly from 4.3 percent in
2003,but significantly below highs of more than
6 percent reached in the mid-1990s.
Developing countries continue
to export capital
Current account balances in developing coun-
tries continue to strengthen,swelling from a
slight deficit in 1999 to a surplus of $153 billion
in 2004,That surplus was equal to 2.0 percent
of their GDP (table 1.1),up from 1.8 percent
14
Figure 1.1 Financial flows to developing
countries,1990–2004
$ billions
0
50
100
150
200
250
300
350
1990 1992 1994 1996 1998 2000 2002 2004
Sources,World Bank Debtor Reporting System and staff estimates.
Total net capital flows
Net private flows
Net official flows
Table 1.1 Net capital flows to developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
Current account balance H1100283.6 H1100287.2 H1100293.7 H110028.0 43.6 16.9 72.0 112.8 152.7
as % of GDP H110021.7 H110021.7 H110021.6 H110020.1 0.8 0.4 1.3 1.8 2.0
Financed by:
Net equity flows 161.4 190.6 178.1 195.1 178.6 180.9 159.8 176.6 192.3
Net FDI inflows 128.6 168.1 171.5 182.4 166.2 174.8 154.0 151.8 165.5
Net portfolio equity inflows 32.9 22.6 6.6 12.7 12.4 6.0 5.8 24.8 26.8
Net debt flows 123.7 106.9 54.9 15.4 H110026.2 H110023.5 8.9 62.2 84.1
Official creditors 3.8 12.9 34.4 13.9 H110025.8 27.0 5.2 H1100211.6 H1100224.9
World Bank 7.3 9.2 8.7 8.8 7.9 7.5 H110020.2 H110021.2 H110021.4
IMF 1.0 3.4 14.1 H110022.2 H1100210.7 19.5 14.0 2.4 H1100210.9
Others H110024.5 0.4 11.6 7.3 H110023.0 0.0 H110028.6 H1100212.8 H1100212.7
Private creditors 119.9 94.0 20.5 1.5 H110020.4 H1100230.5 3.7 73.8 109.0
Net medium- and long-term debt flows 82.5 84.8 85.0 21.6 7.4 H110026.6 0.9 24.9 55.4
Bonds 49.5 38.2 39.7 29.8 17.5 11.0 11.2 28.1 63.0
Banks 30.7 43.8 50.4 H110026.8 H110025.8 H1100211.0 H110023.8 3.1 H110021.8
Others 2.3 2.9 H110025.2 H110021.5 H110024.3 H110026.5 H110026.5 H110026.3 H110025.7
Net short-term debt flows 37.4 9.2 H1100264.5 H1100220.1 H110027.9 H1100223.9 2.8 48.9 53.6
Balancing item
a
H11002111.2 H11002157.5 H11002122.9 H11002169.1 H11002169.1 H11002112.5 H1100269.0 H1100259.9 H1100250.9
Change in reserves H1100290.4 H1100252.9 H1100216.3 H1100233.4 H1100246.8 H1100281.7 H11002171.7 H11002291.9 H11002378.2
(H11002H11005increase)
Memo items:
Total foreign aid (grants)
(ex technical cooperation grants) 26.7 25.3 26.7 28.5 28.7 27.9 32.2 43.4 47.4
Net private flows (debt H11001 equity) 281.3 284.6 198.6 196.6 178.1 150.3 163.5 250.4 301.3
Net official flows (aid H11001 debt) 30.5 38.2 61.1 42.4 23.0 54.9 37.4 31.7 22.5
Total net capital flows (private and offical) 311.8 322.8 259.6 239.1 201.1 205.2 200.9 282.1 323.8
Note,e H11005 estimate
a,Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
Sources,World Bank Debtor Reporting System and staff estimates; IMF,Balance of Payments Yearbook,various years; and Dealogic Bondware
and Loanware.
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
in 2003,Current account surpluses in the devel-
oping world are a dramatic change from previ-
ous decades,when the developing countries as a
group consistently ran modest current account
deficits (figure 1.3) that averaged 1.4 percent of
their GDP from 1976 to 1999,The swing in the
current account is even more dramatic in low-
income countries,where current account deficits
averaged 2.3 percent of GDP in 1976–99
(figure 1.3).
The pace of reserve accumulation accelerates
The dramatic current account surpluses chalked
up in the past few years have been used primarily
to accumulate foreign exchange reserves,rather
than to finance productive domestic investments.
That trend accelerated last year,as foreign re-
serve accumulation in developing countries con-
tinued to finance a large share of the U.S,current
account deficit in 2004,Foreign reserves held by
developing countries grew by $378 billion in
2004 (4.9 percent of GDP),following a $291 bil-
lion (4.1 percent of GDP) increase in 2003.
Meanwhile,the U.S,current account deficit bal-
looned from $531 billion in 2003 (4.8 percent of
GDP) to $666 billion in 2004 (5.6 percent of
GDP).
The acceleration in reserve accumulation was
highly concentrated in just a few countries.
2
China
accounted for more than half of the increase in
2004,with foreign reserves increasing by $207
billion,China’s share of developing-country reserve
holdings rose from 33 percent in 2003 to 38 percent
in 2004.
Strong gains in private flows were partly offset
by declining official flows
The pickup in net capital flows over the past few
years (measured in dollars) reflects strong gains in
net private flows as well as declines in net official
flows (figure 1.1),Net private flows (debt and eq-
uity) have grown by a cumulative total of $140
billion since 2001,rising from 3.8 to 4.2 percent
of GDP—still below the high of 5.2 percent
reached in 1996 (figure 1.2),In contrast,net offi-
cial flows (concessional aid and long-term debt)
have declined by a cumulative total of $32 billion
since 2001 (from 1.0 to 0.3 percent of GDP),The
$20 billion increase in bilateral aid that has oc-
curred has been eclipsed by a $52 billion decline in
net official lending,which reflects large repay-
ments made to multilateral and bilateral creditors.
From a historical perspective,the recent decline in
net official flows continues a downward trend that
began in the early 1990s (figures 1.1 and 1.2).
Capital flows from the private sector
Debt and equity flows showed modest gains
N
et private flows (debt and equity) increased
by $51 billion in 2004,following a $87 bil-
lion surge in 2003,The modest gains in 2004
were split between net debt and equity flows
(figure 1.4).
15
Figure 1.2 Financial flows to developing
countries as a percentage of GDP,1990–2004
% GDP
0
1
2
3
4
5
6
7
1990 1992 1994 1996 1998 2000 2002 2004
Sources,World Bank Debtor Reporting System and staff estimates.
Total net capital flows
Net private flows
Net official flows
Figure 1.3 Current account balance of developing
countries,1976–2004
% GDP
H110026
H110024
H110025
H110023
H110022
H110021
0
1
2
3
1976 1980 1984 1988 1992 1996 2000 2004
Sources,IMF; World Bank staff estimates.
All developing countries
Low-income countries
GLOBAL DEVELOPMENT FINANCE 2005
Net equity flows increased by $16 billion in
2004,reaching $192 billion in 2004,marginally
below the $195 billion peak attained in 1999,Net
equity flows have been stable at 2.7 percent of
GDP since 2002,below the high of 3.7 percent at-
tained in 1999.
Net private debt flows increased by $35 bil-
lion in 2004,reaching $109 billion,up signifi-
cantly from a low of –$30 billion recorded in
2001,but still below the high of $120 billion
recorded in 1995,As a percentage of GDP,net
debt flows increased from –0.5 percent in 2001 to
1.4 percent in 2004 (compared to the high of
2.3 percent reached in 1995).
Equity flows have been much more stable
than debt flows since the late 1990s (figure 1.4).
Why? First,FDI inflows—the largest component
of equity flows—have been much more stable than
flows of debt and portfolio equity (figures 1.4 and
1.5).
3
Second,net FDI and portfolio equity flows
have been negatively correlated over the past few
years,
4
so that the sum (net equity flows) becomes
even more stable,This negative correlation reflects
the substitutability of the two categories of equity.
For example,mergers and acquisitions often in-
volve reclassifying portfolio equity claims as FDI
claims,which entails offsetting changes in net FDI
and portfolio equity flows.
5
FDI is increasingly concentrated
Economic conditions over the past few years have
favored FDI inflows to developing countries,The
investment climate in many developing countries
has improved markedly,with higher corporate
earnings,liberalization of foreign ownership rules,
and a stronger global recovery,In response to
these improvements,net FDI inflows to developing
countries increased by $14 billion (9 percent) in
2004,partly reversing a $23 billion cumulative
decline in the previous two years (figure 1.5).
The increase was spread across most regions,
with the exception of the Middle East and North
Africa (table 1.2),In Latin America,a $6 billion re-
bound reversed substantial declines in the previous
four years and raised Latin America’s share of net
FDI inflows to developing countries slightly from
25 percent in 2003 to 26 percent in 2004,still well
below the share of 48 percent the region reached in
1999–2000,The East Asia and Pacific region
16
Figure 1.4 Financial flows to developing countries
from the private sector,1990–2004
$ billions
H1100250
0
50
100
150
200
250
1990 1992 1994 1996 1998 2000 2002 2004
Sources,World Bank Debtor Reporting System and staff estimates.
Net equity flows
Net debt flows
Figure 1.5 Net equity flows to developing
countries,1990–2006
$ billions
0
50
100
150
200
1990 1992 1994 1996 1998 2000 2002 20062004
Sources,World Bank Debtor Reporting System and staff estimates.
Net FDI inflows
Net portfolio equity
Projection
Table1.2 Regional composition of net FDI inflows
to developing countries,2002–4
$ billions
2002 2003 2004e
All developing countries 154.0 151.8 165.5
Regional composition
East Asia and Pacific 55.6 59.6 63.6
of which China 49.3 53.5 56.0
Latin America and Caribbean 45.7 36.5 42.4
East Europe and Central Asia 35.0 35.6 37.6
Sub-Saharan Africa 9.0 10.1 11.3
South Asia 4.8 5.2 6.5
Middle East and North Africa 3.8 4.8 4.1
Note,e H11005 estimate
Sources,World Bank Debtor Reporting System and staff estimates.
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
received a $4 billion increase in FDI inflows in
2004,bringing its share of FDI flows to the develop-
ing world to 38 percent,down slightly from 2003
but still substantially above the 27 percent average
share for the period 1999–2001,FDI to Europe and
Central Asia has stabilized over the past three years
at 23 percent of the developing-world total,signifi-
cantly above its 9 percent share in 1994.
The widely distributed regional gains in FDI in-
flows mask concentration at the country level,Fully
88 percent of the estimated increase in net FDI
flows to developing countries in 2004 went to five
countries—Brazil,China,India,Mexico,and the
Russian Federation,To understand this pattern,re-
member that several of these countries—China,
India,and the Russian Federation—grew signifi-
cantly faster than other developing countries,The
same five account for just over 60 percent of net
FDI inflows in 2004,up from 57 percent during the
previous three years,China accounted for one-third
of net FDI inflows to all developing countries
6
(down from 35 percent in 2003) and for almost
90 percent of net FDI inflows to the East Asia and
Pacific region,a share unchanged from its average
of the previous three years.
The share of net FDI inflows going to low-
income countries increased substantially over the
past four years,rising from a low of less than 7 per-
cent in 2000 to almost 11 percent in 2003/04,the
highest level in the past 15 years (figure 1.6),The
increase reflects strong gains in FDI in India’s ser-
vice sector and in the oil and gas sectors of a few
African countries (Angola,Chad,Equatorial
Guinea,and Sudan),The share of FDI going to the
least developed countries has shown steady gains
over the past 10 years,rising from a low of 1 per-
cent in 1994 to just under 5 percent in 2003/04.
7
FDI outflows from developing countries
increased dramatically
Faced with growing competition and limited mar-
kets at home,many companies in developing
countries have sought to expand their operations
abroad,Relaxed controls on capital outflows have
allowed them to pursue global investment oppor-
tunities more aggressively in recent years,As a
consequence,FDI outflows from developing coun-
tries have swelled over the past few years,rising
from $3 billion (0.1 percent of GNI) in 1991 to
$16 billion (0.3 percent of GNI) in 2002,and
then surging to an estimated $40 billion (almost
0.6 percent of GNI) in 2004 (figure 1.7),
The increase in FDI outflows is concentrated
in many of the same countries that receive the bulk
of FDI inflows to developing countries—Brazil,
China,India,Mexico,and the Russian Federa-
tion).
8
However,the correspondence between
developing-country shares of FDI inflows and
outflows is not very tight,For example,China
accounted for one-third of FDI inflows to develop-
ing countries in 2004,but less than 10 percent of
the estimated outflows.
Much of the surge in FDI outflows in recent
years can be traced to developing countries
17
Figure 1.6 Share of net FDI inflows to low-income
and least developed countries,1990–2004
% net FDI flows to developing countries
0
2
4
8
6
10
12
1990 1992 1994 1996 1998 2000 2002 2004
Sources,World Bank Debtor Reporting System and staff estimates.
Low-income countries
Least developed countries
1990 199619941992 1998 2002 20042000
Sources,World Bank Debtor Reporting System and staff estimates.
0
1.0
0.7
0.8
0.9
0.5
0.6
0.4
0.3
0.2
0.1
40
25
30
35
0
5
10
15
20
Figure 1.7 FDI outflows from developing countries,
1990–2004
$ billions
$ billions
% GNI
% GNI
GLOBAL DEVELOPMENT FINANCE 2005
investing abroad in developed countries,as well as
other developing countries.
9
This has enabled
companies to expand and diversify their opera-
tions across a wider spectrum of countries and
provide greater scope for diffusion of technical in-
novation and managerial expertise.
Because of the poor quality and coverage of
data on FDI outflows from developing countries
(many developing countries do not even record
statistics on FDI outflows),the reported figures
are substantial underestimates.
10
The quality and
country coverage of the data are improving,how-
ever,and measurement improvements almost
certainly account for some of the increase in
reported FDI outflows over the past few years,as
shown in figure 1.7.
Prospects for net FDI flows
The short-term prospects are good for further mod-
est gains in FDI inflows to developing countries,As
18
C
apital flows to developing countries are in one of three
major currencies—the dollar (the most common),
the euro,or the Japanese yen,Transactions in currencies
other than the dollar are typically converted into dollars
to facilitate comparison,The exchange rate used in the
conversion can have a major influence on comparisons
across countries and over time.
To illustrate,consider a case in which transactions are
made in euros,A €1 billion transaction would have been
valued at $0.88 billion in February 2002,but $1.34 billion
in December 2004—a 52 percent increase caused by the
depreciation of the dollar against the euro,
In the simple case where the recipient country’s
exchange rate is fixed to the euro and it trades exclusively
with euro zone countries,the purchasing power of capital
flows is best measured in euros,Converting the euro
value to dollars in such cases greatly overstates the
purchasing power of capital flows,
In general,the purchasing power of capital flows will
depend on the recipient country’s exchange-rate regime,as
well as the response of domestic prices to changes in the
exchange rate,This can be captured by comparing the
value of capital flows received with the value of goods and
services that the recipient country produces,as measured
by its GDP,Returning to the simple example outlined
above,the 52 percent appreciation of the euro against the
dollar would have no effect on capital flows measured as
apercentage of GDP.
Measuring capital flows as a percentage of GDP also
takes into account inflation and economic growth,The
value of GDP in developing countries,measured in dollars,
has grown at an average annual rate of 7.6 percent over
the past 40 years,which reflects an average real growth
rate of 4.2 percent and an implicit average inflation rate
of 3.4 percent (measured in dollars),Meanwhile,the value
of capital flows to developing countries (again measured in
dollars) has increased at an average annual rate of 9 per-
cent,thereby exceeding the rate of real economic growth
and inflation by 1.4 percentage points on average,This
indicates that the value of capital flows has not only
maintained its purchasing power relative to the general
price level (inflation),but also has increased faster than
the expansion in real economic activity.
The distinction between measuring capital flows in
dollars and as a percent of GDP is well illustrated with
reference to net FDI flows to developing countries,as
shown in the figure,Net FDI inflows are projected to
increase from $152 billion in 2003 to a record high of
$195 billion in 2006,The projected average growth rate
of 9 percent is similar to that projected for GDP; hence,
net FDI inflows are projected to be constant as a share of
GDP,They are not expected to meet or exceed the level of
3 percent of GDP observed in the late 1990s.
Box 1.1 Measuring capital flows in dollars versus as a
percentage of GDP
0
50
150
200 5
0
1
2
3
4
Net FDI flows to developing countries,1990–2006
$ billions
2000 2002 2004 20061990 1992 1994 1996 1998
Sources,World Bank Debtor Reporting System and staff estimates.
100
% GDP
Projection
$ billions
% GDP
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
economic fundamentals strengthen further and
countries continue to implement policies designed
to attract investment,the climate should continue to
improve,especially with regard to liberalization of
restrictions on foreign ownership (notably in India).
Econometric projections based on economic
fundamentals indicate that over the next two years,
FDI inflows will grow at the 9 percent rate recorded
in 2004,keeping net FDI inflows at about 2.3 per-
cent of developing-country GDP (see box 1.1).
11
Small gains in portfolio equity flows in the
face of volatile equity prices
Net portfolio equity flows registered a small in-
crease of $2 billion in 2004,following a surge of
$19 billion in 2003,The $21 billion increase over
the past two years was spread across most regions,
with the exception of Latin America and the
Caribbean,where flows dropped by $5 billion in
2004,after increasing by $2 billion in 2003
(table 1.3),Almost half of the global gains of
the past two years came in the East Asia and Pacific
region ($9.5 billion),China dominated,with a
$8.3 billion increase,accounting for almost 40 per-
cent of net portfolio equity flows to all developing
countries in 2004,There were also strong gains in
South Asia,where India recorded a $6.4 billion in-
crease over the past two years,bringing its share to
one-third of the total for the developing world.
Portfolio equity flows continue to be highly
concentrated in just a few countries—China,India,
and South Africa together accounted for 82 percent
of all portfolio equity flows to developing countries
in 2004,close to their average share for the past
five years (85 percent),Eleven percent of portfolio
equity flows to developing countries went to low-
income countries,up from 7 percent five years ago,
while 5 percent went to the least-developed coun-
tries,up from 3 percent five years ago.
The strong rebound in portfolio equity flows
in 2003,followed by small gains in 2004,rode the
back of large swings in emerging-market equity
prices,Equity prices rallied strongly throughout
much of 2003,followed by a sizeable correction in
the first half of 2004 and then a rebound in the
second half of the year (figure 1.8).
The large swings in equity prices over the year
were mirrored in investments in emerging-market
equity funds,Inflows reached $3.1 billion in the
first quarter,reversed quickly to net outflows of
$1.4 billion between May and August,and then
recovered partially to finish the year with net in-
flows of $0.4 billion,Average returns on equity in
emerging markets have been higher than in ma-
ture markets over the past two years (figure 1.8),
but prices have been much more volatile,Major
divergences in equity prices have occurred across
regions,with emerging Europe and Latin America
outperforming emerging Asia by a wide margin.
The ongoing shift from bank to bond finance
Net medium- and long-term lending by banks to de-
veloping countries has been on the decline since the
late 1990s,as bond issuance has risen,Net medium-
and long-term bank lending declined by $2 billion
in 2004,following a $3 billion increase in 2003 and
declines averaging $7 billion during the previous
four years (figure 1.9),In contrast,medium- and
19
Table 1.3 Regional composition of net portfolio
flows to developing countries,2002–4
$ billions
2002 2003 2004e
All developing countries 5.8 24.8 26.8
Regional composition
East Asia and Pacific 4.0 11.8 13.6
of which China 2.2 7.7 10.5
Latin America and Caribbean 1.4 3.4 H110021.5
East Europe and Central Asia H110020.1 0.6 3.6
Sub-Saharan Africa H110020.4 0.7 3.5
South Asia 1.1 8.2 7.5
Middle East and North Africa H110020.2 0.1 0.2
Note,e H11005 estimate
Sources,World Bank Debtor Reporting System and staff estimates.
Figure 1.8 Equity price indexes,2003–4
Index (Jan,2003 H11005100)
80
100
120
140
160
180
Jan.
2003 2004
Apr,Jul,Oct,Jan.
2005
Jan.Apr,Jul,Oct.
Sources,J.P,Morgan Chase and Standard and Poor’s.
MSCI emerging market
MSCI world
S&P 500
GLOBAL DEVELOPMENT FINANCE 2005
long-term net bond flows rebounded sharply over
the past two years,increasing by a total of $52 bil-
lion,reaching a record high of $63 billion in 2004.
Gross bond financing also increased dramatically
over the past two years,exceeding gross bank lend-
ing for the first time (figure 1.10).
Bank lending continues to cater to a wide
array of developing countries’ financing needs,de-
spite the declines in net lending over the past six
years,Twice as many countries tapped this segment
of the debt markets in 2004 than the bond financ-
ing segment,The private corporate sector accounts
for a growing share of bank credit to developing
countries,That share increased to 67 percent in
2004,compared with 57 percent in 2003,In com-
parison,the private sector accounted for only a
third of total developing-country bond financing.
The strong gains in bond issuance over the
past two years reflect both,push” and,pull”
factors that sparked investors’ interest in the
emerging-market asset class,Low interest rates in
advanced countries propelled a search for yield
in higher-risk assets,while improved fundamentals
in most emerging-market economies lowered
investors’ assessment of default risk significantly.
Emerging market bond markets exhibited
volatility in the first half of 2004,matching that in
portfolio equity,In April/May,bond spreads
widened by about 125 basis points as various indi-
cators suggested that the global recovery was
stronger than anticipated (particularly in the
United States and Japan),which raised concerns
that central banks would be forced to raise interest
rates abruptly,These concerns dissipated over the
course of the year,however,as it became evident
that the global recovery was decelerating and inter-
est rate increases would be implemented gradually.
Emerging-market bond spreads narrowed over the
second half of 2004—despite increases in short-
term interest rates in many advanced countries (the
United States in particular),The Emerging Markets
Bond Index (EMBI) spread narrowed from a peak
of 550 basis points in May to below 350 basis
points in December,the lowest level since 1997 (fig-
ure 1.11),The last time that the EMBI spread was
below 500 basis points was in April 1998,just be-
fore the sharp increase to almost 1,500 basis points
in August 1998,in the wake of the financial crisis in
the Russian Federation.
Some emerging market economies,particu-
larly in Latin America,had difficulties accessing
external capital markets when bond spreads
widened suddenly in the spring,Since then,bond
issuance by developing countries has been resilient,
even in the face of heightened economic and geopo-
litical uncertainty,The narrowing of bond spreads
to near record lows indicates that the transition to
higher interest rates in most advanced countries
over the course of the year and the significant
increase in world oil prices have had little impact
to date on investors’ assessment of risk in the
emerging-market asset class,Investors’ sanguine
assessment is also reflected in improved credit
ratings for many emerging market economies.
20
Figure 1.9 Net private debt flows to developing
countries,1990–2004
$ billions
H1100220
H1100210
0
10
20
30
40
50
60
70
Net bond flows
Net bank lending
1990 1992 1994 1996 1998 2000 2002 2004
Sources,World Bank Debtor Reporting System and staff estimates.
Figure 1.10 Gross private flows to developing
countries,1990–2004
$ billions
0
25
50
75
100
150
175
125
1990 1992 1994 1996 1998 2000 2002 2004
Sources,Dealogic Bondware and Loanware.
Gross bank lending
Gross bond issuance
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
Prospects for private debt flows
The outlook for private debt financing is expected
to remain quite positive in the short run,but could
become less benign over the medium term,How-
ever,the probability of a generalized credit com-
pression or major retrenchment remains low.
The dynamics of both the supply of capital by
investors and the demand for funds by developing
countries are likely to dampen flows in 2005.
Creeping tensions in pricing may put pressure on
benchmark spreads to widen,while rising bench-
mark rates used in pricing bank loans (the Libor,
in particular) may also curtail loan financing,In
addition,uncertainty surrounding the future path
of interest rates may raise market volatility and
further discourage bond issuance,Given the com-
petitive pricing of developing-country risk,oppor-
tunistic profit-taking by investors may also exert
occasional pressures on spreads to widen,
The supply of capital for developing countries
may be affected by new,high-yield investment
opportunities in the developed world,Improved
corporate profitability in industrial countries,
particularly for firms in high-yield sectors,would
sharpen competition for investment funds,At the
same time,the lingering weakness in global equity
markets,especially in the technology sector,could
erode investor sentiment,reducing appetite for
risk,
The prospect of higher interest rates in ad-
vanced countries continues to pose a major down-
side risk,Although short- and long-term interest
rates in the United States and the euro zone remain
relatively low,particularly when adjusted for infla-
tion,the monetary tightening that began in the
United States in June 2004 has brought higher
short-term rates,To date,long-term rates have
shown little movement,In fact,the yield on the
benchmark 10-year U.S,Treasury note decreased
by 50 basis points between June and December,
while the yield on one-month U.S,Treasury bills
increased by 100 basis points,Monetary condi-
tions in the United States are expected to continue
to tighten gradually over the balance of the year as
the slack in the U.S,economy is reduced,The risk
of an abrupt increase in U.S,interest rates remains
a serious concern,Large,sudden movements in
long-term rates,in particular,could provoke a
sharp widening of emerging-market bond spreads.
The potential impact of global imbalances on
exchange rates also clouds the prospects for pri-
vate capital flows to developing countries,Abrupt
movements in exchange rates—as in interest
rates—could cause emerging-market bond spreads
to widen dramatically,which could have signifi-
cant implications for those emerging market
economies that have high debt burdens and heavy
financing needs (see chapter 3).
On the upside,most developing countries are
now less vulnerable to a sudden shift in investor
sentiment than they were a few years ago,The ex-
ternal and domestic credit quality of many coun-
tries has improved significantly over the past few
years,Moreover,there has been a marked decline
in speculative positions in emerging-market assets
over the past 10 years.
Favorable financial conditions have enabled
many emerging market economies to prefinance a
significant portion of their external funding re-
quirements for 2005,Some countries have also
taken the opportunity to strengthen their debt man-
agement by issuing a higher proportion of bonds
that have longer maturities,are denominated in do-
mestic currency,or are not indexed to the exchange
rate,inflation,or short-term interest rates,In addi-
tion,many emerging market economies have
accumulated additional foreign reserves over
the past year (see chapter 3),Taken together,these
initiatives should make many emerging market
economies less vulnerable to the risk of a sharp
deterioration in financing conditions.
Contagion is always a possibility,but it is less
likely than in earlier periods,as investors appear to
21
Figure 1.11 Emerging-market bond spreads,
1997–2004
EMBI (global) in basis points
300
500
700
900
1,100
1,300
1,500
1997 1998 1999 2000 2001 2002 2003 2004 2005
Source,J.P,Morgan Chase.
GLOBAL DEVELOPMENT FINANCE 2005
be more discerning in assessing risks across coun-
tries,Thus,while pressures on pricing remain,the
probability of a sharp sell-off of emerging-market
debt remains limited.
Capital flows from the official sector
Shift from loans to grants accelerates
O
fficial flows of development finance have
shown a dramatic shift from loans to grants
over the past three years (figure 1.12),Foreign aid
grants have increased by a cumulative total of
$20 billion during the period,while net official
lending has declined by $52 billion—implying a
$32 billion decline in net official flows (aid and
lending combined).
Most of the decline in net official lending over
the past three years can be attributed to a cumula-
tive $30 billion decline in net lending by the IMF,
which reflects net repayments to the IMF of large
disbursements of emergency assistance in 2001—
mainly to Argentina,Brazil,and Turkey,Net lend-
ing by bilateral donors declined by a cumulative
total of $14 billion over the past three years,largely
from the shift in funding from loans to grants and
because of prepayments by some developing coun-
tries of earlier debt obligations to the Paris Club,In
addition,net lending by the World Bank fell by a
cumulative total of $9 billion over the three years as
some developing countries (notably China,India,
and Thailand) repaid a portion on their loans
ahead of schedule,while other developing countries
(notably Argentina,Indonesia,and the Russian
Federation) repaid structural adjustment loans
made in the midst of financial crises in the late
1990s.
Net official debt flows,then,have been domi-
nated by cycles in medium-term (three- to five-
year) financing to developing countries in crisis
and by unscheduled repayments (prepayments) on
bilateral and multilateral loans,A better measure
of the resources available to finance countries’
long-term development needs is provided by offi-
cial development assistance (ODA),because ODA
is defined by the Development Assistance Commit-
tee (DAC) of the Organisation for Economic Co-
operation and Development (OECD) as aid grants
and concessional loans made by donor govern-
ments and multilateral agencies for the purpose of
promoting economic development and welfare.
Progress on official aid commitments
ODA data for 2004 will not be available until April
2005,In 2003,ODA increased by $10 billion to
reach $69 billion,following a $6 billion increase in
2002 (table 1.4),This represents a nominal increase
of 18 percent in 2003,following a 2002 increase of
11 percent,But in real terms (adjusting for inflation
and exchange-rate changes),ODA increased by just
5 percent in 2003 and 7 percent in 2002.
Strategic factors continue to play a major role in
the allocation of ODA across recipient countries,In
particular,the share of bilateral ODA disbursements
to five countries—Afghanistan,Colombia,Iraq,
Jordan,and Pakistan—has increased from 3 percent
on average during 1980–2000 to more than 6 per-
cent in 2001–2,and more than 11 percent in 2003.
Reconstruction aid to Iraq alone totaled $2.2 billion
in 2004,Although the scope for improved aid effec-
tiveness has improved in some of those countries,
such changes alone cannot account for the size of the
increase in their shares of ODA.
From the perspective of the recipient coun-
tries,net ODA flows have grown gradually over
the past few years,ODA has been quite stable as a
share of GDP in recipient countries,averaging just
over 1 percent since 1996,below the high of
2 percent reached in 1991 (figure 1.13),For the
poorest recipient countries (excluding those in
conflict or postconflict),ODA has averaged just
over 2 percent since 1996,well below the high of
3.7 percent in 1992.
Half of net ODA flows in 2003 were com-
prised of special-purpose grants,which include
22
Figure 1.12 Official debt flows and foreign aid
grants,1990–2004
$ billions
H1100230
H1100220
H1100210
10
0
30
40
50
20
1990 1992 1994 1996 1998 2000 2002 2004
Source,World Bank Debtor Reporting System.
Foreign aid grants
Net debt flows from official sector
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
0.7 percent of GNI,The bilateral portion of ODA
(less special-purpose grants) declined from 0.06 per-
cent of GNI in 2000 to just under 0.05 percent in
2003,well below the 0.12 percent level reached
in 1990.
13
Prospects for development aid
The World Bank’s International Development As-
sociation (IDA) helps the poorest countries allevi-
ate poverty by providing interest-free loans and
some grants for programs aimed at boosting eco-
nomic growth and improving living conditions.
The fourteenth replenishment of IDA (IDA14),
finalized in late February 2005,set a positive tone
for future development financing.
During the replenishment negotiations,donor
countries stressed the importance of several key
initiatives,
A new system for allocating IDA grants based
on countries’ risk of debt distress
A strong focus on growth,private sector de-
velopment,and infrastructure
A results-measurement system for IDA14
Increased transparency and accountability,
including the disclosure of IDA’s country per-
formance assessments
Measures to strengthen coordination and har-
monization among development partners.
Financial resources provided by IDA over the com-
ing three years are set to increase by 25 percent at a
minimum—the largest expansion in IDA resources
in more than two decades,The proportion of
IDA resources provided through grants is set to
increase from about 19 percent over the thirteenth
23
Table 1.4 Net official development assistance (ODA) from principal donor countries,1990–2003
$ billions
Percent change in
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 real terms in 2003
a
Total ODA 54.3 58.3 62.4 56.1 58.8 58.8 55.6 48.5 52.1 53.2 53.7 52.4 58.3 69.0 4.8
G-7 countries 42.4 45.6 48.6 44.6 46.6 44.7 41.3 35.1 38.6 39.4 40.2 38.2 42.6 49.9 6.3
United States 11.4 11.3 11.7 10.1 9.9 7.4 9.4 6.9 8.8 9.1 10.0 11.4 13.3 16.3 20.4
Japan 9.1 11.0 11.2 11.3 13.2 14.5 9.4 9.4 10.6 12.2 13.5 9.8 9.3 8.9 H110029.2
France 7.2 7.4 8.3 7.9 8.5 8.4 7.5 6.3 5.7 5.6 4.1 4.2 5.5 7.3 8.7
Germany 6.3 6.9 7.6 7.0 6.8 7.5 7.6 5.9 5.6 5.5 5.0 5.0 5.3 6.8 5.3
Non-G-7 countries 11.8 12.7 13.8 11.5 12.2 14.1 14.3 13.3 13.5 13.8 13.5 14.2 15.6 19.1 0.5
memo item:
EU countries 28.3 30.3 33.5 29.5 30.1 31.2 31.4 26.8 27.6 26.7 25.3 26.4 30.0 37.1 3.0
a,Takes into account inflation and exchange-rate movements.
Source,OECD Development Assistance Committee.
Figure 1.13 ODA as a percentage of GDP in
recipient countries,1990–2003
% GDP
0
1
2
3
4
1990 1992 1994 1996 1998
All developing countries
Poorest countries
2000 2002
Source,OECD Development Assistance Committee.
technical cooperation,debt forgiveness,emergency
and disaster relief,and administrative costs.
Although special-purpose grants are an essential
element of the development process and have
budgetary consequences for donor countries,they
do not provide additional financial resources to
recipient countries to support programs that are
needed to achieve the Millennium Development
Goals (MDGs).
12
Once special-purpose grants are subtracted
from the bilateral portion of ODA,development aid
declined slightly in 2003 (in nominal terms),after
increasing by about $1 billion in 2002 (table 1.5).
Total ODA increased from 0.22 percent of GNI
in the DAC donor countries in 2001 to 0.25 per-
cent in 2003,but it remains significantly below the
0.34 percent level reached in the early 1990s
(table 1.5) and well below the UN target level of
GLOBAL DEVELOPMENT FINANCE 2005
replenishment to an estimated 30 percent over the
IDA14 period,The allocation of grants in IDA14
will be determined primarily through assessments
of debt sustainability,Half of IDA14 resources
will be directed to those African countries that can
meet performance standards required to make aid
effective.
This will be supplemented by an agreement on
the tenth replenishment of the African Develop-
ment Fund (ADF-X) that was reached in late De-
cember 2005,The African Development Fund was
established in 1972 to provide concessional devel-
opment finance to the poorest member countries.
The new agreement will provide $5.4 billion in
funding,a 43 percent increase over the ninth re-
plenishment (ADF-IX),The grant component of
funding will rise as well,from 21 percent under
ADF-IX to about 44 percent,ADF assistance to
two-thirds of the eligible countries (26 countries)
will be in the form of grants only.
The Commission for Africa issued a report
in March 2005 that urges a doubling of aid to
Africa,including an investment of $150 billion in
infrastructure over the next decade,The report
calls for an additional $25 billion per year in aid,
to be achieved by 2010,Subject to a review of
progress,a further $25 billion per year is to be
provided by 2015.
Participants at the United Nations Confer-
ence on Financing for Development in Monterrey
in March 2002 recognized that a substantial in-
crease in ODA and other resources would be
24
Table 1.5 Net bilateral ODA and special purpose grants,1990–2003
$ billions
1990 1995 2000 2001 2002 2003
Total ODA 54.3 58.8 53.7 52.4 58.3 69.0
Bilateral ODA 38.5 40.5 36.1 35.1 40.8 49.8
Special purpose grants,18.7 24.0 21.5 22.4 26.9 36.1
Technical cooperation 11.4 14.3 12.8 13.6 15.5 18.4
Debt forgiveness 4.3 3.7 2.0 2.5 4.5 8.3
Emergency and diaster relief 1.1 3.1 3.6 3.3 3.9 5.9
Administrative costs 2.0 2.9 3.1 3.0 3.0 3.5
Bilateral ODA less special-purpose grants 19.8 16.5 14.6 12.8 13.9 13.7
As percentage of GNI in DAC donor countries
Total ODA 0.34 0.26 0.22 0.22 0.23 0.25
Bilateral ODA 0.24 0.18 0.15 0.15 0.16 0.18
Bilateral ODA less special-purpose grants 0.12 0.07 0.06 0.05 0.06 0.05
Source,OECD Development Assistance Committee.
required if developing countries were to achieve
internationally agreed development goals and ob-
jectives,Developed countries were urged to
“make concrete efforts” to increase ODA to the
UN target of 0.7 percent of GNI.
14
New develop-
ment assistance commitments announced at Mon-
terrey implied that by 2006,ODA would increase
by a total of $12 billion per year,Moreover,there
was agreement at Monterrey that although addi-
tional debt relief was an essential element of the
development agenda (box 1.2),it should not de-
tract from augmenting the other financial re-
sources required to enable developing countries to
attain the MDGs.
In 2003,ODA in 5 of the 21 DAC donor coun-
tries exceeded the United Nations target of 0.7 per-
cent of their GNI,Denmark,Luxembourg,the
Netherlands,Norway,and Sweden (table 1.6).
Three of these countries (Luxembourg,Norway,
and Sweden) have agreed to increase ODA further
to 1 percent of GNI,Four additional donor coun-
tries (Belgium,Finland,France,and Ireland) have
specified a firm date for raising ODA to 0.7 percent
of GNI,Spain and the United Kingdom have pro-
jected dates,Other donor countries have specified
interim targets for raising ODA as a percent of GNI
over time,As a group,the members of the European
Union aim to increase ODA from 0.35 percent of
GNI in 2003 to 0.39 percent by 2006.
Reflecting those commitments,ODA is pro-
jected to increase from 0.25 percent of GNI in
donor countries in 2003 to 0.30 percent by 2006,
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
25
I
n 1996,concerned that excessive debt was stifling eco-
nomic growth and crippling efforts to reduce poverty in
some of the world’s poorest countries,the World Bank and
International Monetary Fund (IMF) launched the Heavily
Indebted Poor Countries (HIPC) Initiative,The Initiative
was based on an agreement by all major international
lenders to offer a fresh start to countries that were making
efforts to reduce poverty,The Initiative was enhanced in
1999 to provide deeper and faster debt relief to a larger
group of eligible countries and to increase the program’s
links with ongoing poverty reduction efforts in those
countries,
Currently eligible for debt relief under the HIPC
Initiative are 38 countries,32 of them in Sub-Saharan
Africa,Twenty-seven have reached the HIPC,decision
point” at which donors make a commitment to provide
the debt relief necessary to meet a specified debt ratio.
(Most of the 11 countries that have not reached the
decision point have been beset by internal strife,cross-
border conflict,governance challenges,or substantial
arrears.) Fifteen countries have reached their,completion
points,” seven since September 2003—Ethiopia,Ghana,
Guyana,Madagascar,Nicaragua,Niger,and Senegal,All
15 have received irrevocable debt relief,The debt relief
accorded the other 12,decision point” countries will not
become irrevocable until they pass the completion point,
The debt stock of the 27 countries that have reached
the decision point under the HIPC Initiative has been re-
duced by two-thirds,The World Bank alone has commit-
ted about $13 billion in nominal debt-service relief to
this group of countries over the next two decades,As a
result of the relief,ratios of debt service to exports have
been substantially reduced,Funds freed up by debt relief
are directed,under the terms of the HIPC Initiative,to
programs designed to improve the lives of the poor.
Poverty-reducing expenditures,on average,have risen
from 6.4 percent of GDP in 1999 to 7.9 percent of GDP
in 2003,nearly three times higher than debt service
expenditures,
Eligibility for the Initiative is based on several criteria
related to income and indebtedness,In September 2004,
the IMF and Bank extended the enhanced HIPC Initiative
by two years to end-2006,The extended timeframe may
allow other countries to enter the program,They will have
to establish a track record of macroeconomic performance
in order to reach their decision point and qualify for debt
relief,In addition,several proposals are currently being
considered to provide additional debt relief to make debt
more sustainable in low-income countries,
Sources,IMF/World Bank (2004) and World Bank staff.
Box 1.2 Implementation of the Heavily Indebted Poor
Countries (HIPC) Initiative
0
0.15
0.25
0.20
0.05
0.10
0.30
0.35
1990 1992 1994 1996 1998 2000 20042002 2006
Source,OECD Development Assistance Committee.
Total ODA/GNI
Bilateral ODA/GNI
Bilateral ODA less special-purpose grants/GNI
Projections
Figure 1.14 ODA as a percentage of GNI in DAC
donor countries,1990–2006
% GNI
still significantly less than the 0.34 percent level
reached in the early 1990s (table 1.4 and fig-
ure 1.14).
15
The near-term increases imply an
average 9 percent annual increase in ODA in real
terms over the period 2004–6,well above the
average rate of real increases for the past two years
(6 percent).
16
The EU members as a group are
projected to raise their net ODA contributions to
0.44 percent of their GNI,exceeding their stated
goal of 0.39 percent by a significant margin,The
projected increase in EU contributions (equal to
$11.7 billion) accounts for 60 percent of the total
projected increase in ODA ($19.4 billion),If donor
countries are to raise the amount of aid that can
be used for development purposes by the same
proportion,bilateral ODA,less special-purpose
grants,would have to increase from 0.05 percent
GLOBAL DEVELOPMENT FINANCE 2005
26
of GNI in donor countries in 2003 to 0.10 percent
by 2006.
African countries deemed to be strategically
important are likely to be the largest recipients of
increases in ODA,The Africa Action Plan announced
at the G-8 Leaders Summit in Kananaskis (Canada)
in June 2002 suggested that,in aggregate half or
more of our new development assistance could be
directed to African nations that govern justly,invest
in their own people,and promote economic free-
dom.” Sub-Saharan Africa received 60 percent of
increases in ODA disbursements over the five years
from 1998 to 2003,raising its share of total ODA
disbursements by DAC donors from 24 percent to
34 percent (figure 1.15),However,most of these
funds were allocated to postconflict situations,limit-
ing the amount provided for development aid.
The major challenge facing most donor coun-
tries will be to augment aid to levels required to
support the MDGs and the Monterrey consensus
in the face of growing fiscal pressures,Vigilance is
needed to ensure that unanticipated events (such
as the devastation caused by the tsunami in late
December 2004),as well as funding for crisis re-
sponse and postconflict recovery,
17
do not divert
0
10
20
50
70
30
40
60
1990 1992 1994 1996 1998 2000 2002
Source,OECD Development Assistance Committee.
NGO grants
ODA
ODA less debt relief
Figure 1.16 ODA and grants from
nongovernmental organizations,1990–2003
$ billions
resources from efforts to attain the MDGs,In
addition to providing emergency relief to the
countries affected by the tsunami,substantial aid
will be needed to provide medical care and rebuild
infrastructure over the medium term (box 1.3).
Growing fiscal imbalances in many key donor
countries,along with the prospect of further
financing gaps as populations age,are exerting
intense pressures on donor countries to pursue fis-
cal consolidation,Financing for development will
need to be a top priority on the political agenda of
Table 1.6 Projected increases in ODA from DAC
donors,2003–6
ODA as a percentage of GNI
2003 2006 Change
Norway 0.92 1.00 0.08
Denmark 0.84 0.83 H110020.01
Luxembourg 0.81 0.87 0.06
Netherlands 0.80 0.80 0.00
Sweden 0.79 1.00 0.21
Belguim 0.60 0.64 0.04
France 0.41 0.47 0.06
Ireland 0.39 0.61 0.22
Switzerland 0.39 0.38 H110020.01
Finland 0.35 0.41 0.06
EU members 0.35 0.44 0.09
UK 0.34 0.35 0.01
Germany 0.28 0.33 0.05
Australia 0.25 0.26 0.01
Canada 0.24 0.27 0.03
Spain 0.23 0.33 0.10
New Zealand 0.23 0.26 0.03
Greece 0.21 0.33 0.12
Austria 0.20 0.33 0.13
Japan 0.20 0.22 0.02
Italy 0.17 0.33 0.16
United States 0.15 0.19 0.04
Total 0.25 0.30 0.05
Source,OECD Development Assistance Committee.
Figure 1.15 Percentage of ODA disbursed to
Sub-Saharan Africa,1990–2003
% ODA
10
15
20
35
40
25
30
1990 1992 1994 1996 1998 2000 2002
Source,OECD Development Assistance Committee.
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
27
T
he tsunami that hit the Indian Ocean basin on
December 26,2004,is one of the worst human
disasters of modern times,Triggered by an earthquake
measuring 9.0 on the Richter scale,the tsunami affected
eight countries in East Asia,South Asia,and Africa.
Fatalities are expected to exceed 200,000,and some
1.5 million people lost their homes and livelihoods,The
world’s response has been generous,some $7.8 billion
in official emergency and reconstruction aid has been
pledged,supplemented by private donations of between
$1 billion and $2 billion.
This global response continues an upward trend
in emergency relief,Since 1970,the proportion of ODA
accounted for by emergency relief has increased from
0.1 percent to 7.8 percent—a rise from $6.9 million
to $5.4 billion,The trend is believed to reflect two
factors:
Heightened awareness and concern about events in
the developing world among people everywhere.
Emergency aid can be seen as an altruistic response
to more thorough and timely news from abroad,as
well as a reflection of the growing importance of
developing countries in the global economy,
Anincrease in the number of people living in vulner-
able areas,As the global population has grown from
3.7 billion in 1970 to 6.2 billion in 2003,more
people now live in areas vulnerable to natural
disasters—on fault lines,in floodplains and regions
susceptible to hurricanes,and in areas affected
by environmental degradation or climate change.
Population growth has been concentrated in
developing countries,where fewer public and
private resources are devoted to prevention and
early warning,building codes are inadequate,and
infrastructure is old,Between 1985 and 1999,
96 percent of recorded disaster fatalities were in
developing countries (Center for Research on the
Epidemiology of Disasters 2005).
Ensuring that disbursements follow the substantial
resources pledged will require careful monitoring.
According to the United Nations,resources actually
delivered have fallen far short of pledges in recent natural
disasters,Just half of the $400 million pledged after the
2000 floods in Mozambique was received,And only
one-third of the $8.7 billion promised to Honduras and
Nicaragua after Hurricane Mitch in 1998 was sent.
Obstacles—damaged or destroyed transport and logistical
infrastructure,a multiplicity of donor organizations,and
shortages of local staff and officials to coordinate aid
distribution—need to be overcome before pledged aid can
reach the affected areas.
In addition to the emergency and reconstruction aid
outlined above,Paris Club creditors announced a debt
moratorium for countries affected by the disaster,The
countries have the option to request a deferral of principal
and interest payments due to Paris Club creditors so that
more resources can be allocated to the reconstruction
effort.
Tsunami aid should come on top of,rather than in
lieu of,other programmed development assistance,With
many of the bilateral donors making tsunami pledges
approaching or exceeding their 2005 annual disaster relief
budgets,there is reason to be concerned that the assistance
may be reallocated from existing commitments or diverted
from other recipient countries’ aid budgets,Emergency aid
clearly plays a vital role in the broader development
agenda,but it cannot displace other financial resources
that are required to support the MDGs.
Box 1.3 Aid in the wake of the Asian tsunami
these countries if ODA is to increase as a percent-
age of GNI—as foreseen in Monterrey.
Grants from nongovernmental organizations
(NGOs) play a more prominent role
NGOs are providing a growing source of financial
resources for developing countries.
18
Grants by pri-
vate voluntary agencies (the private-sector compo-
nent of NGO grants) have increased by $5 billion
(in nominal terms) between 1990 and 2003,ODA
has increased by $15 billion over this period,while
ODA less debt relief has increased by $10 billion
(figure 1.16),Between 1990 and 2003,NGO
grants increased from a value equal to 10 percent
of ODA less debt relief to 17 percent.
GLOBAL DEVELOPMENT FINANCE 2005
28
Table 1A.1 Workers’ remittances to developing countries,1990–2004
$ billions Change
1990 1995 2000 2001 2002 2003 2004e 2001–4
Developing countries 31.3 56.7 76.8 84.6 99.0 116.0 125.8 41.2
Lower middle-income 17.5 34.8 41.9 44.1 49.1 54.8 55.6 11.5
Upper middle-income 5.7 8.6 13.1 16.8 18.7 24.4 26.8 10.0
Low income 8.1 13.3 21.7 23.8 31.2 36.7 43.4 19.6
Latin America and the Caribbean 5.8 13.4 20.2 24.2 28.1 34.1 36.9 12.7
South Asia 5.6 10.0 16.0 16.0 22.3 26.7 32.7 16.7
East Asia and the Pacific 3.2 9.0 11.2 12.9 16.6 19.5 20.3 7.4
Middle-East and North Africa 11.7 13.0 13.5 15.2 15.5 16.8 17.0 1.8
Europe and Central Asia 3.2 8.1 11.0 11.4 11.5 12.8 12.9 1.5
Sub-Saharan Africa 1.9 3.2 4.9 4.9 5.1 6.0 6.1 1.2
Note,e H11005 estimate
Remittances are defined as the sum of workers’ remittances,compensation of employees,and migrant transfers.
Sources,IMF Balance of Payments Statistics Yearbook 2004 and World Bank estimates,
Strong gains in workers’ remittances to
developing countries
Workers’ remittances provide valuable financial
resources to developing countries,particularly the
poorest.
19
Remittances to developing countries
from overseas resident and nonresident workers
are estimated to have increased by $10 billion
(8 percent) in 2004,reaching $126 billion,That
increase followed a $17 billion (17 percent)
increase in 2003 (table 1A.1),Much of the
$10 billion increase in 2004 occurred in low-
income countries,where remittances rose by
$6.7 billion (18 percent).
20
Since 2001,remit-
tances to developing countries have increased by
$41 billion (almost 50 percent),Low-income
countries account for almost half of the increase:
the share of remittances going to low-income
countries rose from 28 percent in 2001 to 35 per-
cent in 2004.
Most of the $41 billion increase in remit-
tances to developing countries from 2001 to 2004
was concentrated in South Asia ($17 billion),
Latin America and the Caribbean ($13 billion),
and,to a lesser extent,East Asia and the Pacific
($7 billion),Remittances are more evenly distrib-
uted than capital flows to developing countries.
Increases in remittance flows have been par-
ticularly strong in China,India,Mexico,Pakistan,
and the Philippines (table 1A.2),Those five coun-
tries together account for $31 billion of the
$41 billion increase in remittances to all develop-
ing countries between 2001 and 2003,The data
available for 2004 suggest that remittance flows
will continue to show strong gains in India,
Mexico,and the Philippines.
Even though most top recipient countries are
large,remittances to many small developing coun-
tries are significant as a share of GDP or in per capita
terms,Examples include Lesotho,Tajikistan,and
Tonga,Lebanon also is among the top recipients of
remittances,when measured on a per capita basis.
The surge in remittance flows over the past
few years reflects several factors,There have been
significant reductions in remittance sending costs
in some countries—for example,60 percent in the
U.S.-Mexico corridor since 1999,Growing migra-
tion and measurement issues also play prominent
roles,The sizeable depreciation of the dollar
against most other major currencies (the euro in
particular) over the past three years has increased
the dollar value of nondollar remittances over
time,Some of the increase in remittance flows can
Annex,Recent trends in workers’
remittances to developing countries
FINANCIAL FLOWS TO DEVELOPING COUNTRIES
be attributed to improvements in data recording
by central banks,In addition,security concerns
and heightened scrutiny by immigration authori-
ties in many rich countries are believed to have en-
couraged outward remittance of savings by undoc-
umented migrants,This is reportedly the case in
Pakistan,which recorded a tripling of remittance
receipts between 2001 and 2003.
As a final point,it should be recognized that
the above data represent officially recorded remit-
tances,which are sometimes estimated,Flows
through informal channels,such as hawala,are not
captured in the official statistics but are believed to
be quite large,Also,a significant portion of remit-
tances flows through formal channels that are not
included in the official statistics,because most
countries do not insist on regular reporting of flows
below certain predefined thresholds.
21
Notes
1,Projections of world GDP growth are measured
using market exchange rates; projections measured using
purchasing power parity (PPP) weights are reported in
table 2.1.
2,For a more detailed discussion of foreign reserve ac-
cumulation in developing countries and global imbalances,
see chapter 3.
3,More specifically,the equity capital component of
FDI tends to be stable; the other two components—
intercompany loans and reinvested earnings—tend to be as
volatile as portfolio equity and debt flows,This is discussed
in greater detail in World Bank (2004,86–90) and in box 4.2
in World Bank (2003,89).
4,Net FDI and portfolio equity flows have a correla-
tion coefficient of –0.6 over the period 1996–2004.
5,For a more complete discussion of the main factors
explaining substitution between FDI and portfolio equity
flows,see box 4.8 in World Bank (2004,101).
6,A recent study by Xiao (2004) estimates that FDI in-
flows to China are overstated by between 26 and 54 percent,
implying that China’s share of FDI inflows to all developing
countries is in the 15–25 percent range.
7,See chapter 5 for a more detailed discussion of FDI
flows to low-income developing countries,
8,FDI outflows from Brazil totaled $9.5 billion in
2004,This includes a $5 billion merger between Ambev (a
Brazilian beverage group) and Interbrew (a Belgium-based
brewer),which was financed by an equity swap (Ambev
shareholders received shares of Interbrew and vice versa).
This $5 billion transaction was reported in the inward and
outward FDI flows in Brazil’s balance of payments.
9,Developing countries are estimated to have ac-
counted for about one-third of FDI inflows to other devel-
oping countries (“South-South flows”) over the period
1997–2001 (World Bank 2004,81).
10,For a more complete discussion of the extent to
which FDI outflows from developing countries are underes-
timated see box 4.3 in World Bank (2004,90).
11,Econometric projections for net FDI inflows to de-
veloping countries over the period 2005–6 are generated
using the model discussed in World Bank (2004,100).
12,For one set of estimates of the financial resources
required to meet the MDGs,see chapter 4 of the Overview
Report in United Nations (2005).
13,See chapter 5 for a more complete discussion of the
evolution of aid flows since the early 1990s.
14,The 0.7 percent target was originally specified in a
1970 resolution of the UN General Assembly.
15,Reported in OECD (2005,12).
16,This calculation is based on a projected growth
rate for GNI in donor countries of 2.5 percent in 2004 and
2.7 percent in 2005–6 and abstracts from exchange-rate
changes over the projection period,
17,Donor conferences have already committed sub-
stantial funding to postconflict countries,notably Iraq ($32
to $36 billion over the period 2004–7),Afghanistan ($8 bil-
lion over the period 2004–6),and Haiti ($1 billion over the
period 2004–6).
18,See box 5.2 in chapter 5 for a discussion of the
growing importance of NGOs in financing poor countries.
19,For more detailed analysis of workers’ remittances
see chapter 7 in World Bank (2003),and,Monetary Life-
line” in The Economist,July 31,2004,66.
20,See chapter 5 for a discussion of the growing im-
portance of remittances sent to the poorest countries.
21,For example,remittances under $10,000 are not
required to be reported in the United States; nor are remit-
tances under €12,500 in the European Union.
References
Debtor Reporting System Database,World Bank.
http://www.worldbank.org/DRS/data.html (accessed
2005).
29
Table 1A.2 Developing countries with highest
remittance flows,2001 and 2003
$ billions
2001 2003 Change
India 11.1 17.4 6.3
Mexico 9.9 14.6 4.7
China 1.2 4.6 3.4
Pakistan 1.5 4.0 2.5
Philippines 6.2 7.9 1.7
Poland 1.1 2.3 1.2
Bangladesh 2.1 3.2 1.1
Brazil 1.8 2.8 1.0
Colombia 2.1 3.1 1.0
Vietnam 2.0 2.7 0.7
All developing countries 84.6 116.0 31.4
Sources,IMF Balance of Payments Statistics Yearbook 2004 and
World Bank estimates.
GLOBAL DEVELOPMENT FINANCE 2005
IMF (International Monetary Fund),2004,Balance of Pay-
ments Statistics Yearbook 2004,Washington,DC,IMF.
,2005,International Financial Statistics Yearbook
2004,Washington,DC,IMF.
IMF/World Bank,2004.,Heavily Indebted Poor Countries
Initiative,Status of Implementation.” Washington,
DC,World Bank.
“Monetary Lifeline.” The Economist,31 July 2004,66.
OECD (Organisation for Economic Co-operation and
Development),Development Assistance Committee.
2005,Development Cooperation Report 2004,Devel-
opment Assistance Committee,Paris,OECD.
United Nations,2005,Investing in Development,A Practi-
cal Plan to Achieve the Millennium Development
Goals,New York.
World Bank,2003,Global Development Finance 2003.
Washington,DC,World Bank.
,2004,Global Development Finance 2004.
Washington,DC,World Bank.
Xiao,Greg,2004.,People’s Republic of China’s Round-
Tripping FDI,Scale,Causes and Implications.” ADB
Institute Discussion Paper 7,Asian Development Bank,
Manila.
30
2
Global Outlook and the Developing
Countries
F
OLLOWING VERY STRONG GROWTH
of 3.8 percent last year,the world economy
is slowing,Output increased particularly
quickly in the first half of 2004,driven by solid
U.S,performance and a torrid export-led expan-
sion in China,But higher oil prices and the effects
of exchange rate appreciation caused quarterly
output in many high-income countries to decline
in the second half,notably in Germany,Italy,and
Japan,Developing economies outgrew high-
income countries,with aggregate GDP rising by
some 6.6 percent for the year as a whole—a record
expansion,In addition to China,India and Russia
also grew very quickly,But all developing regions
grew faster in 2004 than they did during the past
decade.
Very strong world demand was reflected in
emerging capacity constraints,rising prices in com-
modity markets,and increased inflation in some
developing regions,notably South Asia,Latin
America,and some parts of developing Europe.
Oil prices rose 31 percent,while other commodity
prices increased 18 percent,with mixed conse-
quences for developing countries,Oil and other
commodity exporters were able to build up current
account surpluses,while importers (the majority of
developing countries) saw a significant rise in their
import bills,In contrast to earlier episodes of rising
commodity prices,developing countries,notably
China,were the principal source of increased
demand over the past few years.
Increases in U.S,interest rates,the waning ef-
fect of earlier fiscal loosening,and,in Europe,the
effects of the 25 percent real effective appreciation
of the euro since February 2002 contributed to a
slowing of GDP growth in the second half of 2004
and into 2005,These same factors are projected to
33
.
cause GDP growth among high-income countries
to slow to about 2.5 percent in 2005,Moreover,
coupled with reduced demand for imports,those
factors are expected to reduce growth in low- and
middle-income economies—although continued
gains in market share should temper the slow-
down,Thus,while growth should decline,these
economies are nevertheless expected to expand
by a robust and above-trend 5.7 percent in 2005.
Partly as a result,oil and metal prices are expected
to rise further in 2005,before softening in 2006
and 2007 as new capacity comes onstream.
Over the period through 2007,a gradual
pickup in activity outside of the United States,cou-
pled with higher U.S,interest rates and a limited
tightening of fiscal policy should reverse the rising
trend in the U.S,current account deficit,which is
projected to fall from 5.6 percent of GDP in 2004
to about 5.3 percent in 2007,At the same time sur-
pluses in the developing world are projected to
decline from 2.7 to 1.4 percent of GDP,Although
these changes will not significantly reduce the sup-
ply of dollars on world financial markets,higher
U.S,interest rates should increase the appetite of
private sector investors for dollar-denominated
assets,so that the currency is likely to depreciate
only modestly over the projection period.
The depreciation of the dollar to date against
most currencies has increased the importance of
domestic demand outside the United States as a
driver of global growth,A further rotation of
trade patterns is projected,with the volume of ex-
ports from the United States expected to grow
by about 8 percent in 2007,Up to now,most
developing countries have experienced only mod-
erate fluctuations in their real effective exchange
rates,either because of co-movements of their
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 33
GLOBAL DEVELOPMENT FINANCE 2005
exchange rate with that of their dominant trading
partner or because the effect of the dollar’s depre-
ciation has been offset by the appreciation of the
euro and the yen,While changes in bilateral ex-
change rates are likely to impose some adjustment
costs,the export growth of low- and middle-
income countries is expected to remain strong
because their overall real-effective exchange rates
have moved relatively little,As a result,these coun-
tries are projected to continue increasing their
share of world markets.
This is a relatively benign scenario,However,
an abrupt increase in interest rates,a further large
and precipitous depreciation of the dollar,a larger-
than-anticipated hike in oil prices,or a resurgence of
protectionist sentiment could provoke a significant
slowdown or even recession in the global economy.
Policy can help reduce the likelihood and
potential severity of a weaker outturn,A signifi-
cantly tighter U.S,fiscal policy would reduce the
extent to which higher interest rates in the United
States (or lower rates in Europe) will be required
to support the dollar,For their part,developing
economies need to ensure that they do not accu-
mulate excessive liabilities,the future repayment of
which,under conditions of higher interest rates
and slower world growth,could pose serious prob-
lems,In addition,in some countries a managed
appreciation might help alleviate domestic infla-
tionary pressures and facilitate the sharing of the
benefits of economic growth by lowering the costs
of imported consumer goods and services,While a
move away from a strict dollar peg by some devel-
oping currencies would tend to cause the dollar to
depreciate more,it would likely dissipate some of
the tensions in international financial markets
caused by thus-far-unrealized expectations of such
a depreciation,Meanwhile,the multilateral trade
liberalization process is in need of a kick start.
Without it,the Doha Round runs the risk of yield-
ing few gains for developing economies.
While a coordinated international policy re-
sponse would likely be optimal,the policy steps out-
lined above should be taken even in the absence of
coordination because they would benefit each iden-
tified group even if the others failed to act.
Global growth
W
orld GDP is estimated to have increased
3.8 percent in 2004,supported by an im-
pressive 10.3 percent increase in trade volumes
(table 2.1),Growth among high-income countries
came in at a robust 3.1 percent,led by the United
States (up 4.4 percent),but moderated by weaker
performance in Japan (2.6 percent growth) and
Europe (1.8 percent),While growth in Japan and
Europe was stronger than in 2003,the apprecia-
tion of their currencies contributed to the weaken-
ing of their exports in the second half of the year.
Overall,output in Germany and Italy actually de-
clined in the third and fourth quarters,although
several other major European economies,including
France and Spain,recorded growth in excess of
2.5 percent,Meanwhile,the depreciation of the dol-
lar supported U.S,export growth despite a slowing
in world trade volumes,This,plus strong consumer
and investment spending in an environment of very
low interest rates,kept U.S,growth robust in the
second half,Japan also recorded negative growth in
the second and third quarters,but a pickup in
inventory accumulation in the fourth quarter re-
turned the economy to a positive growth track.
At 6.6 percent,growth among developing
economies was the fastest it has been at any time
in the past 30 years (figure 2.1),China led the way
with growth of 9.5 percent,driven by strong
domestic demand and very large increases in both
exports and imports,As a result,China’s perfor-
mance has become an increasingly important
factor in global growth prospects,particularly for
East Asia,Both India and Russia grew around
7 percent,led by exports in the case of India
and strong oil-revenues in the case of Russia.
Growth in the remainder of the developing world
34
Source,World Bank.
1980 1985 1995 20001990 2005
Figure 2.1 Developing-country and world growth,
1980–2007
% GDP growth (1995 constant dollars)
0
3
2
1
5
4
6
7
Developing countries
World
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 34
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
was also robust,with GDP expanding by more
than 5.5 percent.
Strong investment growth has played a major
role in these results,Low interest rates helped in-
crease ratios of investment to GDP to 28 percent
for low- and middle-income economies as a group.
Double-digit increases in trade were also central to
this strong performance,as developing countries
exploited low domestic costs,market openings,and
other structural reforms to increase their share in
world exports (from 20 to 25 percent since 1999).
High-frequency data suggest that the rate of
expansion among developing countries slowed
during 2004,with industrial-production growth
easing from 12 percent in the first half to 8 percent
in the second half (figure 2.2),Merchandise trade
volume also moderated,slowing from an
annualized rate of 18 percent in the first quarter to
some 14 percent in the second half,Slowing trends
have continued into 2005,although leading busi-
ness indicators suggest that a turnaround can be
expected during the course of the year.
Looking forward,rising interest rates and
high oil prices,combined with the waning of the
fiscal stimulus that has supported growth in the
recent past should continue to dampen world
35
Table 2.1 The global outlook in summary
(percentage change from previous year,except interest rates and oil price)
2003 2004e 2005f 2006f 2007f
Global conditions
World trade volume 5.6 10.3 7.7 7.7 8.0
Consumer prices
G-7 countries
a,b
1.6 1.8 1.7 1.6 1.6
United States 2.3 2.7 3.0 3.5 3.2
Commodity prices (U.S,dollar terms)
Non-oil commodities 10.2 17.5 4.7 H110025.2 H110025.4
Oil price (US$ per barrel)
c
28.9 37.7 42.0 36.0 33.0
Oil price (percent change) 15.9 30.6 11.3 H1100214.3 H110028.3
Manufactures unit export value
d
7.5 7.0 3.0 2.8 1.9
Interest rates
$,6-month (percent) 1.2 1.6 3.5 4.6 5.0
€,6-month (percent) 2.3 2.1 2.1 2.8 3.2
Real GDP growth
e
World 2.5 3.8 3.1 3.1 3.2
Memo item,World (PPP weights)
f
3.9 5.0 4.3 4.2 4.3
High income 1.9 3.1 2.4 2.6 2.6
OECD countries 1.8 3.1 2.3 2.5 2.6
Euro Area 0.5 1.8 1.2 2.2 2.6
Japan 1.4 2.6 0.8 1.9 1.9
United States 3.0 4.4 3.9 3.0 2.6
Non-OECD countries 3.2 6.2 4.4 4.4 4.3
Developing countries 5.3 6.6 5.7 5.2 5.4
East Asia and Pacific 8.0 8.3 7.4 6.9 7.2
Europe and Central Asia 5.9 6.8 5.5 4.9 5.0
Latin America and the Caribbean 1.7 5.7 4.3 3.7 3.7
Middle East and North Africa 5.8 5.1 4.9 4.3 4.3
South Asia 7.8 6.6 6.2 6.4 6.7
Sub-Saharan Africa 3.4 3.8 4.1 4.0 4.1
Memorandum items
Developing countries
excluding transition countries 5.2 6.7 5.7 5.3 5.5
excluding China and India 3.9 5.8 4.8 4.4 4.4
Note,PPP H11005 purchasing power parity; e H11005 estimate; f H11005 forecast.
a,Canada,France,Germany,Italy,Japan,United Kingdom,United States.
b,In local currency,aggregated using 1995 GDP weights.
c,Simple average of Dubai,Brent,and West Texas Intermediate crude oils.
d,Unit value index of manufactured exports from major economies,expressed in U.S,dollars.
e,GDP in 1995 constant dollars; 1995 prices and market exchange rates.
f,GDP measured at 1995 PPP weights.
Source,World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 35
GLOBAL DEVELOPMENT FINANCE 2005
growth,As a result,global economic activity is
projected to slow fairly sharply in 2005 before
stabilizing in 2006 and picking up somewhat in
2007.
As the Federal Reserve moves to a more neu-
tral stance of monetary policy in the United States,
higher interest rates are expected to slow the pace
of both consumption and investment activity,At
the same time,however,the depreciation of the
dollar should stimulate export growth,helping to
sustain activity at a relatively high level,In Japan,
sharply falling world demand for high-tech prod-
ucts,slowing global trade,the appreciation of the
yen,and the domestic investment cycle contributed
to a weak second half in 2004,The economy is
projected to expand by just 0.8 percent in 2005.
Moderate wage growth in Europe and high oil
prices have cut into consumer demand,while the
appreciation of the euro has hurt exports,These
negative factors are counterbalanced by significant
pent-up demand for capital goods,following
years of subdued investment—already evident
in the steady (if unspectacular) acceleration in
investment activity over the past year,Further
strengthening of investment and the waning nega-
tive influence of the euro’s appreciation are pro-
jected to result in a gradual firming of euro zone
growth rates to about 2.6 percent in 2007.
While the human costs of the December 2004
tsunami were horrific,its economic impacts are
expected to remain localized,Disaster-related
declines in output are projected to slow growth
during the first half of 2005 in Indonesia,the
Maldives,Sri Lanka,and Thailand,with the
brunt of the impact borne by the coastal regions
immediately affected,As reconstruction efforts get
underway,growth should firm toward the end of
the year,However,the overall impact of these
changes will be difficult to discern in regional
growth rates.
1
The projected slowdown among high-income
economies will be reflected in slower trade and
output growth among developing economies,
while higher world interest rates will also slow the
expansion of domestic demand (figure 2.3),As
agroup,however,low- and middle-income coun-
tries should again outperform the high-income
economies by a large margin through to 2007.
And growth rates are expected to exceed the levels
observed in the 1990s.
2
Growth in the economies of the East Asia and
Pacific region will continue to reflect developments
in China,There,administrative controls have suc-
ceeded in slowing the pace of investment in some
sectors,and there are increasing signs that personal
incomes and expenditures are rising less quickly
than in the immediate past,As a result,GDP
growth is expected to moderate,and inflation
should stay in check,Elsewhere in East Asia,ex-
ports are being affected by falling world demand
for high-tech products and somewhat less robust
Chinese investment demand,Overall,regional
GDP growth is projected to ease to 7.4 and 6.9 per-
36
H1100210
H110025
0
5
10
15
2003 2004 2005
a
Excluding China.
Source,World Bank.
Developing
countries
a
World
a
High-income
countries
Figure 2.2 Slowing industrial production,
September 2003–May 2005
% change (3-month moving average,annual rate)
Forecast
Figure 2.3 Regional growth projections,2003–7
Annual growth (%)
0
3
6
9
East Asia
and P
acific
Europe and
Centr
al Asia
Latin Amer
ica and
the Car
ib
bean
Middle East and
Nor
th Afr
ica
South Asia
Sub-Sahar
an Afr
ica
2003 2004 2005 2006 2007
Source,World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 36
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
cent in 2005 and 2006 before picking up somewhat
in 2007,For the region excluding China,a similar
pattern is expected,with growth at about 5.4 per-
cent in 2005 and picking up to 6.2 percent by 2007.
3
GDP increased in the Europe and Central Asia
region by 6.8 percent in 2004,spurred on by very
strong growth in the Russian Federation,where
high oil prices have boosted incomes,Regional GDP
and trade growth were also enhanced by investment
flows related to the accession of several countries to
the European Union—a factor reflected in very high
rates of increase in both imports and exports,A
sharper-than-expected decline in Turkish inflation
boosted real incomes,triggering strong domestic
demand and a steep increase in its current account
deficit,Elsewhere in the region,inflationary pres-
sures are building,This is expected to provoke a
tightening of domestic monetary policy that,in
combination with expected increases in world inter-
est rates,should see regional interest rates rise even
further,slowing investment and consumption,A
leveling-off of oil incomes and the negative influence
of a strong real effective appreciation by a number
of the region’s economies
4
are expected to dampen
regional growth to about 5 percent by 2007.
Economic activity in Latin America and the
Caribbean increased by some 5.7 percent during
2004,substantially faster than the region’s 0.4 per-
cent average growth rate over the preceding three
years,Strong world demand for commodities con-
tributed to large output gains in Brazil,Chile,and
Mexico,Argentina’s substantial rebound follow-
ing its 45 percent real effective depreciation be-
tween late 2001 and early 2005 contributed to the
strong performance of the region,The expected
leveling-off of commodity prices in 2005 and 2006
means that the contribution to growth from in-
creases in resource-based incomes will decline.
Nevertheless,still-high prices imply that incomes
will remain elevated,continuing to support de-
mand at high levels,Rising interest rates,
prompted by higher world rates and growing do-
mestic inflationary pressures,will be a further
drag on growth,which is projected to slow to
about 3.7 percent by 2007.
The economies of the Middle East and North
Africa continued to profit from high oil prices in
2004,GDP growth among developing oil exporters
was strong at 5.5 percent,but down from 6.7 per-
cent in 2003 as capacity constraints made them-
selves felt,Labor-abundant and resource-poor
countries benefited from strong world demand,no-
tably from regional oil exporters,causing their ex-
ports to grow by 6.2 percent,Economic activity
among regional oil exporters is projected to slow to
about 4 percent in 2006,partly because the full im-
pact of stronger domestic demand will be partly
offset by leakages in the form of accelerating im-
ports,This strong import demand,coupled with the
easing of oil prices beginning in the second half of
2005 (see the commodities discussion below) and
the entry into force of preferential trade agreements
with the European Union will nudge up growth
among oil importers to about 5.2 percent in 2006.
GDP increased some 6.6 percent in South Asia
in 2004,down from 7.8 percent the year before.
Most of the slowdown occurred in India and re-
flected poor crops,Nevertheless the Indian econ-
omy led the region,expanding by 6.8 percent.
Growth among other South Asian countries actu-
ally picked up a bit,coming in at 5.9 percent.
Overall regional GDP is projected to slow in 2005
to 6.2 percent,reflecting more moderate Chinese
and OECD import demand,before regaining
strength in 2006 and 2007,when it should in-
crease by about 6.7 percent,Rising inflation in
Pakistan and Sri Lanka will require a strong re-
sponse from domestic authorities,weakening near-
term growth prospects in those countries.
Economic activity in Sub-Saharan Africa in-
creased by an estimated 3.8 percent in 2004,with
virtually all countries reporting positive growth
(C?te d’Ivoire,the Seychelles,and Zimbabwe being
notable exceptions),A large number of countries
saw output increase by 5 percent or more,Growth
in the region is projected to pick up in 2005 to
4.1 percent as the benefits from past reforms and a
globally more peaceful environment are reflected in
improved growth rates,Still-high metals and miner-
als prices will contribute to good performance in
many countries,notably South Africa,while contin-
ued tightness in the oil market will benefit regional
oil exporters such as Nigeria,Ethiopia and Sierra
Leone are expected to perform particularly well as
they continue to benefit from more peaceful condi-
tions,The projected upturn in Europe,the region’s
main trading partner,should also stimulate growth,
while rising exports to China will play an increasing
role,Despite substantially improved performance,
per capita GDP growth in the region will lag the rest
of the world by a significant margin,implying a fur-
ther widening of income gaps.
37
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 37
GLOBAL DEVELOPMENT FINANCE 2005
Global imbalances,currencies,
and inflation
T
he current account of the United States has
been in deficit throughout the past two
decades,with the sole exception of 1990,Following
several years of deterioration,it reached a new high
of $666 billion,or 5.6 percent of GDP in 2004,As
a consequence of these repeated deficits,the United
States has been transformed from a significant net
international investor in the 1970s to the world’s
largest debtor,Its net external liability at the end of
2003 was estimated at $2.7 trillion (23 percent of
U.S,GDP,or 7.5 percent of world GDP).
Reflecting these developments,but also a wide
range of structural policies that have improved eco-
nomic performance,the current account position of
most developing countries has improved,and now
virtually all major regions are running modest cur-
rent account surpluses (figure 2.4).
Until recently,the U.S,deficit was financed
largely through private capital inflows in the form
of foreign direct investment (FDI) and purchases of
U.S,corporate securities,Beginning in 2001,how-
ever,this changed,Net foreign purchases of private
sector assets dried up and actually turned negative
in the first half of 2004,For the year as a whole,
most of the current account deficit was financed
by sales of public sector assets and securities (fig-
ure 2.5),Moreover,a substantial share of these
purchases is finding its way into the rapidly rising
official reserves of foreign central banks,notably
those of developing countries (chapter 3).
Partly as a consequence of the net outflow of
private sector investment,the dollar began to
slide,not just against the euro but also against
most developing-country currencies,both nomi-
nally and in real terms (figure 2.6).
These imbalances are expected to stop increas-
ing and may even diminish somewhat,In particular,
the U.S,current account deficit is expected to stop
rising and gradually decline—reaching 5.3 percent
of GDP in 2007.
Several factors are expected to contribute to
this development.
Both U.S,short- and long-term interest rates
are projected to continue rising,reaching
about 5 percent by 2007 as the Federal
Reserve Bank moves towards a more neutral
monetary policy stance,As a result,real inter-
est rates,which have been negative in recent
years,will turn positive,This should induce an
increase in net private savings,
5
which cur-
rently represent less than 1 percent of house-
hold income,and reduce imports—thereby
contributing to a lower current account
deficit.
A modest tightening of U.S,fiscal policy is
projected,with the general government deficit
expected to decline from an estimated 4.4 per-
cent of GDP in 2004 to some 3.5 percent in
38
Figure 2.4 Estimated global imbalances in current
accounts,2004
$ millions
H11002200
H11002100
H11002300
H11002400
H11002500
H11002600
H11002700
100
0
200
United States
Euro Zone
J
apan
China
Other East Asia
and P
acific
Middle East
and Nor
th Afr
ica
Europe and
Centr
al Asia
Latin Amer
ica
and the Ca
ri
b
bean
Other
Source,World Bank.
Sources,U.S,Department of Commerce; World Bank estimates.
Figure 2.5 Financing the U.S,current account:
net flows by asset type,2000,2002,and 2004
$ billions
Other private securities and banking
FDI plus equity investment
Foreign official assets
and government securities
H11002250
0
250
500
750
1,000
2000 2002 2004
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 38
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
2007,This,along with the cumulative effect of
the dollar depreciation,will also help con-
strain overall demand and contribute to a de-
cline in the current account deficit.
Continued strong growth in developing
economies and robust demand for imports
will increase U.S,exports,In particular,do-
mestic demand is projected to be very strong
among oil-exporting countries,leading to a
reduction in the current account surplus of
oil-exporting Middle East countries equal to
8 percent of their GDP.
In addition to the stabilization and even modest
shrinking in the U.S,current account deficit,rising
interest rates in the United States relative to rates
elsewhere should alleviate downward pressure on
the dollar by increasing investors’ willingness to
finance the deficit,Specifically,short-term U.S.
interest rates are projected to increase more than
European rates until 2006,opening up a gap of
almost 200 basis points between them,These higher
returns on dollar-denominated assets should be
sufficient to induce additional private sector pur-
chases of dollar-denominated bonds,As a result,the
dollar is expected to depreciate only modestly,by
about 10 percent over the forecast period,Estimates
suggest that the increases in U.S,interest rates al-
ready observed (figure 2.7) have been sufficient to
almost eliminate financial incentives to continue the
“carry trade” against the dollar (Moore 2004).
6
39
H1100280 H1100240 0 40 80
Swaziland
South Africa
Botswana
Slovak Republic
Angola
Bulgaria
C?te d’Ivoire
Estonia
Burkina Faso
Croatia
Slovenia
Czech Republic
Benin
Tonga
Turkey
Russian Federation
Congo,Rep,of
Lithuania
Albania
Mali
Hungary
Indonesia
Belarus
Kazakhstan
Latvia
Kyrgyz Republic
Kenya
Tunisia
Mauritius
Pakistan
Guatemala
Armenia
India
Poland
Nepal
Uganda
Ecuador
Thailand
Chile
Ukraine
Singapore
Peru
El Salvador
Algeria
Honduras
China
Jordan
Dominica
Paraguay
Brazil
Colombia
Malaysia
Philippines
St,Vincent and the Grenadines
Sri Lanka
Saudi Arabia
Costa Rica
Jamaica
Bolivia
Mexico
Dominican Republic
Egypt,Arab Rep,of
Madagascar
Romania
Venezuela,R,B,de
Uruguay
Argentina
Iran,Islamic Rep,of
Figure 2.6 Appreciation of developing-country
currencies against the dollar between
January 2002 and February 2005
% change in real exchange rate
Appreciation
Depreciation
Source,World Bank.
1995 200119991997 20052003
0.4
1.3
1.1
1.2
0.9
1.0
0.8
0.7
0.6
0.5
4
3
H110022
H110021
0
1
2
Figure 2.7 Interest rates and the weakening dollar,
1995–2005
Percent
6-month interbank
interest-rate differential
U.S.–Euro Zone
Euro exchange rate
Euros/dollar
Source,World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 39
GLOBAL DEVELOPMENT FINANCE 2005
The recent period of very low real interest
rates (figure 2.8) has been particularly beneficial
to developing economies,Together with narrower
risk premia,low rates have allowed developing
countries to reduce their financing costs (chap-
ters 1 and 3) and pursue strong investment growth.
However,this strong economic performance
has brought on a pickup in inflation in many
developing countries (figure 2.9),Inflation in-
creased from 3.8 percent in the fourth quarter of
2003 to 6.2 percent by the third quarter of 2004.
Since then,it has eased somewhat and was 4.8 per-
cent in February 2005,The largest hikes have been
in commodity prices,Regionally,inflation has
picked up markedly in South Asia (India,Pakistan)
and to a lesser extent in Latin America (Argentina
and Mexico) as emerging capacity constraints have
made themselves felt,Most recently,falling food
prices (see the discussion of commodity prices
below) have contributed to some easing of infla-
tionary pressures.
In contrast,there are few signs of rising infla-
tion among high-income countries,except perhaps
in the United States,partly reflecting higher import
prices following the slide in the dollar,Rather,wide-
spread asset inflation,notably in housing prices,and
a strong increase in investors’ tolerance for risk (as
evidenced by reduced risk premia on junk bonds and
developing-country debt
7
) are the most visible signs
of abundant liquidity and underlying inflationary
pressures in high-income countries.
As global interest rates rise,these pressures
should dampen,However,inflation in developing
countries is projected to continue rising in 2005 as
growth remains at or above trend rates,In Europe,
the disinflationary effects of the euro’s apprecia-
tion and still-large output gaps should limit price
increases,In contrast,the lower dollar can be
expected to generate additional upward price pres-
sure in the United States,In particular,import
prices are expected to begin contributing to rising
inflation in the United States,as rising inflation in
developing countries is passed through as higher
U.S,import prices.
8
World trade
W
orld trade expanded dramatically in 2004,
increasing by some 10.3 percent,China’s
integration into the global marketplace continued,
with exports and imports increasing by some
30 percent,The pace of trade expansion else-
where in the developing world was more moderate
(12.3 percent),but nevertheless much higher than
the 8.5 percent expansion registered by high-
income countries,High-frequency data indicate
that trade growth slowed toward the end of the
year (figure 2.10).
In line with the projected moderation of
global economic activity,international trade is
forecast to slow as compared with 2004 as a
40
Figure 2.8 Very low real interest rates in the
United States,1997–2005
Percent
H110022
H110023
H110021
0
1
2
3
4
5
1997 1998 1999 2000 2001 2002 2003 20052004
Note,Long-term rates are 10-year yields on U.S,government bonds.
Short-term rates are the federal fund rate,Both are deflated by
consumer inflation.
Source,World Bank.
Long-term interest rates
Short-term interest rates
Figure 2.9 Rising consumer inflation,2000–4
% change
0
3
9
6
South Asia
Sub-Sahar
an
Afr
ica
Middle East and
Nor
th Afr
ica
Europe and
Centr
al Asia
East Asia
and P
acific
Latin Amer
ica and
the Car
ib
bean
2000 2001 2002
2003 2004
Source,World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 40
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
whole,Trade volumes are expected to increase by
around 7.7 percent in 2005 and 2006,which is
nevertheless quicker than during the 1990s.
In addition to slower trade growth due to re-
duced import demand,developments in specific
markets will influence the overall pattern of trade.
In particular,a sharp slowdown in the high-tech
cycle has hit exports from East Asia and the
Pacific,where such products represent as much as
two-thirds of some countries’ exports.
9
The high-
tech market is characterized by sharp swings in de-
mand but over a relatively short cycle (figure 2.11).
Thus,while exporters in the region are expected to
go through a difficult patch over the next several
months,demand should pick up toward the end of
2005 and remain strong in 2006,As discussed in
the following section,demand for commodities is
also expected to remain strong.
Impact of dollar depreciation on developing
economies
Notwithstanding the broad depreciation of the dol-
lar and appreciation of the euro,most developing-
country currencies have been relatively stable in
real effective terms (figure 2.12),Of the 69 low-
and middle-income countries for which data permit
the calculation of real effective exchange rates,only
15 have experienced an appreciation of more than
10 percent since February 2002,when the dollar
began to slide,and more than half have
depreciated,The revaluation of many developing-
country currencies was relatively moderate because
in many cases the depreciation of the dollar and
the appreciation of the euro were offsetting,leav-
ing countries’ real effective position broadly
unchanged.
For those countries for which the United
States or the euro zone represent a disproportion-
ate share of trade,co-movements in their own cur-
rencies have largely mitigated the impacts that
these fluctuations might otherwise have had,Most
developing countries that did experience a signifi-
cant real effective revaluation did so because of
domestic factors or a strong terms-of-trade impact
following the recent run-up in commodity prices
(South Africa).
While small compared with the shift in the
euro/dollar bilateral exchange rate,the currency
fluctuations experienced by developing countries
are likely to have consequences for the real econ-
omy over the projection period.
Unless compensating policy measures are
taken,growth will be stimulated in depreciating
countries,possibly overheating their economies.
By the same token,economic activity is likely be
weaker among countries that appreciate,Or,if
exporters lower margins to retain market share,
incomes will decline.
The realignment of currencies will influence
the pattern of exports and imports and could
impose adjustment costs.
10
For individual develop-
ing economies the impact will depend importantly
41
a
Excluding China.
Source,World Bank.
Figure 2.10 Slower trade growth,2003–5
Export volumes (quarterly,annualized growth rates,%)
H110025
0
5
10
15
20
25
Q3Q1Q3Q1
2004 2005
Q3
High-income countries
Developing countries
a
Forecast
World
a
Sources,Semiconductor Industry Association; World Bank.
H1100260
80
40
60
20
0
H1100220
H1100240
1997 1998 1999 2000 2001 2002 2003 2004
Figure 2.11 World semiconductor sales and East
Asian technology exports,1997–2005
% change (3-month moving averages,seasonally adjusted
annualized rates)
2005
East Asian
exports
World semiconductor
sales
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 41
GLOBAL DEVELOPMENT FINANCE 2005
on preexisting trade patterns,Countries that trade
more or less equally in Europe and the United
States (Namibia,Paraguay,Poland) will find it eas-
ier to exploit changes in competitiveness because
firms already have knowledge of the foreign market
and networks with which to deal,In contrast,firms
(and nations) whose trade is particularly focused
on the United States may encounter significant
delays before lost sales in the U.S,market can be
recuperated through increased sales in Europe or
elsewhere,Even countries that followed the dollar
in its depreciation (many South American and East
Asian countries) will face adjustment costs in the
form of higher inflation and lost competitiveness
among firms that rely on non-U.S,imports.
Finally,although evidence is not conclusive,
some research (for example,Esquival and Larráin
2002) suggests that volatility in the exchange rates
of major economies tends to introduce uncertainty
into international trade and may therefore con-
tribute to a slowdown in global trade volumes.
Longer-term prospects for trade expansion
Notwithstanding these costs,low- and middle-
income countries are projected to continue in-
creasing their world market shares,Over the past
five years developing countries as a whole have
increased their share of world exports from 20 to
25 percent,China actually doubled its market
share during this period from 2.5 to more than
5.4 percent.
This trade expansion has been a critical motor
for economic betterment,Those countries that have
been most successful in expanding their market
shares have registered the sharpest reduction in
poverty over the past 15 years.
11
Overall,40 percent of the total increase in the
exports of developing countries was due to in-
creased market share,This reflects several factors,
including a gradual exposure of underlying com-
parative advantages following the numerous trade
liberalizations of the past two decades,These saw
developing-world tariffs fall from some 30 to less
than 10 percent,In addition,improved macro-
economic policies,lower inflation,reduced gov-
ernment deficits,and improved current account
positions contributed to better trade performance
by reducing uncertainty for investors and traders
alike.
42
H11002100 H1100280 H1100260 6040200H1100220H1100240
Figure 2.12 Real effective revaluations of
developing-country exchange rates,2002–5
% change in real effective exchange rate between
February 2002 and January 2005
Appreciation
Depreciation
South Africa
Dominican Republic
Mozambique
Namibia
Angola
Slovak Republic
Botswana
Swaziland
Turkey
Bulgaria
Guatemala
Indonesia
Russian Federation
C?te d’Ivoire
Estonia
Kyrgyz Republic
Kenya
Czech Republic
Chile
Colombia
Fiji
Brazil
Lithuania
Slovenia
Morocco
Trinidad and Tobago
Croatia
Ecuador
Kazakhstan
India
Peru
Thailand
Nepal
Hungary
Georgia
Singapore
Pakistan
El Salvador
Albania
Honduras
Paraguay
Sri Lanka
Ethiopia
Belarus
Latvia
Poland
Ghana
Bangladesh
Costa Rica
Philippines
Panama
Jamaica
Tunisia
Malaysia
United States
China
Jordan
Mauritius
Bolivia
Vietnam
Mexico
Ukraine
Congo,Dem,Rep,of
Oman
Uganda
Algeria
Uruguay
Azerbaijan
Egypt,Arab Rep,of
Romania
Argentina
Venezuela,R,B,de
Iran,Islamic Rep,of
Zimbabwe
Source,World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 42
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
In the baseline forecast,these conditions are
assumed to persist,As a result,developing-country
market shares should increase a further 1 percent-
age point between 2004 and 2007.
Commodity markets
T
he run up in commodity prices since 2002 (fig-
ure 2.13) reflected very strong demand for
commodities and emerging capacity constraints in
producing countries,Overall,energy prices rose
some 30 percent in 2004,Metals and minerals
prices were up 37 percent,and,as yet,show no
sign of easing,In contrast,the prices of most agri-
cultural commodities peaked in the second quarter
of 2004 before beginning to decline,but still regis-
tered a 10.5 percent annual gain.
Unlike previous episodes of overheating,the
main sources of excess demand were developing
countries,notably China.
Indeed,74 percent of the total increase in
crude-oil demand during 2004 came from develop-
ing economies (figure 2.14)—almost twice their
share in total demand,Almost half of the increment
came from China,whose thirst for raw materials
also underpinned the increase in demand for metals
and minerals,Overall,low- and middle-income
countries were responsible for 74 percent of the
additional demand for metals in 2004,but only
45 percent of total demand,Developing-country
demand was particularly pronounced in the zinc
and aluminum markets,where their share in the
increase in demand exceeded 80 percent in 2004.
This is unlikely to be an isolated develop-
ment,The share of developing economies in world
demand for commodities is projected to continue
rising,Partly this reflects the progressive transfer
of an increasing proportion of the world’s labor-
intensive manufacturing activity to these countries.
It also reflects faster population growth and rising
incomes,which are projected to increase demand for
resource-intensive products such as automobiles—
placing further pressure on commodity markets.
Such factors underpin the prediction of the Interna-
tional Energy Agency (IEA 2004) that by 2030 the
demand for oil from economies currently classified
as low- and middle-income will more than double
to some 50 percent of world demand.
Notwithstanding the run up in commodity
prices and the increasing importance of developing
economies in these markets,commodity prices are
projected to ease over the next three years,In agri-
culture,increased supply—following endogenous
reactions to high prices and recovery from poor
crop years—is already pushing down the prices of a
number of agricultural commodities,notably soy-
beans and cotton,Further supply increases and the
projected global slowdown are expected to reduce
agricultural prices by about 6 percent in 2006.
Simple models of the derived demand for oil
suggest that the developing world’s demand for
petroleum products will continue to grow quickly.
Although daily world production is expected to
43
Figure 2.13 Commodity prices,2000–4
Index (1990 H11005100)
60
80
120
140
160
180
200
220
100
2000 2001 2002 2003 20052004
Source,World Bank.
Energy
Agricultural
products
Metals and
minerals
Figure 2.14 Developing-country demand and
commodity prices,2003 and 2004
Percent
0
20
60
100
40
80
Oil Metals and
minerals
Oil Metals and
minerals
Breakdown of demand
(2003)
Breakdown of additional
demand (2004)
OECD
China
Other
developing
countries
Source,World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 43
GLOBAL DEVELOPMENT FINANCE 2005
increase by about 1.5 million barrels,low stocks
and robust demand are projected to keep oil
prices high during the first half of 2005 before
they begin to ease,For the year as a whole,they
are projected to average some $42 in 2005.
12
As
the growth of demand moderates further and new
supplies come onstream,prices are expected to de-
cline slowly,reaching $33 by 2007.
Conditions in the mineral and metal market re-
main very tight (figure 2.15),Excess demand,ema-
nating particularly from China,drove prices up
some 37 percent in 2004 and caused inventories to
fall by 50 percent (60 and 90 percent in the case of
lead and copper),Firms have reacted to high prices
by substituting less-expensive materials (using
lower quality nickel in the production of steel,for
example),which should help ease demand pressure.
However,these conditions are projected to keep
pushing metals prices up during the first half of
2005,before increasing supplies trigger a cyclical
decline later in the year,A big uncertainty in this
projection is Chinese demand,If it fails to moderate
as expected but remains at the levels seen in the first
half of 2004,metals prices (notably steel and iron
ore),coal prices,and freight rates could remain
high for an extended period or even rise further.
Regional consequences of higher
commodity prices
Higher commodity prices have contributed substan-
tially to the solid economic performance of
commodity-exporting countries over the past sev-
eral years (figure 2.16),This is particularly true for
oil exporters,for whom higher oil prices have
meant a terms-of-trade gain of an estimated 5.6 per-
cent of GDP,But net exporters of other commodi-
ties also gained,Exporters of metals and minerals
benefited strongly,while the positive effect for agri-
cultural exporters was less marked.
However,as discussed in more detail in last
fall’s Global Economic Prospects 2005 (World
Bank 2004),although high commodity prices are
good for developing countries in aggregate,most
developing countries are oil importers,For them
the net effect of the commodity price increases
observed to date has been negative,For South Asia
as a whole,the effect was equivalent to terms-of-
trade H110022.2 percent of GDP.
Risks and policy priorities for the
global economy
I
n the baseline outlook,increased private and
public savings in the United States and strong
growth among developing countries begin to
redress global imbalances and generate a modest
decline in the U.S,current account deficit,Com-
bined with the opening of a positive gap between
U.S,and European short-term interest rates,this is
expected to reduce,but not eliminate,downward
pressure on the dollar,The currency will continue
to depreciate,but in a gradual and orderly manner.
44
All developing
countries
Low- and
middle-income
Low-income
(excl,India)
Oil importers
Highly indebted
poor countries
Figure 2.16 Terms-of-trade gains to developing
countries from commodity price changes,2001–4
% GDP
Oil prices
Non-oil prices
Both oil and non-oil prices
H110021.5
H110021.0
H110020.5
0.0
0.5
1.0
1.5
Source,World Bank.
1995 200119991997 20052003
1
4
3
3
2
2
125
115
65
75
85
95
105
Figure 2.15 Metals—lower stocks mean higher
prices
$/ton
Metals prices
(left axis)
LME stocks
(right axis)
Millions of tons
Sources,London Metals Exchange; World Bank.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 44
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
This scenario is exposed to a number of risks:
Higher interest rates
The possibility that oil prices rise further or
fail to moderate as projected
An overshooting or a disorderly depreciation
of the dollar,and
Endogenous reactions to high prices and the
emergence of protectionist sentiment.
The first and arguably most important risk is that
both short-term and long-term interest rates rise
by more than projected,Several distinct but re-
lated factors contribute to this risk.
Rates could rise even further either because the
current bearish sentiment of investors vis-à-vis the
dollar intensifies or because Asian central banks,
which have financed much of the U.S,current
account deficit (chapter 3),decide to slow the pace
at which they accumulate reserves,In either case,
investors would demand higher rates before taking
on more debt or additional risk,Indeed,recent sug-
gestions by some Asian authorities that they might
be diversifying their reserve portfolios sparked
brisk sell-offs that ceased only when firm denials of
such diversification were subsequently issued.
Higher U.S,interest rates would likely put upward
pressure on interest rates in other countries as well.
Another factor that might lead to globally
higher rates is investors’ appetite for risk,Risk
premia for sub-investment-grade corporate and
emerging-market bonds are at very low levels.
Should investors’ appetite for or perceptions of
underlying risk change,interest rates in these mar-
kets could rise sharply,rapidly drawing liquidity
out of international capital markets,
Many developing countries have made signifi-
cant strides in reducing their overall financial vul-
nerability and are,therefore,in relatively strong
positions to withstand such a deterioration in in-
ternational financial conditions,However,coun-
tries with weak domestic banking and capital mar-
kets remain fragile,Those with high debt burdens
are especially vulnerable to sudden reassessments
of country risk (chapters 3 and 4).
Finally,if the excess liquidity engendered by
low interest rates manifests itself as rising infla-
tion,real interest rates would rise even further as
the monetary authorities react.
To the extent that increases in asset prices are
areflection of unusually low interest rates,interest-
rate hikes could generate substantial losses in
wealth,with significant negative impact on con-
sumer demand,For example,if housing prices
were to stabilize at current levels,the elimination
of the positive wealth effect that higher housing
prices have contributed to consumer demand
would be sufficient to reduce consumer spending
in the United Kingdom and the United States by
more than 1 percent.
13
Were asset deflation to
occur,the impact could be much more serious.
Figure 2.17 reports the results of three simula-
tions that attempt to quantify the real-side impacts
of these risks.
14
The first scenario assumes that U.S,short- and
long-term interest rates rise by 200 basis points
more than in the baseline scenario due to increases
in investors’ required rate of return on dollar-
denominated assets,Real interest rates abroad
react endogenously,rising by somewhat less than in
the United States,Growth in the United States
slows by about 1 percentage point in 2005 com-
pared with the baseline and by 2 percentage points
in 2006,but a recession is avoided,Slower growth
in the United States dampens the expansion of
global trade,As a result,growth in developing
economies slows by about 1 percentage point in
each of 2005 and 2006.
The second scenario builds on the first and as-
sumes that reduced global liquidity from the above
tightening causes both bond and emerging-market
spreads to return to normal levels,This com-
pounds the effects of the first scenario in develop-
ing economies by provoking additional reductions
in consumption and investment demand due to
higher interest rates,Growth in the United States
is broadly unchanged.
Prospects for developing economies are much
weaker,with a cumulated loss in output of close to
4.6 percent of GDP,Highly indebted countries are
hit particularly hard.
The final scenario combines these effects,
adding a substantial wealth effect in France,Spain,
the United States,and the United Kingdom,as
higher interest rates are assumed to trigger a
10 percent decline in housing prices and therefore
in consumer wealth in each of these countries.
This contributes to further slowing in demand,In
this case,the United States enters a relatively deep
recession in 2006,leading a significant global
slowdown in which world growth declines to
about 1 percent.
45
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 45
GLOBAL DEVELOPMENT FINANCE 2005
The risk that oil prices would rise further or
fail to decline by as much as projected was dis-
cussed in detail in the World Bank’s Global Eco-
nomic Prospects 2005 (2004,12–14),That report
concluded that a further $10 hike in oil prices
would slow global growth by about 0.5 percent
the next year,For oil-importing developing coun-
tries,the terms-of-trade shock of the hike would
be about H110022.4 percent of GDP,Moreover,because
such countries have limited access to international
financial markets,the impact on domestic demand
of such a shock would be much higher than in
high-income countries.
The possibility that the dollar will overshoot
its equilibrium value and become undervalued
for a prolonged period is a risk in the medium
term,The depreciation to date has brought the
dollar close to its long-run average level in real
effective terms (figure 2.18),If it were to depreci-
ate by much more,as it might if public and pri-
vate savings behavior does not change,it could
well overshoot its long-run equilibrium value.
Such an event would increase adjustment costs as
exporters lost sales in some markets and had to
increase market penetration elsewhere,As the
dollar eventually returned to its long-run equilib-
rium value,these costs would be incurred a
second time.
In addition,large swings in the dollar could
have significant financial impacts for developing
countries (chapter 3),For countries with substan-
tial dollar reserves,a depreciation would imply
46
Figure 2.17 Effects of higher interest rates on
GDP growth,2005–7
Scenario 1,200-basis-point increase in interest rates
Deviation from 2004 baseline (% GDP)
H1100212
H1100210
H110028
H110026
H110024
H110022
0
2005 2006 2007
World United States Developing countries
Scenario 2,Scenario 1 plus a 60-percent increase in emerging-
market spreads
Deviation from 2004 baseline (% GDP)
H1100212
H1100210
H110028
H110026
H110024
H110022
0
2005 2006 2007
Scenario 3,Scenario 2 plus a wealth effect
Deviation from 2004 baseline (% GDP)
H1100212
H1100210
H110028
H110026
H110024
H110022
0
2005 2006 2007
Source,World Bank.
Figure 2.18 The dollar in historical perspective,
1970–2004
Real effective exchange rate
70
80
90
110
120
100
1970 1975 1980 1985 2005200420001990 1995
Period average
Source,J.P,Morgan.
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 46
GLOBAL OUTLOOK AND THE DEVELOPING COUNTRIES
large paper losses that could have implications for
fiscal policy,In contrast,countries with significant
dollar-denominated debt would benefit from a
depreciation because it would erode the local-
currency value of their debt.
Finally,the global slowdown could result in
a slowing of trade liberalization or the emergence
of protectionism,The recent pursuit of initiatives
to deepen trade has coincided with a period of
strong growth for both developing and developed
countries,Weaker economic conditions could
prompt a break in that trend,by derailing the
Doha process or limiting the extent to which any
eventual agreement would benefit low-income
countries,At the extreme it could provoke a pro-
tectionist backlash among high-income countries.
In either case,the access of developing countries
to rich-country markets could be curtailed to
the detriment of growth and poverty reduction.
Similarly,should lower growth in developing
countries reduce the pace of structural reform,
which underpins much of recent economic gains,
the impact on future growth prospects could be
severe.
Policy challenges
Policy can help avoid and limit the severity of the
scenarios dicussed above,A significantly tighter
U.S,fiscal policy would increase aggregate saving
in the U.S,economy,narrow the current account
deficit,and reduce the extent to which higher in-
terest rates will be required to support the dollar.
In Europe,policy should seek to maintain interest
rates at relatively low levels,Not only would this
bolster domestic demand,thereby compensating
for weaker exports following the appreciation of
the euro,it would also decrease the relative attrac-
tiveness of euro-denominated financial assets—
thereby reducing the likelihood of a further appre-
ciation and discouraging a disorderly shift away
from dollars,In this regard,should inflationary
pressures arise it may be desirable to pick up the
pace of fiscal consolidation to reduce the likeli-
hood of overheating.
Faced with the prospect of a slowing world
economy and the possibility of a pronounced
slowdown,policymakers in developing countries
need to redouble efforts to consolidate their fiscal
positions and take advantage of today’s low inter-
est rates to restructure debt—as indeed many have
done,Moreover,they must be particularly prudent
to ensure that they do not accumulate excessive
liabilities or spending obligations,the future
financing of which under conditions of higher in-
terest rates and slower world growth could pose
serious problems,In addition,a careful reassess-
ment of exchange-rate policy in some countries
might reveal that a managed appreciation of their
currencies would help alleviate emerging inflation-
ary pressures,while facilitating the sharing of the
gains from recent growth among the entire popu-
lation by lowering the cost of imported consumer
goods.
While a coordinated international policy re-
sponse would likely be optimal and would mini-
mize the costs for developing countries,the do-
mestic benefits of each of the policy steps outlined
above will accrue whether or not the other eco-
nomies take action.
Notes
1,The East Asia and Pacific region suffered the great-
est damage from the tsunami,followed by South Asia and,
to a much lesser extent,Sub-Saharan Africa.
2,All told,three quarters of developing countries saw
their growth rates increase during the first four years of this
decade,compared with the 1990s,This contrasts with high-
income countries,about half of which saw improvement
and half declines.
3,This chapter’s companion Web site,Prospects for
the Global Economy,http://globaloutlook.worldbank.org,
presents more detail on regional economic developments
and forecasts.
4,Bulgaria,the Russian Federation,and the Slovak
Republic all recorded appreciations in excess of 10 percent.
5,Household savings net of capital accumulation
(OECD 2004).
6,The term,carry trade” describes the practice of
borrowing money at low interest rates in one currency and
investing it in a second currency at higher rates of return.
Such interest rate arbitrage likely explains some of the
strong swings in the bilateral exchange rate of the dollar
and euro.
7,While significant improvements in fundamentals
underpin some of the improvement in emerging-market risk
premia,the concurrent compression of corporate spreads
suggests that abundant global liquidity is also playing a key
role.
8,Until the third quarter of 2002,U.S,import
inflation was negative,reflecting a rising share in both im-
ports and GDP of low-cost developing-country imports and
falling import prices due to strong growth in developing-
world productivity.
9,In 2003,high-tech products represented 13 percent of
Thailand’s exports,but more than 50 percent of Taiwanese,
Malaysian,and Philippine exports.
47
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 47
GLOBAL DEVELOPMENT FINANCE 2005
10,These adjustment costs and the mechanisms by
which they effect output are qualitatively similar to those
described by Lilien (1982) in the context of oil price hikes,
another international price shock.
11,The correlation coefficient between per capita in-
creases in incomes and increases in trade shares is 0.5.
12,A simple model of oil demand suggests that an in-
crease in demand of some 1.8 million barrels per day would
be consistent with World Bank output projections,Coupled
with expected increases in output of 1.5 million barrels (IEA
2004),there is little prospect for a substantial easing of oil
prices in 2005.
13,The stock of housing in the United States is estimated
by the Federal Reserve Bank to be equal to $15.2 trillion or
about 138 percent of GDP,A 10 percent change in the value of
that stock would represent 13.8 percent of GDP or 19 percent
of consumption,Econometric estimates suggest that the long-
term marginal propensity to consume from housing wealth is
.05 (see,for example,Catte and others 2004 and Benjamin
and others 2004),implying a reduction in consumption of
1.35 percent.
14,Chapter 3 discusses in more detail some of the
potential financial-sector impacts of higher interest rates.
References
Benjamin,J,D.,P,Chinloy,and G,D,Jud 2003.“Real Es-
tate versus Financial Wealth in Consumption.” Journal
of Real Estate Finance and Economics 29 (3),341–54.
Catte P.,N,Girouard,R,Price,and C,André,2004.,Hous-
ing Markets,Wealth and the Business Cycle.” Econom-
ics Department Working Papers 394,Organisation for
Economic Co-operation and Development,Paris.
Esquivel,Gerard,and Felipe Larraín,2002.,The Impact of
G-3 Exchange Rate Volatility on Developing Coun-
tries.” G-24 Discussion Paper Series 16,United Nations
Conference on Trade and Development,Geneva.
International Energy Agency,2004,World Energy Outlook
2004,Paris,IEA.
Lilien,David M,1982.,Sectoral Shifts and Cyclical Employ-
ment.” Journal of Political Economy 90 (4),777–93.
Moore,J,2004.,2004 Carry Trade Update.” Barclays Capi-
tal,December 22.
OECD (Organisation for Economic Co-operation and
Development),2003,Economic Outlook No,74,Paris:
OECD.
48
gdf_v1_033-050.qxd 3/28/05 1:27 PM Page 48
3
Global Imbalances and Emerging
Market Economies
T
HE GROWING IMBALANCES IN
external payments among the world’s
economies and the financing needs associ-
ated with those imbalances have provoked con-
cern in international policy circles and anxiety in
capital markets,The previous chapter discussed
their nature and scale and identified the risks
they posed for financial markets and the global
economy,This chapter assesses the implications of
such risks for developing countries—particularly
emerging market economies,which depend on in-
ternational capital markets to finance their invest-
ment and growth and,increasingly,to allocate
their national savings.
1
Our concern here is not
only the traditional sensitivity of emerging-market
finance to cyclical developments in international
capital markets,but also the implications for ex-
ternal balance sheets of accumulations of foreign
exchange reserves.
The channels through which events in global
financial markets affect developing countries
reflect the changing character and growing sig-
nificance of developing countries’ international
financial relationships,An improved external envi-
ronment,years of structural reforms in developing
countries,and improved macroeconomic stability
have combined to produce the current favorable
cycle of healthy trade surpluses,surging foreign
exchange reserves,low inflation,and strong
growth prospects,Such developments have con-
tributed to the marked strengthening of private
capital flows in the past two years (2003–4) from
their long slide after 1997 (see chapter 1),Rein-
forced by higher oil prices and fixed exchange
rates in Asia,they also have resulted in a large
buildup of foreign currency assets with monetary
authorities and central banks of several developing
51
.
countries,But the increasing size and complexity
of external balance sheets pose new challenges
that will require not only appropriate strategies to
manage external assets and liabilities,but also
attention to the domestic macroeconomic implica-
tions of higher reserve levels.
Serious concerns remain about how the
unwinding of global financial imbalances might
affect the external financing conditions in which
emerging market economies operate,From their
perspective,the gravest risk is an abrupt and
disorderly adjustment of major exchange rates,
combined with a higher-than-expected rise in
international interest rates,Persistent structural
weaknesses in banking and financial systems,
especially when coupled with high indebtedness
or a record of macroeconomic mismanagement
and default,render some now-thriving economies
particularly vulnerable to sudden reassessments of
country risk by capital markets.
2
A sharp depreciation of the dollar could re-
sult in large capital losses in local-currency
terms for developing countries with substan-
tial dollar reserves,On the other hand,coun-
tries with dollar-denominated debt would
benefit from the erosion in the dollar value of
their debt.
Higher global interest rates could contribute
to wider emerging-market bond spreads,
particularly for borrowers with high ratios of
debt to GDP,which would compound the
adverse impact of higher U.S,Treasury bench-
mark rates.
The growing carrying costs associated with
central bank purchases of foreign exchange
reserves could increase pressure on some
GLOBAL DEVELOPMENT FINANCE 2005
countries to moderate their reserve accumula-
tions and allow exchange rates to share some
of the adjustment burden,Expansion in
aggregate domestic demand (including
consumption) to reduce upward pressure on
local currencies,coupled with greater open-
ness on both trade and capital accounts,will
also be required in many countries with large
reserve holdings.
3
The mixed effect of exchange-rate
fluctuations
F
luctuations in the exchange rates of the major
global currencies—dollar,euro,and yen—have
important implications for emerging markets
through their impact on flows of trade and
finance,Because of the dollar’s unique role in both
trade and finance,fluctuations in its value tend to
have a relatively larger impact on emerging market
economies than do changes in other currencies,On
the trade side,high volatility among G-3 exchange
rates hurts developing countries’ exports (Esquivel
and Larrain 2002),But to the extent that interna-
tional investment positions in emerging market
economies diverge from their trade patterns,fluc-
tuations among major currencies may have various
added effects,Such effects vary by country,de-
pending on their net trade and foreign asset hold-
ing patterns.
A further weakening of the dollar does have
positive benefits for certain emerging market
economies with large dollar-denominated external
debt,To the extent that they are net debtors in
dollars (as is the case for many that are active bor-
rowers in global financial markets),pronounced
dollar weakening reduces their real net external
debt burden (measured in domestic currency).
Since the end of 2002,the depreciation of the
dollar against most developing-country currencies
has reduced ratios of debt to GNP and of debt
service to exports by 0.7 percentage point,If one
excludes countries (such as China) whose curren-
cies have been fixed against the dollar over this
period,the decline in these ratios is even greater—
nearly one percentage point,
The magnitude of this effect varies substan-
tially,depending on the amount of dollar-
denominated debt and the magnitude of the dollar
depreciation that has occurred,Focusing on the
effect of dollar depreciation for Brazil,for example,
the ratio of debt service to exports has declined by
10 percentage points over the period,while for
countries (including Mexico) whose currencies fell
against the dollar,the debt-service burden rose
(figure 3.1),The overall impact of dollar deprecia-
tion will of course depend on net asset positions.
As discussed in the next section,beneficial effects
on debt service could be partially offset in countries
that have accumulated large dollar-denominated
foreign exchange reserves,There may also be an
important distributional distinction between gains
accruing to the private sector in emerging markets
(likely to be a net debtor) and losses accruing to the
public sector (which may hold substantial dollar
reserves).
4
Consideration should also be given to
the extent to which policymakers or market partic-
ipants may have hedged their net exposure to
currency movements through forward or currency
derivative markets.
5
Global monetary tightening,
higher interest rates
T
he evolution of interest rates in world capital
markets—strongly influenced by U.S,rates—
has the most direct (and perhaps most potent)
impact on emerging-market risks,This occurs not
52
Venezuela,R,B,de
Brazil
Chile
Colombia
South Africa
Turkey
Argentina
Poland
Czech Republic
Hungary
Russian Federation
India
Thailand
Romania
Ukraine
Pakistan
Indonesia
Philippines
Egypt,Arab Rep,of
Mexico
H1100212 H110028 H11002404
Higher debt
burden
Lower debt
burden
8 12
Figure 3.1 Impact of dollar depreciation on debt
service ratios,2002–4
Change in ratio of debt service to exports (in local currency)
Sources,World Bank data and staff estimates.
GLOBAL IMBALANCES AND EMERGING MARKET ECONOMIES
only through the traditional,direct channel—
monetary tightening to control inflation in
industrial countries,which produces higher
rates—but also because higher rates can lead to
large capital losses on official dollar-denominated
bond portfolios,
Historically,virtually every cyclical monetary
policy turn in the United States over the past two
decades has been accompanied by heightened
volatility in emerging financial markets,with
direct implications for the level and price of capital
flows,The 1994 tightening cycle,which raised the
Fed funds rate from 3 to 6 percent in just over a
year,had particularly severe consequences,causing
turmoil in financial markets and reducing global
liquidity,On the other hand,the global monetary
easing that began in the fall of 1998 helped
end the 1997/98 round of crises (Frankel and
Roubini 2003).
Market interest rates are influenced funda-
mentally by G-3 monetary policy,as shaped by
central banks’ reaction to domestic inflation and
output gaps,The most visible turning point in the
current global interest rate cycle came in June
2004,when the U.S,Federal Reserve began a
widely anticipated series of interest-rate hikes
after a long period of monetary expansion,Short-
term policy rates have been increased in several
other countries,as well (figures 3.2 and 3.3),With
real interest rates still negative in the United States,
there is scope for further monetary tightening
(figure 3.4),and forward interest rates signal
expectations of higher future rates (figure 3.5).
Estimates of,neutral” Fed fund rates for the
United States—on the order of 2 percent in real
terms—imply a target rate of at least 4 percent in
nominal terms,or 150 basis points higher than the
current level of 2.5 percent.
53
Figure 3.2 Short-term policy rates in developed
countries,2002–4
Percent
0
1.0
0.5
1.5
2.0
2.5
3.5
3.0
4.5
4.0
5.0
Jan,May Sep,Jan,May Sep,Jan,May
2002 2003 2004 2005
Sep,Jan.
Source,World Bank data.
United Kingdom
Euro Zone
United States
Japan
Figure 3.3 Short-term policy rates in major
emerging markets,2002–4
Percent
4
5
9
11
12
8
7
6
10
Source,World Bank data.
Poland
Mexico
India
China
Jan,May Sep,Jan,May Sep,Jan,May
2002 2003 2004 2005
Sep,Jan.
Figure 3.4 Movement of real federal fund rates,
1991–2004
Percent
H110023
H110021
3
4
5
H110022
2
1
0
Jan.
1991
Jul.
1992
Jan.
1994
Jul.
1995
Jan.
1997
Jul.
1998
Jan.
2000
Jul.
2001
Jul.
2004
Jan.
2003
Sources,U.S,Federal Reserve; World Bank staff estimates.
Average rate for the
period (1.32%)
GLOBAL DEVELOPMENT FINANCE 2005
The pressure from rising interest rates is likely to
have a negative impact on global economic growth,
particularly in developing countries,About one-fifth
of developing countries’ outstanding external debt
is estimated to be based on variable interest rates.
Thus,increases in U.S,rates and subsequent effects
on related dollar benchmarks,such as the dollar
London-interbank-offered (LIBOR) rate,exact a di-
rect cost,Estimates suggest that an increase of 1 per-
centage point in U.S,medium-term interest rates can
imply an additional debt-service burden equivalent
to about 5 percent of developing countries’ exports
of goods and services—with considerable regional
variation,ranging from 1 percent in Sub-Saharan
Africa to 13 percent in Latin America and the
Caribbean (figure 3.6).
A key question from the perspective of
emerging market economies is how market inter-
est rates are likely to react to changes in monetary
policy—particularly in the United States—and
how such reactions spill over to emerging bond
markets,With G-3 central banks relying on short-
term policy rates to conduct monetary policy,this
question can be pursued at two levels,first,how
market participants react to current and expected
future changes in short-term policy rates in G-3
countries,particularly the United States (box 3.1);
and second,how such reactions are factored
into the determination of dollar-denominated
emerging-market bond prices and spreads,which
are typically benchmarked against 10-year U.S.
Treasuries,
54
Figure 3.5 U.S,Treasury implied forward rates
Percent
2.5
3.0
3.5
4.0
4.5
5.0
12345
Maturity (in years)
71020
Source,Bloomberg.
Feb,2008
Feb,2006
Feb,2005
Figure 3.6 Estimated additional debt service
burden due to increase of one percentage point
in U.S,interest rates
Share of export of goods and services (%)
Source,World Bank staff estimate.
0
5
10
15
All countr
i
es
East Asia and
Pa
c
i
f
i
c
Europe and
Centr
a
l Asia
Latin Amer
ica and
the Car
i
b
bean
Middle East and
Nor
t
h Afr
i
ca
South Asia
Sub-Sahar
an
Afr
i
ca
5.0
3.0
7.0
13.0
2.0
2.8
1.0
Potential volatility in emerging-
market spreads
T
he cost of borrowing in emerging markets
will be affected not only by movements in in-
terest rates in global markets,but also by the evo-
lution of country-specific spreads over these rates.
The persistence of emerging-market bond spreads
at near-record-low levels for much of 2004 (see
chapter 1) raises concerns that markets are not
adequately assessing—and pricing—emerging-
market risks,This in turn raises the possibility
that,should global conditions deteriorate,these
spreads could widen suddenly and dramatically,
as investors adapt their expectations to a more
pessimistic outlook and shift out of emerging-
market assets,
Deteriorating global conditions can affect
emerging markets through their impact on sover-
eign credit ratings,Countries that rely primarily
on market-based financing could face further
pressures if credit ratings deteriorated,because
deterioration would increase borrowing costs in
primary capital markets,In general,the marginal
cost of a downgrade increases as one moves down
the credit spectrum,Since credit ratings for most
emerging markets are concentrated around low
investment grade or high noninvestment grade,
a slip of one grade implies,on average,additional
GLOBAL IMBALANCES AND EMERGING MARKET ECONOMIES
borrowing costs of about 80 basis points over and
above the regular costs,
Empirically,the link between global mone-
tary conditions and emerging bond markets is
also reflected in the way U.S,interest rates af-
fect emerging-market spreads,Examining time
series of correlations of Emerging Markets Bond
Index (EMBI) spreads with U.S,interest rates
(measured over 36-month rolling periods
between December 1992 and June 2004) yields
several conclusions:
First,the estimated correlations vary over
time and fluctuate a great deal,with a clear
break between crisis and noncrisis periods—
suggesting that during crisis periods,spreads
are driven by factors other than movements in
U.S,rates,
Second,the effect of U.S,rates on emerging-
market spreads is nonlinear; as higher U.S.
interest rates affect the creditworthiness of
emerging economies (through the channels
identified earlier),emerging-market spreads
rise more quickly.
6
Third,emerging-market spreads appear to
track movements in short-term U.S,rates
(both the Fed target rate and the three-month
Treasury rate) more closely than the longer-
term (10-year) rates,implying that the
orientation of investors in the asset class
may be driven more by changes in short-
term U.S,rates than by longer-term yield
considerations,
Such aggregate analysis helps delineate the
dynamics between U.S,interest rates and emerging-
market bond conditions,but fails to incorporate
the influence on spreads of specific country vari-
ables and credit quality,It is reasonable to expect
that higher U.S,interest rates,for instance,have a
more serious adverse effect on spreads in coun-
tries with high levels of external debt than in
countries with moderate external debt,For coun-
tries with strong economic fundamentals,the
impact of higher U.S,interest rates is likely to be
modest,Box 3.2 summarizes research results that
consider the role of individual country factors in
determining emerging-market spreads,
A 200-basis-point increase in U.S,interest
rates (approximately equal to current expecta-
tions of future U.S,Fed rate increases during the
current round of tightening) would translate into
additional increments in emerging-market spreads
ranging from 6 basis points (for countries with
55
U
nderstanding the transition from short-term policy
rates to bond-market prices and yields requires paying
greater attention to the dynamics of market expectations
in shaping views on interest rates and monetary policy
changes,In forming views on the economic outlook,
including expected paths of inflation and short-term
interest rates,bond-market investors and traders pay close
attention to actions,views,and perceived intentions of
monetary authorities,Based on such expectations,market
participants form their views about long-term interest rates
through the term structure of interest rates,which provides
information on the whole maturity spectrum,from the
short end (three months) to the long end (30 years).
Recent research on finance has emphasized the
finding that asset prices are driven primarily by unantici-
pated information or news contained in macroeconomic
announcements,This analysis argues that the anticipated
part of economic,news” is already incorporated into
asset prices,In most industrial countries,announcements
are released regularly at specific times during any given
business day,providing market participants with a steady
flow of new information and insights into economic
fundamentals,and shaping expectations about the
economic outlook and likely official policy reactions.
Using intra-day high-frequency data,recent empirical
work has documented the adjustment response of differ-
ent financial markets to economic news announcements.
For example,it has been shown that news regarding
labor-market conditions,output changes,and consumer
confidence are incorporated in U.S,bond prices within
one minute,and also that German government bond
yields are more responsive to U.S,economic news than
to Euro-area or German news,Also,favorable,growth
news” causes the dollar to appreciate relative to other
major currencies (Balduzzi and others 2001; Brandt and
Kavajecz 2004; Goldberg and Leonard 2003).
Box 3.1 Asset prices and unanticipated news
GLOBAL DEVELOPMENT FINANCE 2005
debt-to-GNI ratios below 40 percent) to 65 basis
points (for highly indebted countries with debt-
to-GNI ratios above 90 percent),This increase
would come on top of the underlying increase in
the 10-year U.S,Treasury yields,which would
likely increase by less than the 200 basis points
(figure 3.7).
Capital flows and reserve
accumulation
D
eveloping countries are now capital exporters
to the rest of the world,Highlighted in
Global Development Finance 2004,this trend has
continued to increase in scale and strategic impor-
tance,It warrants careful attention.
The aggregate current account surplus of de-
veloping countries has widened steadily since
2000,rising in 2004 to $153 billion (2.0 percent
of developing-country GDP),Within developing
countries,the current account surpluses have been
concentrated largely in emerging markets—
notably Brazil,China,Malaysia,the Russian Fed-
eration,and República Bolivariana de Venezuela,
several of which maintain managed exchange-rate
regimes and limited capital account convertibility
(table 3.1),The large surpluses mirror a decline in
domestic investment relative to savings,a trend
that is particularly noteworthy in East Asia,The
long-running stagnation of Japan and the steep fall
in growth and investment in developing economies
since the crisis of 1997/98 have generated sur-
pluses equivalent to 9 percent of the U.S,deficit
56
T
o examine how individual country conditions affect
the relationship between U.S,interest rates and
emerging-market bond conditions,we draw on the recent
literature on asset-pricing models for sovereign yield
spreads (Duffie,Pedersen,and Singleton 2003; Menkveld,
Cheung,and de Jong 2004; and Dailami,Masson,and
Padou 2004),To analyze determinants of the emerging-
market spread over U.S,Treasuries,we performed panel
regressions on domestic determinants of a country’s credit-
worthiness,as well as global variables that explain the
supply and cost of credit to emerging markets,The results
point to several important conclusions.
Country-specific variables seem to dominate U.S,
interest rates in terms of the influence on emerging-market
spreads,In particular,trade openness has a strong negative
effect on spreads—plausible because more open countries
are better able to adjust their balance of payments to
generate earnings to service external debt,This variable
may also reflect the finding in the growth literature that
more open countries tend to grow faster,Higher indebted-
ness (measured by the ratio of debt to GDP) has a positive
impact on spreads,whereas a higher ratio of reserves to
debt and a lower share of short-term debt each have a
significant negative influence,The latter effect may simply
reflect an upward-sloping term structure,
The risk that U.S,monetary tightening might lead to
dramatic increases in emerging-market spreads and in
global risk appetite appears lower than in past periods.
Levels of indebtedness in emerging markets are generally
lower than in earlier periods,as countries have recognized
the dangers of external borrowing (especially short-term),
and the level of foreign exchange reserves is considerably
higher,Countries are differentially affected by the current
high level of commodity prices,with some benefiting from
higher prices for key commodity exports,and others
adversely affected by the higher price of their oil imports.
The fact that monetary tightening is largely
anticipated (which was not the case,for instance,in
March 1994) is likely to mean a less abrupt adjustment of
spreads that will permit emerging market economies to
take palliative measures,such as lengthening maturities to
lock in lower rates,The latter tactic is evident in actions
by several countries to,prefinance” future financing needs
while current conditions are favorable,For countries that
still limit the fluctuations of their currencies against the
U.S,dollar through a peg or,dirty float,” the weakening
of the dollar against the euro and yen offers more room for
maneuver.
There is evidence that today’s investors are much
better able to discriminate among borrowers and less likely
to infer that problems in one country signal problems in
others,The default by Argentina in 2002—the largest in
history—did not cause much disruption in world capital
markets,nor did neighboring countries suffer major
increases in their spreads,While the Argentina episode was
in some ways a special case—the,crisis” unfolded over a
period of months,plenty of time for market participants
to anticipate events—it may also signal that when higher
interest rates push a country to the edge of default,the
likelihood of generalized contagion is now low.
Box 3.2 Determinants of emerging-market spreads
GLOBAL IMBALANCES AND EMERGING MARKET ECONOMIES
(figure 3.8),At the same time,the ratio of invest-
ment to GDP in major developing East Asian
economies (other than China) fell by an average of
9 percentage points of GDP between 1996 and
2003 (World Bank 2004).
The disparity between growing current ac-
count surpluses and steady or declining domestic
investment and consumption is explained by the
fact that a portion of the surplus has been funneled
into reserve accumulation (figure 3.9),Over the last
five years,developing countries have accounted for
more than half of the global increase in foreign
exchange reserves (figure 3.10),The developing
countries as a group have raised their foreign
exchange reserves to unprecedented levels in recent
years,At the end of 2004,they held an estimated
$1.6 trillion in foreign exchange,compared to
57
Figure 3.7 Change in sovereign bond spreads
following increase of 200 basis points in U.S.
interest rates,by degree of indebtedness of
country
Average change in spreads (bps)
0
60
50
10
30
70
6
20
33
64
20
40
H11021 40 40–60 61–80 H11022 90
Sources,World Bank Debtor Reporting System and staff estimates;
J.P,Morgan Chase; Dailami,Mason,and Padou 2004.
Debt/GNI (%)
Figure 3.8 World current account surpluses
as shares of U.S,current account deficit,2004
Source,World Bank staff estimates.
Japan
27%
Euro area
8%
Other high
income
21%
Developing
East Asia 9%
Other
developing
10%
Other
25%
U.S,current account
deficit H11005 $666 billion
Table 3.1 Current account balances in developing
countries,2000–4
$ billions
2000 2001 2002 2003 2004e
Developing countries 43.6 16.9 72.0 117.7 152.7
Argentina H110029.0 H110023.9 9.1 7.8 3.2
Brazil H1100224.2 H1100223.2 H110027.6 4.0 11.1
China 20.5 17.4 35.4 45.9 47.3
Czech Republic H110022.7 H110023.3 H110024.3 H110025.7 H110026.0
Egypt,Arab Rep,of H110021.0 H110020.4 0.6 3.7 3.3
India H110024.3 0.2 5.8 8.0 H110021.1
Indonesia 8.0 6.9 8.1 7.5 3.7
Malaysia 8.5 7.3 7.2 13.4 13.8
Mexico H1100218.2 H1100218.2 H1100214.1 H110029.2 H110028.3
Pakistan H110020.1 1.9 3.9 3.6 2.5
Philippines 6.3 1.3 4.4 3.3 4.1
Poland H1100210.0 H110025.4 H110025.0 H110024.6 H110024.4
Russian Federation 46.8 33.8 29.1 35.8 55.4
South Africa H110020.3 0.1 0.6 H110021.5 H110025.6
Thailand 9.3 6.2 7.0 8.0 5.4
Turkey H110029.8 3.4 H110021.5 H110026.8 H1100214.9
Venezuela,Rep,Bol,de 11.9 2.0 7.6 11.5 12.5
Memo items:
Low-income countries 8.2 3.2 15.3 12.1 7.6
Middle-income countries 35.4 13.7 56.7 100.7 145.0
Note,e H11005 estimate
Sources,World Bank,Global Development Finance,various years;
World Bank staff estimates for 2004.
Figure 3.9 Capital flows,current account balances,
and reserve accumulations in developing
countries,1980–2004
$ billions
H11002200
H11002100
0
100
200
300
400
500
1980 1984 1988 1992 1996 2000 2004
Sources,World Bank staff estimates; IMF International Financial
Statistics.
Change in reserves
Total capital flows
Current account balances
GLOBAL DEVELOPMENT FINANCE 2005
$1.2 trillion in 2003 and $921 billion in 2002.
Approximately 86 percent of the total is held
by middle-income countries,with China alone
accounting for 38 percent,or $610 billion,an in-
crease of $207 billion over 2003 (figure 3.11).
Other emerging market economies saw large in-
creases as well—the reserves of the Russian Federa-
tion increased by $41 billion to $114 billion; India’s
by about $28 billion to $125 billion; and Malaysia’s
by $18 billion to about $62 billion,In 2004,101 of
132 developing countries that reported data for
2004 increased their foreign exchange reserves,
approximately the same number as in 2003,And
while East Asia dominates,reserves have increased
in all developing regions over this period.
The benefits of higher reserves
Accumulation of higher reserve levels across a
broad range of developing countries is tangible
evidence of prudent policies and strong trade
performance since the crises of the late 1990s,In
general,it lowers vulnerability to external shocks.
With financial markets focusing on borrowing
countries’ level of reserves as an important indica-
tor of financial health,the recent increases provide
a margin of comfort and confidence,
Three factors have driven the rapid growth in
reserves:
The quest for self-insurance against external
shocks,The financial crises of the late 1990s
gave developing-country policymakers a re-
newed appreciation for the value of reserves
as protection against currency crises and
abrupt reversals of capital flows,Such protec-
tion is especially important for countries with
heavy external financing needs (Brazil,
Turkey) and for those with a high degree of
trade concentration (Pakistan) that are vulner-
able to sudden interruptions in gross flows as
a result of changing domestic conditions or
broader contagion in global markets,
The search for credit on favorable terms.
Reserve levels are also an important factor in
assessments of creditworthiness and broader
policy credibility,Increases in reserves con-
tribute to credit upgrades,which in turn
translate into lower borrowing costs and
reduced volatility,
The need for liquidity to achieve and manage
exchange-rate stability,In countries pursuing
a fixed exchange-rate policy,reserves help
monetary authorities defend a target peg in
the face of external pressures to raise the value
of their currency.
The costs and risks of,excessive” reserves
There is ample evidence of and broad consensus
about the benefits to developing countries from
maintaining an adequate level of foreign exchange
reserves that provide liquidity for exchange-rate
management and can be readily accessed when
needed,
There is less agreement,however,on what con-
stitutes an,adequate level of reserves,” especially
when countries are operating under a flexible
exchange-rate regime and are relatively open to
58
Figure 3.11 Foreign-exchange reserves in
developing countries,1999–2004
$ billions
Sources,World Bank staff estimates; IMF International Financial
Statistics Yearbook.
0
1,800
1,600
1,400
1,200
1,000
800
600
400
200
200420032002200120001999
Low-income countries
Other middle-income countries
China
155
381
86
166
403
100
212
426
112
286
492
144
403
622
189
610
751
231
Figure 3.10 Global foreign exchange reserve
accumulation,1999–2004
Sources,World Bank staff estimates; IMF International
Financial Statistics Yearbook.
Developed
countries
47%
East Asia &
Pacific
28% Europe and Central Asia
11%
Latin America and
the Caribbean 3%
Middle East and North Africa
3%
South Asia 6%
Sub-Saharan
Africa 2%
GLOBAL IMBALANCES AND EMERGING MARKET ECONOMIES
foreign capital flows (IMF 2003; Wijnholds and
Kapteyn 2001; Feldstein 1999),In the 1970s and
1980s,when most exchange rates were fixed and
capital accounts closed,the rationale for holding
reserves was to provide a safeguard against exter-
nal volatility in exports and imports (box 3.3).
Three to six months of imports was often used as a
rule of thumb to define an adequate level of re-
serves,When the underlying source of volatility
and crisis shifted from trade to the capital account
in the 1990s,the measure of reserve adequacy
moved from an import-based indicator to one that
would express the country’s ability to weather
volatility and the possibility of a reversal of capital
flows—whence the new convention,likewise just a
rule of thumb,that reserves should be equal to
short-term debt (debt maturing in one year or less).
In several countries reserve levels have come to
exceed,by a large margin,conventional measures
of adequacy,six-months of imports or the entire
stock of outstanding external short-term debt,In
these countries,the question of the potential cost of
reserve holdings can reasonably be posed,China,
the Czech Republic,India,Malaysia,Pakistan,
Thailand,and República Bolivariana de Venezuela
all have reserves that are more than four times their
external short-term debt (table 3.2),Many of these
economies have accumulated these reserves as a re-
sult of policies that have kept exchange rates fixed
or pegged,
But holding reserves has costs,too,And when
reserve levels become high enough,the costs can
become quite large,The high level of reserves,
59
T
he buildup of foreign exchange reserves in the hands
of developing countries’ central banks and monetary
authorities—and its use in financing global payment
imbalances—marks a new phase in the postwar system for
financing international payments,In the years following
the establishment of the Bretton Woods system in 1948,
when most exchange rates were fixed,capital mobility
restricted,and access to private sources of capital limited
to a few high-income countries,the balance of payments
was maintained primarily through official finance,
Anchored by the International Monetary Fund (IMF),but
also encompassing supplementary financing facilities
through the Bank for International Settlements and
central banks,this regime assured a sufficient supply of
balance-of-payments financing as long as imbalances were
not too large and countries adhered to the norms of good
policy behavior—for example,by avoiding competitive
currency devaluation,But as the European countries
recovered from the devastation of the war,they made their
currencies convertible and secured access to private capital
markets,Only developing countries continued to draw on
official financing to maintain their balance of payments,
The rise in world oil prices in the 1970s and the
associated accumulation of balance-of-payments surpluses
in the member states of the Organization of Petroleum
Exporting Countries strengthened the role of private
financing,as surpluses were intermediated to deficit
countries through private capital markets,particularly
banks,This,privatization” of balance-of-payments
financing had the effect of easing previous balance-of-
payments constraints on national economies and,to a
degree,substituted market discipline for the discipline of
official financing,In the process it also contributed to the
financial crises of the 1980s and 1990s.
Box 3.3 Developing countries as exporters of capital—a
new twist on the Bretton Woods system
Table 3.2 Ratios of foreign-exchange reserves to
imports and external short-term debt in emerging
market economies,2004
Reserves as Ratio of reserves to
months of imports short-term debt
Argentina 11 1.1
Brazil 12 1.8
China 12 14.1
Czech Republic 6 4.6
Egypt,Arab Rep,of 14 3.7
India 16 6.3
Indonesia 13 2.6
Malaysia 6 5.3
Mexico 4 2.1
Pakistan 10 10.7
Philippines 4 1.6
Poland 6 2.6
Russian Federation 11 3.1
Thailand 6 5.0
Turkey 6 1.8
Venezuela,Rep,Bol,de 20 5.0
Sources,World Bank staff estimates; IMF International Financial
Statistics.
GLOBAL DEVELOPMENT FINANCE 2005
particularly in emerging market economies,has
prompted much debate about whether the protec-
tion is worth the cost,The key economic costs of
excessive reserve accumulation fall into two
categories,(i),quasi-fiscal” costs associated with
central banks’ sterilization efforts; and (ii) poten-
tial capital losses on reserve assets held,typically,
in highly rated foreign government securities.
The quasi-fiscal cost of reserve accumulation
stems from central banks’ efforts to offset (or
sterilize) the expansionary monetary impact of
their purchase of reserves,Without open-market
sterilization operations (or other administrative
measures),ballooning reserves would cause the
monetary base to expand beyond the productive
capacity of the economy,leading to inflation,As
central banks sterilize by selling government securi-
ties in local markets to mop up liquidity,they incur
an income loss,because the yields on their reserve
holdings generally fall short of the yields they must
pay on the securities they issue,
The magnitude of this fiscal burden varies
across countries,depending on the gap between
the interest rate paid on domestic issues and the
rate earned on reserve holdings,adjusted by ex-
pected changes in exchange rates,For emerging
markets with high reserves,that gap (based on the
difference between domestic interest rates and the
yield on two-year U.S,government bonds) is esti-
mated at around 7.6 percent for China,8 percent
for the Russian Federation,and 1.8 percent for
India (table 3.3),Assuming an average spread of
250 basis points between an emerging-market
bond with a two-year maturity and a U.S,Trea-
sury bill of corresponding maturity,each $10 bil-
lion of reserve holdings costs the central bank
about $250 million in annual carrying charges—a
sizable cost,Moreover,these costs are likely to in-
crease as sterilizing operations add to public sector
debt and put upward pressure on domestic interest
rates,in turn increasing the size of the rate gap and
associated carrying charges.
7
The risk of capital losses on reserves depends
on the level of reserves,but also on the portfolio
investment decisions of reserve managers—and
particularly on their choices of currency composi-
tion and acceptable risk parameters,Virtually all
reserves are held in five major currencies (dollar,
euro,Japanese yen,British pound,and Swiss
franc),with about 70 percent invested in dollar-
denominated assets,both inside the United States
and in global euro-dollar markets,Although
detailed data on allocations in the reserve port-
folios of individual countries are not available
(because central banks have little reason to disclose
such information),
8
there is a strong correlation be-
tween emerging markets’ total reserve holdings
and total foreign official assets in the United States
(figure 3.12),suggesting that a substantial share of
reserves is in fact invested in dollar assets in the
United States,If this is indeed the case,a drop in
the value of the dollar vis-à-vis the local currency
60
Table 3.3,Reserve carrying costs in emerging
markets
Expected
annual
change in Expectation-
exchange adjusted
Spreads rate spreads
a
Brazil H110020.6 14.3 H1100214.9
China 2.4 H110025.2 7.6
Czech Republic H110020.7 H110020.5 H110020.2
Egypt,Arab Rep,of 6.8
India 2.3 0.5 1.8
Indonesia 6.0 2.6 3.4
Malaysia H110020.5
Mexico 5.6 4.3 1.3
Pakistan H110020.1
Philippines 3.2 4.1 H110020.9
Poland 3.3 3.1 0.2
Russian Federation 9.8 1.8 8
Thailand H110021.2 H110020.2 1
Turkey 16.8 17.4 H110020.6
a,Spreads over U.S,two-year government bond yields as of Jan,7,
2005.
Sources,Bloomberg; J.P,Morgan Chase; World Bank staff estimates.
Figure 3.12 Foreign official assets in the United
States,1980–2003
$ billions
0
400
600
800
1,000
1,200
1,400
1,600
200
1980 19861983 19921989 19981995 2001 2003
Source,U.S,Department of Commerce.
Total foreign official assets
Middle-income
countries’ reserves
Japan’s reserves
GLOBAL IMBALANCES AND EMERGING MARKET ECONOMIES
implies an equivalent drop in the real asset value of
the reserves held,Similarly,increases in global in-
terest rates can generate capital losses on reserve
assets held in fixed-income securities,particularly
those with longer maturity,For example,an in-
crease of 200 basis points in U.S,interest rates
would translate into a $26.8 billion loss on the
dollar-denominated bond portfolio of the six emerg-
ing market economies,with the largest asset hold-
ings in U.S,Treasuries as of October 2004 (Brazil,
China,India,Mexico,Thailand,and Turkey).
In practice,these losses are typically absorbed
by reducing income transfers from the central
bank to the treasury or reflected in the central
bank’s capital position,But other outcomes are
possible—in countries where the banking system is
under government control and interest rates are
not market-determined,such as China,the quasi-
fiscal expenditure has been largely off-loaded onto
state-owned commercial banks that have been re-
quired to purchase securities sold by the People’s
Bank of China at below market-clearing interest
rates,While this approach keeps the cost of
reserve holdings off the government’s (and the
central bank’s) books,it tends to further reduce
the already tenuous profitability of the state-
owned banks and so contribute to financial system
fragility,The broader point is that these losses
impose real economic costs,whose incidence (on
the treasury or on banks) will depend on the poli-
cies and institutional arrangements pursued,
For the majority of developing countries,
whose currencies are not fully convertible on the
capital account,institutional constraints often limit
the sustainability of sterilized foreign exchange in-
terventions,Underdeveloped government securities
markets and an insufficient volume of securities
with which to conduct sterilization operations lim-
its the scope for effective open-market action in
many countries,The Reserve Bank of India,for
example,now faces a dilemma because its inven-
tory of government securities is falling rapidly,yet
it is not allowed to issue its own securities or sell
rupee assets on international markets,Similarly,in
connection with its open-market operations,the
Bank of Korea came up against the annual limit set
by the legislature on sales of government securities.
By October 2004,it had sold 17 trillion won
($15.9 billion) of a permitted 18.8 trillion won
($16.9 billion) total,The People’s Bank of China,
which accumulated nearly $100 billion of foreign
exchange reserves in the fourth quarter of 2004
alone,had (as of November 2004) sold the equiva-
lent of nearly $80 billion of central bank bonds
domestically,more than tripling the total stock of
bonds outstanding.
Looking ahead,policymakers in developing
countries are likely to find it increasingly difficult
to ignore certain important policy questions:
Asofficial financing from developing countries
plays an increasingly important role in meeting
global financing needs,questions regarding the
sustainability of these flows become more
important,Changes in the pattern of reserve ac-
cumulation could have important implications
for international stability and repercussions for
private capital flows to developing countries.
Developing countries that are accumulating
reserves in excess of (i) prudential demand for
liquidity and (ii) amounts needed to protect
against volatility in capital flows will have to
address the growing quasi-fiscal carrying
costs,potential capital losses from further
weakening of the dollar,and opportunity
costs associated with directing capital inflows
away from productive domestic investment
(including infrastructure) and into foreign
asset accumulation,
Promoting stability in global capital
flows
S
ince the beginning of 2004,the external fi-
nancing environment in which developing
countries must operate has been extraordinarily
stable,Driven by improved domestic economic
fundamentals and high global liquidity,private
capital flows expanded vigorously throughout the
year,uninterrupted by any sign of crisis or abrupt
changes in market sentiment (with the exception
of the short-lived rise in emerging-market bond
spreads in April and May),Today,however,that
stability is threatened by risks arising through
three channels discussed above:
Growing imbalances in external payments
Exchange-rate fluctuations among the major
currencies (dollar,yen,and euro)
Market reactions to the ongoing tightening
stance in global monetary policy,
61
GLOBAL DEVELOPMENT FINANCE 2005
Enhancing the resilience of developing coun-
tries to these risks requires actions on several
fronts,with important roles for both developed
and developing countries.
For developing countries,the greatest
challenge is to continue taking advantage of cur-
rent favorable external financing conditions while
pursuing the domestic macroeconomic and struc-
tural reforms necessary for long-term stability in
external financing,This strategy involves building
on recent macroeconomic gains—low inflation,
healthy trade surpluses,greater exchange-rate
flexibility,and lower debt burden—to address
structural weaknesses in their financial systems,
local capital markets,and systems for managing
external assets and liabilities,Such policies remain
critical to forging closer links with global capital
markets and to channeling capital flows to long-
term and productive investment and growth
opportunities,
Progress in macroeconomic stabilization and
structural reforms during the last two decades
helped provide the foundation for the recovery
and vigorous expansion of capital flows over the
last two years,Commitment to such policies needs
to be renewed through credible and concrete fiscal
actions (reduction in public debt burdens and
improved public debt management),monetary
actions (long-term price stability and low
inflation),and exchange-rate policies (avoiding
misaligned exchange rates and expanding flexibil-
ity),Such policies have underpinned recent gains
in creditworthiness in many emerging markets and
could help minimize the adverse impact on credit
spreads or availability of finance,should global
economic conditions worsen unexpectedly.
The cost-benefit calculus of continued reserve
accumulation by central banks in developing
countries (especially in Asia) needs to be reexam-
ined in light of increasing associated fiscal costs
and potential investment losses,While recognizing
that such policies have to date had a largely
positive macroeconomic effect on countries that
pursued them,continuing accumulation of re-
serves on such a large scale carries its own clear
risks,particularly if central banks (or others) with
large dollar holdings shift to other major curren-
cies,In both the short- and long-term,high-
reserve countries need to consider how best to
manage an appreciation of their currencies against
the major currencies,to share the burden of
exchange-rate adjustment with others (especially
Japan and the European Union).
As developing countries’ external balance
sheets have grown in recent years,the challenge
of asset and liability management has taken on
considerable significance,In that context,debt
and asset management policies need to strike a
meaningful balance between risk and return,
through efforts to lengthen the maturity of port-
folios,diversify currency composition,and seek
higher-yielding assets,while not losing sight of
broader macroeconomic and growth objectives.
Many emerging market economies have taken
advantage of recent favorable external financing
conditions to adjust maturity or currency struc-
tures of their external debt through refinancing
and,in certain cases,retirement of expensive
Brady bonds,On the asset side,more central
banks are relying on professional asset managers
to manage part of their foreign exchange reserve
holdings.
The Asian financial crises of 1997/98 pro-
vided a stark demonstration that weak domestic
financial systems can easily transform a currency
crisis into a full-blown economic free fall,Weak
prudential regulation,undercapitalized banks,
underdeveloped local capital markets,and
governments’ implicit guarantee of foreign cur-
rency borrowings through the prevailing fixed
exchange-rate regimes of the time were among
the factors that undermined investor confidence
and reversed capital flows,While considerable
progress has been achieved in many developing
countries in strengthening the banking sector and
developing local capital markets,the agenda is
largely unfinished,In several countries,strength-
ening domestic financial institutions remains
critical if monetary authorities are to pursue a
broad range of policies (particularly related to
exchange rates) without jeopardizing the sound-
ness of the domestic financial system.
But ultimately it is the macroeconomic policy
stance of G-3 countries that must shoulder the
burden of required adjustments,As emphasized in
the previous chapter,an orderly and market-
determined depreciation of the dollar,a key
element of such a strategy,would help reduce U.S.
external imbalances through its positive impact
on the current account deficit and on net external
62
GLOBAL IMBALANCES AND EMERGING MARKET ECONOMIES
debt,But orderly depreciation alone will not
secure a sufficient reduction in current global
payments imbalances,Equally important are
efforts to promote a shift in relative aggregate
demand through fiscal consolidation in the United
States and policies in the European Union and
Japan to stimulate domestic demand,It is only
through a combination of exchange-rate and de-
mand instruments that the necessary rebalancing
of world demand can be engineered in a sustain-
able manner,
Notes
1,The following countries are usually included in the
category of emerging market economies,in Asia—China,
India,Indonesia,Malaysia,the Philippines,and Thailand;
in Latin America—Argentina,Brazil,Chile,Mexico,Peru,
and República Bolivariana de Venezuela; in Eastern
Europe—Bulgaria,Czech Republic,Estonia,Hungary,
Poland,Russian Federation,and Slovakia.,Emerging mar-
ket economies” are not a category in the World Bank’s
country-classification system,which classes countries
according to gross national income,indebtedness,and other
criteria,See http://www.worldbank.org/data/countryclass/
countryclass.html.
2,The notion that a country’s history of macroeco-
nomic management and default matters in the assessment of
country risk by the capital markets is known as,debt intol-
erance.” See Reinhart,Rogoff,and Savastano (2003),
3,This is not the first time the world economy has
faced external payments imbalances and related adjustment
difficulties,Postwar history is replete with such episodes.
Just as at present,those episodes featured domestic and
external policy conflicts,international adjustment bargains,
disagreements on burden sharing,and several cases of
macroeconomic diplomacy leading to cooperative solutions,
such as the Plaza Accord of September 1985 (Henning
1987; Bergsten 1991).
4,Given their relatively higher risk aversion and nat-
ural proclivity for safe assets,official investors have a strong
demand for government securities,with equities given a low
(or even zero) weight in their investment portfolio,This pref-
erence for government paper favors government bond mar-
kets at the expense of equity markets,Higher bond prices
mean lower costs of funds for the public sector,and lower
equity prices mean lower return on private capital,The
macroeconomic consequence of this rotation is a reallocation
of resources from the private to the public sector,With the
U.S,economy relying increasingly on official sources in
financing its current account deficit,the distributional im-
pact is again to the public sector.
5,While the potential for hedging against cross-
currency risk among major currencies is substantial,given the
size and depth of global currency and interest-rate derivative
markets,the scope for hedging against currency risk vis-à-vis
local currencies in developing countries is limited to six-
month to one-year forward markets.
6,The relationship between U.S,interest rates and
emerging-market bond spreads may be nonlinear because
spreads incorporate default probability in a nonlinear way.
For instance,at low interest rates and in periods of favor-
able economic activity in developing countries,a rise in U.S.
interest rates may have little effect on investors’ estimates of
the probability of default,By contrast,when the emerging-
market borrower is,or appears to be,at the limit of its abil-
ity to repay,a given increase in U.S,rates may (appear to)
push the borrower over the edge,sharply increasing the per-
ceived probability of default,Such a scenario may have oc-
curred,for instance,in 1982 and 1994 (Dailami,Masson,
and Padou 2004).
7,The fiscal costs occur regardless of whether re-
serves are held on the central banks’ balance sheet or are
held by other authorities that purchase foreign exchange
reserves in the local interbank market and pay for them
with local-currency liabilities or cash,To the extent that the
return on reserve holdings in foreign securities falls short of
domestic financing costs,there exists a fiscal cost of reserve
accumulation,The magnitude of this fiscal cost depends on
the spread between foreign and domestic interest rates,the
size of reserve increases,and the future changes in the ex-
change rate of the local currency vis-à-vis reserve curren-
cies,But in practice and in a majority of countries,it is the
central bank that is the primary agency in charge of reserve
management,Its responsibility extends to adopting more
stringent accounting standards for reporting the volume of
and changes in reserve levels,Estimating the fiscal costs of
reserve accumulation also involves paying attention to the
implications of holding reserves on the central bank’s bal-
ance sheet for the determination of domestic interest rates,
the exchange rate,monetary expansion,and government
debt dynamics,See Dailami 2005; Kletzer and Spiegel
2004; and Becker and Sinclair 2004 for further discussion
of such issues.
8,Reflecting the progress achieved in recent years in
the implementation of the IMF’s safeguards assessments and
the Special Data Dissemination Standard (SDDS,adopted in
1996),the accounting standards,transparency,and quality
of reserve information reported by central banks have sig-
nificantly improved,As of the end of 2004,53 central banks
had committed to the SDDS,and participation is expected
to rise further.
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GLOBAL DEVELOPMENT FINANCE 2005
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Esquivel,Gerardo,and Felipe Larraín,2002.,The Impact
of G-3 Exchange Rate Volatility on Developing
Countries.” G-24 Discussion Paper 16,United
Nations Conference on Trade and Development,
Geneva.
Feldstein,Martin,1999.,A Self-Help Guide for Emerging
Markets.” Foreign Affairs 78 (2),93–109.
Frankel,Jeffrey A.,and Nouriel Roubini,2003.,Industrial
Country Policies.” In Economic and Financial Crises
in Emerging Market Economies (National Bureau of
Economic Research,Conference Report),ed,Martin
Feldstein,Chicago,University of Chicago Press,
Goldberg,Linda,and Deborah Leonard,2003.,What
Moves Sovereign Bond Markets? The Effects of Eco-
nomic News on U.S,and German Yields.” Current
Issues (Federal Reserve Bank of New York) 9 (9).
Henning,C,R,1987.,Macroeconomic Diplomacy in the
1980s.” Atlantic Papers 65,Atlantic Institute for Inter-
national Affairs,United Kingdom.
IMF (International Monetary Fund),2003,World Eco-
nomic Outlook,Washington,DC,IMF,
,Various years,International Financial Statistics
Yearbook,Washington,DC,IMF.
Kletzer,Kenneth,and Mark M,Spiegel,2004.,Sterilization
Costs and Exchange Rate Targeting.” Journal of Inter-
national Money and Finance 23 (6),897–915.
Menkveld,A.,Y,C,Cheung,and F,de Jong,2004.,Euro
Area Sovereign Yield Dynamics,The Role of Order
Imbalance.” Working Paper 385,European Central
Bank,Frankfurt.
Reinhart,Carmen M.,Kenneth S,Rogoff,and Miguel A.
Savastano,2003.,Debt Intolerance.” NBER Working
Paper 9908,National Bureau of Economic Research,
Cambridge,Mass.
Wijnholds,J,O,and Kapteyn,A,2001.,Reserve Adequacy
in Emerging Market Economies.” IMF Working Paper
WP/01/143,Washington,DC.
World Bank,2004.,Steering a Steady Course,Strengthening
the Investment Climate in East Asia.” East Asia and Pa-
cific Half-Yearly Update,World Bank,Washington,DC.
.Various years,Global Development Finance.
Washington,DC,World Bank.
64
4
Complex Challenges in
Developing-Country Debt
M
UCH HAS CHANGED SINCE THE
wave of financial crises that rocked
emerging-market economies and dis-
rupted global financial markets after 1994,Several
favorable economic and policy developments over
the past few years have renewed foreign investors’
interest in developing countries.
1
Private capital
flows to developing countries have shown a strong
rebound in the past two years (chapter 1) on the
strength of marked improvements in economic fun-
damentals and investors’ search for higher yields
than those available in developed-country markets.
Emerging-market bond spreads have declined to
near record lows,reflecting investors’ assessments
that the risk of a looming financial crisis is close to
an all-time low.
But recent history provides a sobering re-
minder of how poor financial markets are at
spotting brewing crises—and how costly such
crises can be for the poor in developing coun-
tries,The prospects are good for the current
favorable economic and financial conditions to
continue in most developing countries (chapter 2).
But rosy economic projections conceal vulnera-
bilities created by the stark external imbalances
in the global economy and by the evolution of
financing patterns,notably the rise of domestic
debt in key middle-income countries,Many
countries are better prepared for financial diffi-
culties than they were in the 1990s,but others re-
main exposed,There is no room for complacency
on the part of financial market participants and
policymakers.
67
.
Looking ahead,there is a risk that global
imbalances could unwind in a disorderly manner,
resulting in abrupt movements in interest rates
and exchange rates,possibly accompanied by a
global slowdown and perhaps even protectionist
trade measures (chapters 2 and 3),Such develop-
ments would almost surely affect investors’ as-
essment of the risk of holding debt issued by
developing countries,Emerging-market bond
spreads could widen rapidly with a sudden swing
in investor sentiment,debt-servicing burdens could
rise,and disruptions in capital flows could accentu-
ate stresses on vulnerable emerging markets.
But such pressures would not automatically
lead to a replay of past crises,The drivers of debt
accumulation since the mid-1990s are different
from those of earlier decades,and this changed
environment poses new and different risks,Several
changes stand out,
First,many countries that were at the center
of earlier crises have made significant progress in
improving prudential and regulatory policies and
structures,the weaknesses of which contributed to
the crisis,Fiscal positions have been strengthened;
corporate practices are more prudent; and the
financial sector has moved to adopt international
standards,
Second,the composition of financial flows has
changed in a way that affects stability,Equity
investments (foreign direct investment and portfo-
lio equity flows),which are less volatile than bank
lending,account for a growing share of capital
inflows to emerging market economies,Bond and
GLOBAL DEVELOPMENT FINANCE 2005
short-term debt has grown in importance relative
to bank lending,with important implications for
the cost and availability of finance and the man-
agement of crises,
Third,the external debt burden of developing
countries as a group has eased since the wave of
financial and economic crises that began in the
mid-1990s,But that easing has not been universal.
Beyond the aggregates,one finds considerable
country diversity,Severe difficulties persist in a
few countries,and debt burdens have risen in
more than half,
Fourth,the aggregate decline in external
indebtedness has been partially offset by a rise in
domestic debt,That shift brings some benefits,but
excessive domestic borrowing can be just as harm-
ful as excessive external debt.
Countries that have lowered their external
debt have reduced their vulnerability to changes in
the external financing environment and relieved
pressure on their exchange rate,But the switch to
domestic debt heightens other risks—notably the
uncertainties of rolling over short-term debt
(because maturities of domestic debt are generally
shorter than those of external debt) and associated
interest-rate risks,
Despite the growing sophistication of interna-
tional capital markets and a steady growth in the ca-
pacity of central banks and monetary authorities in
developing countries,significant weaknesses remain
both in the international architecture that has
evolved to regulate those markets (Global Develop-
ment Finance 2004,chapter 2) and in the quality of
data available on the fast-growing domestic debt
markets in many emerging-market economies.
Improving the monitoring and dissemination of
information on public and private domestic debt
flows should remain a priority for international
institutions and national authorities.
The chapter proceeds as follows,After survey-
ing significant changes in developing-country
finance since the mid-1990s,we focus on current
trends in external debt in the emerging-market
economies,We then take a closer look at a particu-
larly significant recent development in emerging
economies—the rise of domestic debt markets.
The interplay between external and domestic debt,
and the special challenges of managing a mixed
portfolio are the subjects of the last major part of
the chapter.
The change since the 1990s
S
ince the mid-1990s,various developments
have occurred that reflect the changing vulner-
ability of emerging-market economies to future
crises:
Overall external indebtedness has improved.
The composition and character of external
debt has changed.
Domestic debt markets have grown rapidly in
emerging-market economies,leading to new
uncertainties about the scale of the overall
debt burden in many countries.
The policy environment has improved in
many countries,notably the East Asian coun-
tries that were the focal point of the recent
crises.
A more accommodating and discerning inter-
national financial environment has evolved.
Progress has been made on the international
framework governing debt.
Reduced external indebtedness for many,and
a larger role for non-debt-creating flows
Benchmarked against gross national income
(GNI),developing countries’ burden of external
debt (public and private) declined from a peak of
45 percent of GNI in 1999 to an estimated 39 per-
cent in 2003,The improvement was achieved
despite an increase of almost $207 billion in the
nominal value of total external debt,which rose
over the last few years (after declining in 2000 and
2001),although at a much slower pace than dur-
ing the 1980s and early 1990s,
Other indicators of the aggregate external
debt burden of the developing world have im-
proved significantly as well,although regions and
country groups have been affected differently
(table 4.1),as detailed in the next part of the chap-
ter,Short-term debt as a percentage of total
external debt is lower for both low- and middle-
income countries in all regions except in Europe
and Central Asia,This decline reflects reduced
pressures on countries to maintain foreign ex-
change liquidity,The aggregate ratio of external
debt to exports dropped sharply,from 135 percent
in 1997 to 105 percent in 2003,while the debt
servicing burden eased from 19 percent of exports
to 17 percent.
68
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
69
Most notably,foreign exchange reserves of
developing countries more than doubled,from
$631 billion in 1997 (about 30 percent of their
external debt stock) to $1.6 trillion in 2004 (60 per-
cent of their debt stock),providing a valuable
cushion against unanticipated external shocks
(chapter 3),In line with these marked improve-
ments in indicators of external debt,foreign capital
flows from private sources recovered as well.
The share of foreign direct investment (FDI)
and portfolio equity in the finance mix of many
developing countries has grown in recent years.
That trend enhances stability,because FDI in-
vestors generally emphasize long-term commitment
and exhibit greater tolerance for near-term shocks.
Equity flows accounted for 80 percent of total
external financing during 1999–2003,compared
with just 60 percent during 1993–98.
The changing composition of external debt—
more private borrowers
The ownership pattern of external debt has shifted.
The share of public sector debt in total external
debt declined from 82 percent during 1990–95 to
69 percent during 1996–2003 (figure 4.1).
2
Conse-
quently,the ratio of external public debt to GDP
declined from 31 percent to 27 percent over the
same period,Deregulation in international capital
markets and developing countries,expansion in the
base of developing-country investors,and improved
information and research—all facilitated access by
corporate borrowers in developing countries to
international capital markets.
But the declining public share is not universal—
public sector indebtedness has increased in some
countries,creating vulnerability related to their
growing exposure to tradable external debt,Estab-
lishing access to private sources of cross-border
finance often requires public participation to miti-
gate credit risks,especially in countries with low
credit-risk ratings,In many countries bond
financing is either a direct public sector liability or
carries public sector guarantees,And governments
often postpone direct dealings between the corpo-
rate sector and private international investors so as
to maintain stability in the capital account,Both
measures have had the effect of raising public sector
indebtedness in some middle-income countries since
the mid-1990s—among them Ecuador,Gabon,
Lebanon,Romania,and Republica Bolivariana de
Venezuela.
Growing reliance on domestic debt markets
External debt reductions in emerging-market
economies have been partly offset by growth in do-
mestic public sector debt (figure 4.2),As a result,
Table 4.1 Selected indicators of the burden of external debt,1997–2002/3
Percent
East Asia & Latin America Europe &
All countries Low-income Middle-income Pacific & Caribbean Central Asia
1997 2003 1997 2003 1997 2003 1997 2003 1997 2003 1997 2003
Short-term debt/total debt 18.4 15.7 10.8 7.9 20.0 17.3 25.1 23.9 19.1 10.7 15.2 19.9
Total debt stock/exports 135.1 104.7 236.3 147.9 123.3 98.6 100.5 60.0 179.6 159.9 106.3 111.1
Total debt service/exports 18.8 17.2 17.7 12.0 18.9 17.8 12.1 10.5 35.1 30.7 12.2 19.8
Reserves/total debt stock 29.2 50.0 14.6 37.9 32.4 52.4 42.7 107.7 26.2 25.8 25.8 36.9
Reserves/imports (months) 4.4 6.5 3.5 6.8 4.5 6.4 5.3 8.3 4.8 5.0 3.0 4.8
Source,World Bank Debtor Reporting System.
Figure 4.1 Composition of developing countries’
external debt,1990–2003
% total external debt
Sources,World Bank Debtor Reporting System and staff
calculations.
0
40
60
80
100
20
1990 1992 1994 1996 1998 2000 2002 2003
Private
Public
GLOBAL DEVELOPMENT FINANCE 2005
in many countries,the overall burden of public
sector debt remains high,In Costa Rica,Peru,the
Philippines,and other countries,the decline in exter-
nal indebtedness has been completely offset by the
rise in domestic debt,In others,such as Indonesia,
Thailand,and Ukraine,external and domestic debt
have both risen since the mid-1990s (figure 4.3).
3
The growing importance of domestic debt has
been driven by several factors,Many developing
countries have made a concerted effort to avoid
exposure to currency risks and to assert greater
control over public debt management,Both goals
are supported by the recognition that the percep-
tion of risk in international capital markets has an
important influence on capital flows and can
affect financing prospects regardless of domestic
conditions,(This was explored in chapter 3 of
Global Development Finance 2003.) Liberaliza-
tion of capital accounts in many countries has
contributed to the growth of domestic debt by fa-
cilitating the deepening of domestic financial mar-
kets,a trend reinforced by the adoption of sound
institutional and regulatory policies,But not all of
the new money in domestic debt markets has come
from within the country,With successful macro-
economic policies to manage inflation in some
developing countries,liberalization has brought
greater foreign investment in domestic debt mar-
kets in developing countries,
In 1993/94,on the eve of the Mexican peso
crisis,the external public debt of developing coun-
tries averaged 33 percent of their GDP,while their
domestic public debt averaged about 19 percent.
By 2002/03,external public sector debt had
declined to 26 percent of developing countries’
GDP,but the domestic public debt burden had
risen to 34 percent,Thus the total public sector
debt burden of developing countries rose from
52 percent to 60 percent during this period,The
implications of increased domestic debt are ex-
plored in greater detail later in the chapter.
An improved policy environment
Policies and performance in developing countries
have helped bring about the observed improvement
in indebtedness,Since the late 1990s,GNI in devel-
oping countries has grown three times faster than
external debt,Many countries,especially those
touched by recent crises,have adopted more
market-oriented financial policies and increased
their openness to international trade and invest-
ment,Fiscal policies have been more prudent,al-
though concerns persist about the sustainability of
public debt in several countries,Inflation has fallen,
and many developing countries are showing strong
growth in productivity,The spread of flexible
exchange-rate systems has reduced the likelihood
that an exchange-rate crisis will become a debt crisis
and raised awareness of the risks inherent in cur-
rency mismatches,Since 1996,19 developing coun-
tries have shifted to floating exchange-rate regimes.
70
Figure 4.2 Developing countries’ total public
sector debt,1990–2003
% GDP
Sources,World Bank 2004 for external debt data for countries
reporting under World Bank Debtor Reporting System; IMF 2003
for domestic debt data.
10
30
25
20
15
35
External
Domestic
1990 1992 1994 1996 1998 2000 2002 2003
Sources,IMF; World Bank Debtor Reporting System.
Figure 4.3 Burden of public debt,external vs.
domestic,1990–2002
Change from average 1990–96 to 1997–2002 (% GDP)
H1100260
20
H1100220
H1100240
0
40
60
Change in
external debt
Change in
domestic debt
J
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COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
In the Asian countries at the epicenter of
the crisis in the late 1990s,initiatives to
strengthen corporate and financial sectors have
produced impressive gains,Considerable corpo-
rate restructuring has taken place,albeit at vary-
ing degrees (Kawai,Lieberman,and Mako 2000;
Binamira and Haworth 2000),In four key coun-
tries (Indonesia,Malaysia,Philippines,Thailand),
measures of profitability (income/sales ratios and
return on assets) were up in almost all cases be-
tween 1998–2003,and measures of vulnera-
bility to external pressures (interest/sales ratios,
capital adequacy ratios) have strongly improved
(table 4.2).
More broadly,stronger domestic environ-
ments and lowered susceptibility to shocks have
impressed investors and raised credit ratings
throughout the developing world (figure 4.4).
A more accommodating and discerning
financing environment
Changes in the international financing environment
have benefited emerging-market economies that
have made improvements in their domestic macro
policy,International capital markets today are more
attuned to and more discriminating about develop-
ment finance than in the past,This in turn imposes
adegree of discipline on borrowing through greater
transparency,a more substantial flow of informa-
tion,increased market research,and finer distinc-
tions in credit risk (World Bank 2004).
Overall,these developments have reduced the
incidences of contagion and systemic risk in
market-based emerging-market finance,Nearly 60
developing countries now carry formal credit-risk
ratings,almost four times the number in the mid-
1990s,And as international banks have aligned
their assets and liabilities more consistently,local-
currency bank lending to developing countries
grew to 40 percent of all bank lending in 2003,
compared with 15 percent in 1995,The switch
from cross-border (or international) to local-
currency lending by banks permits better risk man-
agement and thus greater stability,At the same
time,the base of investors interested in the develop-
ing countries has changed—in particular,the share
of speculative capital has declined relative to the
mid-to-late-1990s,which helps dampen excessive
and potentially crippling volatility in capital flows
(World Bank 2003).
A strengthened international framework
The international financial architecture,which aims
to prevent sovereign debt defaults and facilitate
orderly debt restructuring,has been strengthened
in significant ways (Frankel and Roubini 2003)
though the work is by no means complete (Peterson,
Goldstein,and Hills 2004),Collective action
clauses (CACs) have been introduced in bond-
financing transactions,and discussions over a code
71
Note,The credit quality calculations are based on weighted averages
of long-term foreign and local-currency credit-risk ratings of
countries rated by Standard and Poor's,The weights applied are the
total outstanding foreign-currency debt as reported in World Bank
(2004).
Sources,Standard and Poor’s; World Bank staff calculations.
BBH11002
BBB
BBH11001
AH11002
Domestic
Foreign
1997 1998 1999 2000 2001 2002 2003 2004
Figure 4.4 Credit quality of emerging markets,
1997–2004
S & P credit-risk rating
Table4.2 Corporate and financial sector comparison
forAsian crisis countries,1998 and 2003
Percent
Indonesia Malaysia Philippines Thailand
1998 2003 1998 2003 1998 2003 1998 2003
Corporate sector
Ordinary
income to
sales H1100212.0 8.0 3.0 7.0 H110020.5 4.0 7.5 11.0
Interest
expense to
sales 13.0 3.0 4.5 1.7 7.8 3.0 8.2 1.0
Financial sector
Commercial
banks’
return on assets 0.6 2.7 1.8 1.6 0.4 1.2 H110020.2 1.5
Capital
adequacy
ratio 2.3 22.0 11.0 13.0 15.2 17.5 11.0 11.2
Source,World Bank.
GLOBAL DEVELOPMENT FINANCE 2005
of conduct continue,The Capital Adequacy Accord
(Basel II) offers the potential to strengthen the
banking sector and enhance the ability of banks
to take on and sustain riskier lending,through
measures to mitigate and manage risk,Joint efforts
on statistics and monitoring supported by the
World Bank,the Organisation for Economic
Co-operation and Development (OECD),the Inter-
national Monetary Fund (IMF),and the Bank for
International Settlements (BIS) are improving the
quality and quantity of information available for
assessing risk and managing approaching crises.
Despite these improvements,additional pro-
gress is needed,While CACs have emerged as the
main vehicle for facilitating debt restructuring,
they apply only to bond debt and even there the im-
pact is limited,CACs have not been universally
adopted in new developing-country bond issues,
and they are absent from most bond debt issued
before 2002,Thus debt restructuring remains a
laborious and time-consuming process,For exam-
ple,resolution of Argentina’s default on its public
sector debt,worth $102.5 billion,took more than
three years,The government and creditors differed
over the degree of reduction in the nominal value of
debt,the treatment of past-due interest,and the ca-
pacity of the government to pay.
External debt trends in emerging
markets
E
xternal debt burdens played a key role in pre-
cipitating the financial crises centered in
emerging-market economies during the 1990s,As
the current global growth cycle slows,and interest
rates rise,it is worth considering how emerging-
market economies’ external debt burdens have
evolved and how resilient their debt situation
might be to changing external conditions.
Recent debt crises were concentrated in just a
few countries,but the resulting tremors shaped the
evolution of development finance—and continue to
do so,In the mid-1990s,contagion from localized
financial and economic pressures often led to broad
market closures for developing countries,Even the
level of official financing available to the develop-
ing world was affected,as financial rescue packages
diverted resources from other countries,Since then,
changes in net private debt flows for these countries
have been the main drivers of private debt flows to
all developing countries (figure 4.5).
Nine countries that have absorbed the bulk
of market-based financing since the 1990s—
Argentina,Brazil,Indonesia,Malaysia,Mexico,
Philippines,the Russian Federation,Thailand,and
Turkey—were also at the center of the crises of the
1990s,These countries still have the potential to
trigger systemic crises in market-sourced develop-
ment finance,not only as bellwethers,but also be-
cause together they account for almost 70 percent
of all developing-country debt tradable in the sec-
ondary market and half of all privately sourced
debt (in 2002),
Aside from their status as market leaders,the
countries that have developed and exploited their
access to capital markets are a diverse group,Coun-
tries such as Argentina,Brazil,and República
Bolivariana de Venezuela have long struggled with
high debt burdens in one form or another,After
borrowing extensively from international banks
during the 1970s,their bank debt was restructured
in the 1980s,giving rise to the phenomenon of
Brady bonds,The emerging-market economies of
East Asia,by contrast,obtained greater access to
capital markets as they matured,Until the early
1990s,the external debt burden of East Asia as a
whole (in relation to GNI) was half of that for
Latin America,A third group comprises relatively
modest borrowers,Some,mostly high risk,have
long maintained limited access to syndicated or
structured bank credit,while others (for example,
Estonia,Guatemala,Jamaica,and Lithuania),
72
Sources,World Bank Debtor Reporting System and staff
calculations.
Figure 4.5 Change in net private debt flows (long-
term plus short-term) of crisis countries and
others,1994–2003
$ billions,yearH11408year
H1100280
20
H1100240
H1100220
H1100260
0
40
80
60
Accounted for by
crisis countries
Accounted for by
other countries
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
have been able to penetrate the more discerning
bond financing segment of the market.
Higher external debt in two-thirds
of middle-income countries
The overall reduction in the external debt burden
of middle-income countries since the crises of the
1990s masks diversity among individual countries.
The aggregate reduction derives from reductions
in a few countries—among them China,Mexico,
and Thailand (table 4.3)—that together account for
only about a third of outstanding developing-
country debt,By contrast,in two-thirds of middle-
income countries,the debt burden increased from
1997 to 2002,with the increase larger than 20 per-
centage points of GNI for more than one-quarter.
Overall,for middle-income economies,the ratio of
external debt to GNI remains at levels higher than
73
C
ross-currency valuation effects arising from movements
in the value of the dollar against other world curren-
cies,as well as debt forgiveness or reduction,have affected
the value of developing-country debt from year to year
(table).
a
For example,in 2002,the magnitude of the
exchange-rate valuation effect for all developing countries
($71 billion) was almost equal to the nominal change in
their total debt stock ($76 billion).
With almost 40 percent of developing-country debt
denominated in nondollar currencies,cross-currency
valuation can be significant,Regional variations exist
as well—in Latin America and the Caribbean,only
25 percent of external debt is denominated in currencies
other than the dollar,while in Middle East and North
Africa,nondollar currencies account for 55 percent of
outstanding debt,Cross-currency valuation effects have
been particularly prominent since the late 1990s.
These revaluation effects are one way in which
developing countries are exposed to the international
financing environment (chapter 3),At times,currency
effects dwarf actual changes in net cross-border debt flows.
In Argentina,Indonesia,and Morocco,for example,
unfavorable currency valuations neutralized the decline in
their total outstanding debt in 2002 (figure),In Argentina,
repayments and debt restructuring led to a decline in
outstanding debt of $5.4 billion in 2002,while cross-
currency valuations raised the price of that debt by
almost $7 billion,In Brazil,debt repayments amounted
to $1.4 billion in 2002,but cross-currency valuations
added $4.2 billion to the outstanding debt burden.
Box 4.1 Currency valuation effects
have significant impacts
Magnitude of change in debt and currency valuations
as of 2002
$ billions
2
0
H110022
H110024
H110026
4
6
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i
c
a
N
i
c
a
r
a
g
u
a
Top countries where valuation
has diluted reduction in debt
Top countries where valuation
has accentuated increase in debt
Change in
total debt
Currency
valuation
Sources,World Bank Debtor Reporting System and staff calculations.
Composition of change in external debt in
developing countries,2000–3
$ billions 2000 2001 2002 2003
Change in total debt stock H1100264 H1100222 76 219
Net flows on debt H110026 H110024762
Cross-currency valuation H1100253 H1100241 71 87
Debt forgiveness or reduction H1100226 H110027 H110027 H110023
Net change in interest arrears H110027311
Interest capitalized 14 1 4 1
Residual 14 26 0 61
a,Countries contract debt in various currencies,The debt data that countries
report to the World Bank’s Debtor Reporting System is expressed in the
currencies in which the original debt was contracted or in currencies in which
it is repayable,For purposes of standardization and aggregation,the DRS
converts these amounts into dollar values,The exchange rates used are
generally the par values or central rates specified by the International
Monetary Fund or market rates when necessary,Exchange rates in effect at
the end of any given year are used to convert the stock of debt outstanding
for that year in various currencies into the nominal dollar value.
Source,World Bank Debtor Reporting System.
GLOBAL DEVELOPMENT FINANCE 2005
those seen in the early 1990s (figure 4.6),The big
increase in the debt-GNI ratio occurred in 1997–99,
rising by nearly 8 percentage points (from 35 to
43 percent) with the combination of the Asian,
Russian,and Brazilian crises.
Among the emerging-market economies in
which external debt has risen,in some cases sharply,
are Argentina,Brazil,Indonesia,Philippines,
Poland,the Russian Federation,South Africa,and
Turkey,several of which have had persistent debt
problems,For this group,the ratio of external debt
to GNI climbed on average by 21 percent between
1997 and 2002,while the ratio of debt to exports of
goods and services also rose by 28 percentage points
(to 181 percent in 2002).
In many cases,increased external debt has
been accompanied by rising domestic debt,as we
shall see.
New vulnerabilities created by market changes
Developing-country debt crises became more
market-driven in the 1990s,Bond debt and short-
term bank credit,both of which are strongly af-
fected by short-run developments in the external
financing environment,now make up a much
larger share of developing countries’ external debt
than at any point in the past three decades.
4
By
the end of 2003,bond and short-term bank debts
together accounted for 45 percent of the outstand-
ing external debt of developing countries,com-
pared with 29 percent in 1990,and an average of
24 percent during 1970–89 (figure 4.7,box 4.2).
Particularly noteworthy has been the growth in
bond debt,which mushroomed to 27 percent of
the total outstanding debt in 2003,up from only
4 percent at the start of the 1990s,All of the coun-
tries that have faced debt pressures or crises since
the 1990s vigorously substituted bond financing
for bank credit during 1990–2002 (figure 4.8).
74
Table 4.3 External indebtedness of top 20 debtors,
1997 and 2003
Total external debt as percentage of GNI
1997 2003
Brazil 25 50
China 17 14
Russian Federation 32 42
Argentina 45 136
Turkey 44 62
Mexico 38 23
Indonesia 65 68
India 23 19
Poland 27 46
Philippines 59 72
Thailand 75 37
Malaysia 50 50
Hungary 57 58
Chile 37 63
Pakistan 49 51
Czech Republic 42 40
Nigeria 84 70
Venezuela,R,B,de 41 42
Colombia 31 44
Egypt,Arab Rep,of 39 38
Note,Countries are ranked according to the nominal value of their
total external debt stock as of 2003.
Source,World Bank Debtor Reporting System.
Figure 4.6 Total external debt of developing
countries,1990–2003
% GNI
Sources,World Bank Debtor Reporting System and staff
calculations.
25
65
55
45
35
75
Financial
crisis
ThailandMe
xico
Russian F
ed.
Br
azil
Br
azil
ArgentinaTu
r
k
e
y
Middle-income
Low-income
1990 1992 1994 1996 1998 2000 2002 2003
Figure 4.7 Composition of outstanding external
debt of developing countries,1970–2003
$ billions
Source,World Bank Debtor Reporting System.
0
1,000
1,500
2,000
2,500
500
1970 1975 1980 1985 1990 1995 2000 2003
Bond
Bank
short-term
Bank long-term
Official
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
temic risk and contagion,Volatility has subsided
since 2000,with a widening of the investor base,
finer distinctions among credit risks,increased
prudence in borrowing and expanded efforts by
both the public and private sector to promote a
new financial architecture.
Short-term bank credit,the other segment of
debt financing that can be highly sensitive to
short-run market developments,has been moti-
vated by the desire of international banks to limit
75
Note,Refers to countries that account for 90 percent of the bond
debt outstanding as of 2002.
Sources,World Bank Debtor Reporting System and staff
calculations.
Figure 4.8 Substitution of bond financing for
bank credit,1990–2002
Ratio of bond financing to bank credit
0
5
4
3
2
1
Lebanon
Panam
a
Bulgaria
Ve
n
ezuela,R.
B,de
Argentina
M
exico
Russian Federatio
n
Colom
bia
South Africa
Philippines
M
alaysia
Brazil
Hungary
Poland
Tu
r
key
Chile India
Thailand
China
Indonesia
20021990
T
rade financing plays a crucial role in
facilitating international trade for developing
countries,For many developing countries lacking
access to capital markets,short-term bank credit
is the primary source of market-based finance
for facilitating cross-border movement of goods.
Availability of long-term credit for this set of
countries is severely restrained due to their credit
risk (or its perception) and their minuscule share
of international trade,This can lead to a build-
up of primarily short-term debt for a country,
which may be necessary for mobilizing trade.
Short-term trade financing via commercial banks
has reached developing countries owing to the
mitigation of risk for creditors under security
arrangements provided by the traded goods.
Such financing is even more widely spread than
general bank lending,which unlike other forms
of market-based debt financing is relatively
more easily accessible by developing countries.
As shown in Global Development Finance
2004,the share of trade financing in total bank
lending commitments has been higher for
non-investment grade and unrated developing
countries than for investment grade rated
countries,Thus,along with possible vulnerabili-
ties,the merits of short-term bank lending
should also be acknowledged.
Box 4.2 The role of
short-term bank credit
in trade financing
Bond financing is more susceptible to pricing
conditions (for new debt) and to risk perceptions
in international capital markets than is long-term
bank lending,where information asymmetry can
be at least partly dealt with through syndication
with local banks (Esty and Megginson 2003; Nini
2004).
5
New bond financing levels have fluctuated
widely since 1994,often declining sharply in
response to localized market seizures or voluntary
postponement of issues to avoid a turbulent
market environment,and sometimes spiking with
short-run market euphoria (figure 4.9).
Volatility in new bond financing was high
during the mid to late-1990s,largely because in-
vestors and borrowers were highly concentrated.
At the same time,unfamiliarity with the market on
both sides made bond financing vulnerable to sys-
Figure 4.9 Volatility in acquisition of new debt,
1994–2003
12-month trailing variance in gross flows ($ billions)
Sources,Dealogic; World Bank staff calculations.
0
15
10
5
20
Bond financing
Bank lending
(long-term)
1994 1996 1998 2000 2002 2003
GLOBAL DEVELOPMENT FINANCE 2005
their medium-term exposure to developing coun-
tries (and by the growth in financing for interna-
tional trade transactions),But such adjustments
can accentuate a crisis,For example,banks may
cut back on credit to a country facing tight credit
conditions in other segments of the capital market
to cover possible losses arising from that country’s
inability to service its overall debt,In fact,most
fluctuations in bank lending to developing coun-
tries have been driven by sharp fluctuations in
short-term lending (figure 4.10).
The increased external indebtedness of the pri-
vate sector also has shaped the nature of financial
crises in recent years,Although crises and episodes
of contagion have been linked to countries’ overall
debt burdens and their sustainability,the level of
private sector debt clearly matters,Investors per-
ceive that sovereign and public sector debt are
backed by a greater capacity to service obligations
than is private debt,Thus,a larger private share in
a country’s external debt increases investors’
perceptions of risk,This is true even if corporate
sector vulnerability,as measured against private
sector income and assets,shows improvement,as
in East Asia,where most corporate debt-equity
ratios have fallen in the period since the crisis.
At the end of 2003,the private sector ac-
counted for about 60 percent of all market-sourced
debt outstanding,compared with 33 percent at the
beginning of 1990 (figure 4.11),The current
composition is similar to that of the 1970s,when
the private sector accounted for about 57 percent
of the total,The difference is that in the 1970s
almost all market-sourced debt was in the form of
bank loans,rather than bonds,
The private sector accounts for a rising share
of both bond and bank financing,As access to
international bond markets widened in the 1990s,
the private sector’s share in outstanding bond debt
almost tripled—from about 8 percent in the early
1990s to an average of 22 percent since the mid-
1990s,In bank lending,the share of the private
sector has followed a more cyclical pattern,After
averaging 57 percent in the 1970s,that share fell
drastically in the 1980s (to 40 percent),as banks
retrenched credit during and following the bank
debt crisis,Lending was concentrated in the public
sector as the banks reengaged with developing
countries in the early 1990s,Lending to the private
sector did not pick up until the mid-1990s,For the
period 1993–2003,the private sector accounted
for 70 percent of total outstanding bank debt.
The rise of domestic debt markets
T
he aggregate external debt burden of develop-
ing countries,expressed as a share of GNI or
exports,has fallen since the late 1990s,Mean-
while,their domestic debt burden rose—from 19
percent of developing-country GDP in 1993/94 to
34 percent in 2002/03,This rise in domestic debt
has thus kept the total public sector debt burden of
76
Source,World Bank Debtor Reporting System.
Figure 4.10 Bank credit to developing countries,
1970–2003
Net flows ($ billions)
H1100280
20
H1100240
H1100220
H1100260
0
40
100
60
80
Short-term bank
lending
Long-term bank
lending
1970 1975 1980 1985 1990 1995 2000 2003
Figure 4.11 Composition of outstanding market-
sourced debt in the developing world,1970–2003
$ billions
Source,World Bank Debtor Reporting System.
0
800
1,200
1,600
400
1970 1975 1980 1985 1990 1995 2000 2003
Public
Private
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
developing countries high,and in some cases has
increased it.
The collection and official reporting of domes-
tic debt statistics are subject to considerable lag.
But estimates appearing in market sources suggest
that the burden of domestic debt for developing
countries as a whole continued to rise modestly in
2004,Most of the growth appears to be centered in
Europe and Central Asia and in East Asia and the
Pacific,In at least some countries,the capacity to
service debt has increased with the debt burden.
Many governments,mostly in middle-income
countries,have been able to finance their activities
by drawing on growing domestic debt markets.
The domestic finance pools have been fed by
several years of record trade growth in the devel-
oping world,and,in many countries,by the liber-
alization of capital accounts and the adoption of
sound macroeconomic,regulatory,and prudential
policies that have stanched capital flight and
attracted foreign investment in domestic debt
markets in developing countries.
The effect has been a shift in the composition
of public sector debt from external to domestic
sources,particularly in the emerging-market
economies,The magnitude of that shift has varied
across regions (figure 4.12),depending on the
significance of emerging-market economies in the
region,national policies on the use of current ac-
count surpluses,and the state of development of
national and regional debt markets.
The stock of local bonds outstanding in devel-
oping countries almost doubled between 1993 and
2002—from 20 percent of GDP in 1993 to 37 per-
cent in 2002 (figure 4.13),According to data from
the Bank for International Settlements (BIS),the
stock of domestic debt securities in 20 major devel-
oping countries continued to grow in 2003/04—at
an average rate of 28 percent,Most of the growth
reflects issues of securities by public sector borrow-
ers,from an average of about 14 percent of GDP
during 1993/94 to about 24 percent of GDP by
2001/02,During the same period,corporate bond
issuance rose from about 3 percent to about 6 per-
cent of GDP,The more measured growth in the
corporate sector bond market partly reflects se-
quencing in market development.
The appearance and deepening of domestic
bond markets in emerging-market economies has
been among the most significant of the factors
behind the growth in developing countries’ domes-
tic debt,Development of local bond markets re-
duces exposure to foreign currency–denominated
debt and other pitfalls of the international financ-
ing environment (Jiang and McCauley 2004;
Deutsche Bank 2003; Reserve Bank of Australia
2003),Local bond markets also offer governments
an effective tool for conducting and managing
domestic monetary policy (World Bank and IMF
2001) because issuing bonds can reduce the gov-
ernment’s need to finance deficits by monetary
means,A liquid bond market also can be used as a
tool to target inflation,manage shocks,and help
guide consumption and investment cycles,But the
77
Note,Data are for 33 major developing countries that account for
most developing country debt.
Sources,IMF; World Bank Debtor Reporting System.
1997
338
357
332
449
352
542
222
197
225
206
881
420
1997 19972002 2002 2002
EuropeLatin AmericaAsia
Figure 4.12 Public debt stocks in emerging
markets,1997 and 2002
$ billions
0
300
600
900
DomesticExternal
Sources,Bank for International Settlements; IMF.
1993 1996 1999 2002
Figure 4.13 Stock of outstanding domestic bonds,
by sector,1993–2002
% GDP
0
10
30
20
40
Corporate sector
Financial sector
Public sector
GLOBAL DEVELOPMENT FINANCE 2005
benefits of domestic bond markets extend more
broadly to the domestic financial system,Bond
markets can complement structured financing and
stimulate healthy competition,not just in terms of
market intermediation,but in financial products
as well,In addition,the infrastructure required to
build and foster local bond markets,such as clear-
ing and settlement systems and regulatory and
legal frameworks,contribute to the overall sound-
ness of the domestic financial system,Domestic
debt markets also have become an increasingly
attractive destination for foreign investors,with
international financial institutions playing an
important catalytic role (box 4.3).
Bond markets tend to bring increases in
domestic public debt because,in their nascent
stages,they almost always require support from
public sector institutions,Short-term government
securities trading at objective market-clearing
prices become the foundation for larger and more
diverse issues,Thus government debt provides the
essential liquidity and pricing benchmark necessary
for other forms of domestic bonds to take root.
6
The switch to domestic debt—deliberate
in Asia,less so elsewhere
The switch from external to domestic debt in Asia
was deliberate and pronounced following the
market-enforced retrenchment of credit during the
crisis of 1997/98,As of 2002,Asia accounted for
half of all domestic debt in the developing world.
The region’s share continued to increase,margin-
ally,in 2003/04,according to recent market esti-
mates,The ratio of domestic to external debt for
78
W
here sound macroeconomic and financial policies
are in place,foreign investment can catalyze the
development of domestic debt markets,strengthening their
key role in the national financial sector,Foreign investment
can increase the depth,breadth,and liquidity of domestic
markets,while enhancing their efficiency through the
development of financial instruments,the diversification of
portfolios,the encouragement of competition among local
market intermediaries,and the promotion of international
standards,In return,international investors can diversify
their financing sources,increase yields,and establish
strategic presence in local markets.
Strategic presence may become more important over
time from the perspective of both borrowers and investors,
as yield differentials between developing countries and
industrial countries narrow,The differential shrank from
about 7 percent in the mid-1990s to 4 percent by 2004.
International liquidity played a role in reducing the gap,
but better economic policies in developing countries,as
reflected in improved domestic risk ratings,were
important as well.
International financial institutions (IFIs),including the
World Bank,have contributed to the development of
domestic debt markets through their borrowing practices.
IFI bonds denominated in developing-country currencies
have helped decouple credit risk from currency risk,as
these institutions command a solid presence in interna-
tional bond markets,The decoupling imparts confidence
to foreign investors,charting new territories of investment,
while also providing creditworthy,liquid,and diverse
investments to domestic investors.
The debt markets of developing countries are the new
frontier for foreign investment,The trend started in the
early 1990s with markets in the Czech Republic,Hungary,
Poland,and the Slovak Republic,IFIs were the first foreign
issuers of bonds in the Hungarian forint,whereas foreign
corporations led with issues in other countries’ currencies.
In Asia,after the opening of markets in the Republic of
Korea and the Philippines,the process stalled with the
advent of the financial crisis of 1997/98,Since then IFIs
have issued bonds in the Indian rupee market,and China,
Malaysia,and Thailand have expressed interest in opening
their markets to foreigners,especially IFIs,In Latin America,
the growth of institutional funds,notably through the
pension system,has encouraged the issuance of foreign
bonds in domestic currencies,IFI bonds in Colombian
pesos,Mexican pesos,and Peruvian soles have been
eagerly subscribed to by local institutional investors.
Despite the growth in developing countries’ domestic
debt markets,and in international bonds denominated in
developing country currencies,the share of foreign
investors in domestic markets remains small and spotty.
Nonetheless,given the improvements in settlement,
clearing,and custodial services; regulatory frameworks;
and investment climates,there is considerable potential for
growth in that share,
Source,World Bank 2005.
Box 4.3 Foreign investment in developing countries’
domestic debt markets
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
the region increased from close to parity in 1997
to almost three to one by 2002,reflecting an an-
nual growth in domestic debt of about 20 percent,
As the region’s domestic debt stock soared,
external debt fell by $25 billion,with net external
debt flows reversing from an average inflow of
$50 billion during 1995–97 annually to an out-
flow of $21 billion annually in 1998–2000,Since
then outflows of external debt continued,arrested
by modest net inflows in 2003,Since the 1997/98
crisis,the region has not only reduced its external
debt,but also has accumulated substantial interna-
tional reserves as a buffer against external shocks.
Reserves in Asia nearly tripled to almost $760 bil-
lion in 2004 from $247 billion in 1998.
The buildup of domestic debt in crisis-affected
countries began with the forced adjustment to the
shocks of 1997/98 (including costly bailouts),but
it has not slowed with the passing of the crisis,
evolving instead into an explicit tool of debt
management,Indonesia provides a good example
of the managed rebalancing of public sector debt.
Since the contagion-induced crisis in 1998,the
country’s domestic debt,almost nonexistent before
the crisis,has averaged 42 percent of GDP,while
the external portion of public sector debt has
declined from 70 percent to 40 percent over the
same period (figure 4.14),In Malaysia and the
Philippines,the public sector relied on domestic
debt throughout the 1990s; crisis-related costs
associated with contingent liabilities and losses on
assets due to exchange-rate movements,added to
the burden,In Malaysia,such costs have even
offset the benefits of a sizeable primary surplus,In
India,domestic debt has been the primary source
of financing for the government’s deficit since the
1980s,The relatively high level of the domestic
debt burden (about 75 percent of GDP) raises
questions about its impact on the economy and
domestic financial markets,as well as about its
sustainability.
Asia also led developing-world regions in
growth of outstanding domestic bonds (fig-
ure 4.15),in great part due to the fallout from the
financial crisis of the late 1990s,Asia’s stock of
public sector bonds jumped from 7 percent of
GDP in 1997 to 15 percent in 1999,reaching
almost 19 percent by 2002 (IMF 2004),Mean-
while,corporate sector bonds jumped from 5 per-
cent to 9 percent between 1997 and 1999,and
then edged up further to 10 percent by 2002.
Judging from trends in outstanding debt securities
drawn from BIS data,bond stocks (public plus
corporate) may have risen to 32 percent of GDP in
2003,In Asia,corporate sector bonds constitute a
much a larger share of the domestic bond market
than in other emerging-market regions,where
local bond markets are still dominated by public
sector securities,Since the Asian economic crisis,
however,government bond issuance has grown
significantly in a few countries,such as Malaysia
and Thailand,where government issues have not
only served as a vehicle for government financing,
but also have developed into benchmarks for pric-
ing corporate bonds.
79
Figure 4.15 Stock of domestic bonds outstanding
in emerging markets,by region,1993–2002
% GDP
Sources,BIS and IMF data as presented in World BankH20862IMFH20862
Brookings Institution 2003.
10
40
20
15
45
35
30
25
Asia
Latin America
Eastern Europe
1993 1996 1999 2002
Figure 4.14 Share of domestic debt in total public
debt in selected Asian countries,1990–2003
Percent
Sources,IMF; World Bank Debtor Reporting System.
0
60
40
20
80
Malaysia
Thailand
Indonesia
Philippines
1990 1992 1994 1996 1998 2000 2002
GLOBAL DEVELOPMENT FINANCE 2005
In Latin America,where external debt financ-
ing has declined since 1999,the offsetting substitu-
tion of domestic debt has been less pronounced
than in Asia—the ratio of domestic to external
debt in the region rose only modestly from 1.35 in
1997 to 1.54 in 2002,Three-quarters of the
region’s domestic debt is concentrated in Brazil and
Mexico,But the factors underlying the buildup in
domestic debt differ in the two countries.
Mexico’s reliance on domestic funding of gov-
ernment debt increased after the financial crisis of
1994,with the role of domestic debt growing
steadily from 30 percent of total public debt in
1993 to 75 percent in 2002 (figure 4.16),During
that period,stability-enhancing fiscal and mone-
tary policies enabled the government to build cred-
ibility,reduce borrowing costs,and extend the
maturity of its debt by almost ten times since
1995,to an average of 10 years,Low short-term
interest rates,reflecting low inflationary measures,
have enabled the government to continue relying
on the domestic debt market,The stock of domes-
tic government securities rose by some 10 percent
in 2003/04.
The switch from external to domestic sources
of debt in Brazil (and Argentina) has been less
marked than in Mexico,and propelled more by
economic and financial pressures than by deliber-
ate strategy (Budina and Fiess 2004),Nevertheless,
at 47 percent of GDP in 2002 (down from 61 per-
cent in 2001),the domestic bond market in Brazil
is among the largest in the region,Brazil’s experi-
ence illustrates one of the pitfalls of reliance on
domestic debt,The high costs of rolling over
domestically sourced public debt continue to add
to the debt burden of the Brazilian government,
even as maturities have tripled to about three years
since the rampant inflation of the late 1990s was
tamed,Primary surpluses over the past few years,
up to and including 2004,combined with reforms
of pension systems,should add to the govern-
ment’s debt-servicing capacity,In Argentina the
forced exchange of dollar assets into peso assets
had the same effect.
Poland and Turkey accounted for some 70 per-
cent of total domestic debt in the Europe and
Central Asia region in 2002,In the region as a
whole,domestic debt grew at an annual average
rate of just 5 percent from 1995 to 2002,but in
Poland it jumped to 31 percent of GDP in 2002,
after hovering around 21 percent during the mid-
to late-1990s,It is estimated by market sources to
have jumped to 35 percent in 2004,as the stock of
domestic government securities rose to 24 billion
between 2002 and 2004,High interest rates and
loose fiscal policy,coupled with slow economic
growth,have been the main reasons for debt accu-
mulation,The rise in Turkey’s domestic debt since
1999 was due to the combination of a high fiscal
deficit (resulting in high domestic interest rates)
and the costs of supporting the banking system
during the exchange-rate and banking crisis of
2000/01,The burden of domestic debt declined
noticeably in 2002/03,aided by primary surpluses
and economic growth,
The other major debtor in the region is the
Russian Federation,There,domestic debt fell sub-
stantially from 27 percent of GDP in 1998 to only
8 percent in 2002,as strong economic growth and
currency appreciation helped reduce the public
sector’s financing demands,In countries preparing
for entry into the European Union (Bulgaria,
Croatia,and Hungary),EU accession policies have
helped limit increases in domestic debt.
The development of local bond markets in
Europe and Central Asia followed the establish-
ment of the fundamentals required for a diverse
and deep market and for the management of public
sector debt,In Hungary,for example,efforts have
focused on shifting from external to domestic
sources of finance,As the country’s external public
sector debt declined from 54 percent of GDP in
1994/95 to 21 percent in 2002,the government’s
80
Figure 4.16 Share of domestic debt in total public
debt in selected Latin American countries,
1990–2003
Percent
Sources,IMF; World Bank Debtor Reporting System.
0
60
40
20
80
Brazil
Argentina
Mexico
1990 1992 1994 1996 1998 2000 2002
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
issuance of local bonds increased from 27 percent
of GDP to 46 percent,In the Czech Republic and
Poland,the objective has been to finance govern-
ment deficits and to reduce the rollover risk of
debt,Trends in the Middle East and North Africa
and Sub-Saharan Africa have varied.
7
Domestic debt markets and the private sector:
uncharted waters
The financial health of a country’s corporate sector
helps determine how an economy stands up to fi-
nancial and economic pressures,During the Asian
crisis,highly leveraged and nonperforming loans,
contingent liabilities,and unhedged positions,
accompanied by a cyclical deterioration in invest-
ment returns,worsened the crisis by adding to the
liabilities of the public sector,(See World Bank
1998 for a detailed discussion.)
Although individual country cases differ and
systematic data on private sector borrowing are
lacking,high levels of domestic credit in the
private sector have preceded many financial crises,
as in Chile,Indonesia (Caprio and Klingebiel
1996),and Mexico,And a general linkage seems
to exist between financial sector liberalization,
credit booms,and banking crises (Demirguc-Kunt
and Detragiache 1998),Often credit booms occur
during buoyant economic times when domestic
savings and private capital flows are strong,At
such times,inflated asset values convey a false sense
of corporate net worth (Gavin and Hausmann
1996),Abundant liquidity can encourage corpora-
tions to substitute high levels of debt for equity,
leaving them—and governments—vulnerable to
both domestic and external shocks,At the time of
the Asian crisis,debt exceeded equity in the most-
affected countries by two or three times,
In addition to overborrowing,derivative-type
transactions by financial corporations can create
contingent liabilities,The direct and indirect
hazards of such exposures were clear in Thailand
during the crisis of 1997/98,when the foreign
currency exposure of corporations accelerated the
decline of the Thai currency (IMF 1998).
Balancing external and domestically
financed debt
T
he shift in the balance of external and domestic
debt has transformed rather than eliminated
the risks and challenges posed by debt,The advent
of domestic debt brings into play an array of
issues—management capacity,economic policy,
financial infrastructure,regulation,and technical
coordination—that previously had been in the back-
ground,External and domestic financing practices
influence each other,and both are affected by the
overall policy environment of individual countries.
To understand those influences,one must consider:
The policy environment
The regulatory environment
The interplay between the external and dom-
estic debt
The role of credit assessment
The role of information.
The policy environment
Sound and credible economic,fiscal,and mone-
tary policies are at the heart of debt sustainability
and creditworthiness,whether debt is contracted
in international or domestic markets,In their
absence,efforts to mobilize domestic finance are
unlikely to bear fruit,The public sector’s fiscal
position must rest on efficient revenue collection
and well-aligned spending plans that factor in con-
tingent liabilities,In addition to raising revenue,of
course,tax policy can and should encourage the
development of the domestic debt market,
The confidence of domestic and foreign
investors alike is enhanced when monetary policy
is pursued independently of public financing con-
straints,In particular,inflationary pressures (and
expectations) should be carefully managed,as they
can affect (through their effect on interest rates)
the cost of borrowing to finance domestic debt—
and thereby on the credibility and sustainability of
the domestic borrowing program,Pressures on the
exchange rate also have to be managed effectively,
through economic policies that maintain the over-
all balance between the external and domestic
sectors,For example,deterioration in a country’s
external position can affect credit-risk perceptions.
Once the basic foundation for the domestic
debt market has been laid,other issues come into
play—chief among them coordinating debt
management with monetary policy,managing the
implications of debt servicing on the budget,and
controlling contingent liabilities (Currie,Dethier,
and Togo 2003),Debt-management objectives
must be chosen with an eye to cost effectiveness,
sustainability,and resistance to shocks.
81
GLOBAL DEVELOPMENT FINANCE 2005
In the early stages of domestic debt market
development,a significant portion of the debt car-
ries a relatively shorter maturity than does external
debt,Sound policies enable a government to build
credibility,which helps it lengthen the borrowing
tenure and minimize the frequency of risky and
time-consuming rollovers of domestic debt,
The regulatory environment
A strong institutional framework is needed to man-
age the nation’s financial infrastructure,Smooth
operation of debt markets,in particular,depends
on settlement,trading,and custodial services.
More generally,the framework should foster trans-
parency and availability of information to enable
market participants to make fair and efficient deci-
sions and to minimize systemic risk in the domestic
financial environment,The institutional setup
should include cross-checks between the agencies
that deal with domestic debt,Interactions between
the government and investors to match investment
needs with borrowing objectives are an integral
part of a public sector funding strategy,
Another challenge is to establish an effective
regulatory and legal environment that underpins,
as well as fosters,the smooth operation of the
overall financial infrastructure,Laws and regula-
tions should aim to balance functionality,safe-
guards,and practicality,while encouraging
adequate mobilization of capital and the develop-
ment of local debt markets,The authority,scope,
and statutes of public borrowing need to be clearly
defined and enforced through the legal framework
(Prasad et al,2004).
Good regulatory regimes instill confidence in
investors; bad regimes shatter confidence,espe-
cially among domestic investors,who are less likely
than external investors to have a widely diversified
portfolio,Lack of diversity in domestic investment
portfolios (along with restrictions on international
diversification) may accentuate,or prolong,a dis-
torted debt financing environment.
Governments should try to enlarge and diver-
sify the investor base to ensure liquidity,and to
spread the financing burden over different seg-
ments of the economy,An added dimension con-
cerns foreign investments in domestic debt mar-
kets,which,despite the perils,also play an
important role in enhancing the breadth,depth,
and efficiency of domestic debt markets,Domestic
exchange-rate and capital account policies are not
only important in attracting foreign capital,but
also in maintaining the stability of such flows.
Among the technical issues to be addressed in
developing a domestic debt market are the meth-
ods and financial instruments used in public sector
borrowing,the optimal sequence of development
of various segments of local bond markets,coordi-
nation between primary and secondary markets
for debt,adherence to market-clearing interest
rates in financing budget gaps,and acceptable
trading practices,
Amajor concern associated with high levels of
public debt is the tendency of that debt to exert up-
ward pressure on domestic interest rates and crowd
out private investment,The boost to liquidity
provided by the supply of government securities,
however,may exert a countervailing effect.
The interplay between external
and domestic debt
The tilt in the composition of debt from external
to domestic sources has several advantages for
borrowers,as long as fiscal and economic policies
remain prudent,Reduced reliance on external
debt,primarily debt denominated in foreign
currency,lowers vulnerability to seizures in market-
based financing and exchange-rate shocks,which
can exacerbate debt and its servicing burden,The
movement out of external debt has improved
risk perceptions in the minds of external investors
and credit raters,which must gauge the ability
of countries to service external liabilities,Thus
lower external debt improves the terms on which
foreign-source capital may be obtained and re-
duces the overall vulnerability of developing coun-
tries to shocks from the external financing
environment.
But risks accompany the benefits of greater
reliance on domestic debt,High public sector debt
burdens in individual countries have at times led to
crises,Increased reliance on domestic debt raises
debt rollover risks (because it is generally shorter in
maturity than external debt),as well as interest-
rate risks,Both may be affected by a variety of
macroeconomic and debt management policies.
For that reason,sustainability and management of
debt and fiscal balances must remain at the fore-
front of national policy dialogue.
The external and domestic financing environ-
ments respond to many of the same influences.
With significant capital account liberalization in
82
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
agencies’ assessments of a country’s overall policies
as well as its vulnerability to shocks (box 4.4),The
distinction between external versus domestic debt
is important,as a government’s ability to service
the two kinds of obligations varies vastly,espe-
cially in emerging-market economies,Servicing
foreign-currency obligations requires liquid foreign-
currency assets that have to be contracted or
earned at international exchange rates,Servicing
local-currency debt is directly associated with a
government’s power to tax,as well as its control
over domestic financial systems and policies,Thus,
the constraints for servicing foreign currency debt
are more restrictive than those for servicing local
currency debt.
The stance of institutional investors can
greatly affect the availability and cost of capital for
developing countries,In compliance with risk-
management practices,such investors may be
mandated to invest within (or no lower than) a spec-
ified class of credit risk,so that improved sovereign
credit ratings translate directly into wider access to
capital on better terms and thus greater ease in ser-
vicing debt,Credit-risk ratings may be employed in
portfolio allocation and risk assessment models.
They may also be used by banks to satisfy the Basel
83
Figure 4.17 Distribution of volatility in risk
premium for selected developing countries
Basis points
0
50
100
150
200
250
Note,Higher volatility,primarily for low creditworthy countries,
indicates greater vulnerability to market movements,Ratings are
from Standard and Poor’s,First rating H11005 external debt; second H11005
domestic debt,Volatility is calculated for periods March and
September 2002 and February and May 2004,when spreads
adjusted upwards.
Sources,J.P,Morgan Chase; Standard and Poor’s; World Bank staff
calculations.
Ecuador
(CCCH11001; CCCH11001)
Philippines (BB; BBBH11002)
Ukraine (BH11001; BH11002)
Poland (BBBH11001; AH11002)
Venezuela,R,B,de (B; B)
Hungary (AH11002; A)
C?te d’Ivoire
(NR; NR)
Nigeria
(NR; NR)
Mexico
(BBBH11002; AH11002)
Morocco
(BB; BBB)
China (BBBH11001; BBBH11001)
Colombia
(BB; BBB)
Turkey
(BBH11002; BB)
Peru (BB; BBH11001)
Egypt,Arab Rep,of
(BBH11001; BBBH11002)
Thailand (BBBH11001; A)
Brazil
(BBH11002; BBH11001)
315 336
many countries,shocks from the external environ-
ment can easily spill over to domestic credit
markets,Similarly,a loss of confidence in a coun-
try’s policies among international investors,who
may have direct exposure to credit risk in domestic
debt markets,will raise pressure on domestic
interest rates and affect the maturity structure of
domestic debt.
In managing the overall shift in sources of
finance,countries need to be aware of the possible
deterioration in credit supply conditions,Of
particular note is the pricing of debt,which
reflects—among other things—the capital markets’
perception of the probability of default (Merrick
2004; Ferrucci et al,2004; Kamin 1999; and Min
et al,2003),Most pricing indicators,including the
commonly used benchmark secondary-market
spread,reflect not only country fundamentals but
also the broader supply and demand for capital
in financial markets,From 2002 onward,in-
vestor sentiment toward emerging markets has
improved considerably,as reflected in historically
low secondary market spreads or benchmark risk
premiums,Because those spreads relate primarily
to the probability of default on external debt,the
buildup of reserves (as discussed in chapter 3) and
the decline in external debt burdens have sup-
ported the improvement in sentiment,Spreads
have declined universally across almost all coun-
tries where external indebtedness has declined,
even as domestic public sector indebtedness has
risen substantially for many countries,The better-
ment of external and domestic credit-risk ratings
both reflects and supports that improvement in
spreads.
The pricing of new debt remains of utmost im-
portance,Swift and abrupt changes in the external
environment can undermine investor confidence
and exert pressure on domestic credit conditions
and interest rates,Continued tight pricing of new
external debt during times of market rally,such as
2003 and 2004,can increase pressures for adjust-
ment of risk premiums,particularly for less credit-
worthy borrowers (figure 4.17),Thus,countries
with lower creditworthiness may be more suscepti-
ble to market exuberance and closures and there-
fore subject to greater volatility in capital flows.
Credit assessment
The probability of defaulting on a debt is indicated
by long-term credit ratings,which reflect the rating
GLOBAL DEVELOPMENT FINANCE 2005
regulations on capital adequacy and risk manage-
ment,both domestically and internationally,thus
affecting countries’ and firms’ ability to obtain fi-
nancing from banks adhering to those regulations.
In recent years,credit ratings have improved
markedly for many developing countries,Trends in
average credit quality vary across regions (fig-
ure 4.18),East Asia scores the highest ratings
among emerging-market regions and shows the
least difference between the probabilities of default
on external versus domestic debt,Credit ratings for
Eastern European countries have improved contin-
uously since 2001,with 60 percent of the rated
countries in the region receiving upgrades,Ratings
on domestic debt have remained about one notch
higher than on foreign debt,On average,the region
maintained a primary fiscal surplus of about
0.9 percent of GDP between 2001 and 2004,Aver-
age credit-risk ratings for Latin America,for both
foreign and domestic debt,are the lowest among
the emerging-market regions,Moreover,foreign
debt in the region carries a much higher probability
of default than does domestic debt,For example,
foreign debt risk ratings for Brazil,Colombia,and
Mexico are three notches below domestic debt rat-
ings,even though all three countries were projected
to run primary fiscal surpluses in 2004.
Notwithstanding the improvement in aggre-
gate credit quality,various risks remain—among
them vulnerability to external conditions that
may deteriorate rapidly,leading to a downward
spiral of confidence and credit cost,as seen in
the late 1990s,Qualitative considerations,such as
political uncertainty,may also influence the risk
associated with a country’s debt and affect the
terms for rolling over that debt,
The role of information
Both external and domestic indebtedness require
diligent monitoring,In the wake of crises connected
84
Figure 4.18 Average credit quality,by region,1999–2004
Latin America and Caribbean East Asia and Pacific
Source,Standard and Poor’s.
Domestic debt
Foreign debtBH11001
BBBH11002
BBBH11001
A
AAH11002
BB
1999 20042003200220012000
BH11001
BBBH11002
BBBH11001
A
AAH11002
BB
1999 2003200220012000 2004
BH11001
BBBH11002
BBBH11001
A
AAH11002
BB
1999 20042003200220012000
Domestic debt
Foreign debt
Domestic debt
Foreign debt
Europe and Central Asia
M
ajor credit-rating agencies assign risk ratings to
governments’ foreign (external) debt and their local-
currency-denominated (domestic) debt,The factors consid-
ered by rating agencies in assigning risk ratings are political
risk,income and economic structure of the economy,eco-
nomic growth prospects,fiscal flexibility,general govern-
ment debt burden,monetary flexibility,external liquidity,
and public versus private sector external debt burden.
Although all of the factors are relevant in assessing the
probability of default,their relevance varies depending on
whether the obligation is in local or foreign currency.
Assessing the probability of default on local-
currency debt requires greater emphasis on a govern-
ment’s fiscal and monetary policies,likelihood of
revenue generation from the privatization of state-owned
enterprises,and other microeconomic reforms that affect
acountry’s ability to service debt,Credit ratings for
foreign-currency debt consider similar factors,while also
taking into account the structure of the country’s foreign
obligations,its foreign exchange reserves,and its balance
of payments.
Box 4.4 Assessing the risk of external
versus domestic debt
COMPLEX CHALLENGES IN DEVELOPING COUNTRY DEBT
with external indebtedness,progress has been made
to enhance the reliability,timeliness,and accessibil-
ity of information,Gaps remain,however,particu-
larly in the supply of information on domestic debt
markets and private sector borrowing,both of
which were important in the East Asian crisis of
1997/98,In the absence of full information,public
borrowers should acquire new liabilities and man-
age old ones with a high degree of prudence,while
remaining alert for impending changes in financing
environments.
Information on domestic debt is much less
plentiful and consistent than is information on ex-
ternal debt,For that reason,domestic debt is not
well handled by the risk-assessment models used
to price new debt,To ensure that accumulations of
domestic debt are visible (if they are not,savvy
investors will assume the worst),policymakers in
the emerging-market economies should enhance
their national framework for collecting and
reporting statistics on domestic debt,
No room for complacency,despite
improvements
T
he development of domestic debt markets
provides important benefits,laying a solid
foundation for future growth and offering public
borrowers a measure of protection against
changes in the external environment,But the perils
associated with debt cannot be avoided merely by
switching from one type of debt to another,Exces-
sive debt will soon curb growth,regardless of its
source,Because a debt crisis driven by excessive
domestic borrowing can be just as devastating as
one created through excessive external debt,devel-
oping countries need to pursue fiscal policies that
align liabilities and revenues against the backdrop
of structural revenue reforms,They should perse-
vere with policies and reforms that promote
economic growth under sustainable levels of
debt—domestic and external.
Notes
1,Developing countries are still split into two broad
categories by their access to international capital markets
and thus by the nature of their debt,The first category is the
emerging-market economies—primarily middle-income
countries with access to international capital markets,The
second is other countries—primarily low-income—that have
limited or no access to market-based international finance.
This chapter is chiefly concerned with the first group.
2,The World Bank’s Debtor Reporting System (DRS)
is one of the most comprehensive databases on the exter-
nal debt of 135 developing countries,The figures on ex-
ternal public sector debt offered in this chapter are drawn
directly from the DRS data,The public-private composi-
tion of short-term debt is not known,because it is not
reported to the DRS by member countries,Principal and
interest arrears on official debt,a component of short-
term debt,are treated as public sector debt in this chapter.
Most of the rest of short-term debt is treated as private
sector debt,based on information gathered from market
data sources.
3,Estimating developing countries’ public sector debt
remains a challenging task,and estimates can differ from
source to source,Among the major issues are lack of data
(many countries have begun only recently to produce
comprehensive measures of public debt),data coverage
(especially with regard to contingent liabilities),and defini-
tional questions that can vary vastly from country to country.
The International Monetary Fund’s World Economic
Outlook for 2003 estimates the 2002 public sector debt of
emerging-market economies at around 70 percent of GDP,
an average figure that differs from the one presented here.
Several factors may account for the disparity:
Country coverage,This can be a source of major
difference,Economies such as those of the Republic of
Korea and Taiwan (China),generally regarded as
“emerging markets,” may form part of dataset used in
the IMF report,but they are not classified as,develop-
ing countries” by the World Bank,The analysis
presented in WEO is based on two sets of data,The first
(1990–2002) comprises just 34 countries; the second
(1970–2002),79 countries,It is important to maintain
consistency while comparing data across sources.
Data sources,The smaller of the WEO datasets is
based on information from IMF staff reports and
country economists,The larger dataset is a combina-
tion of World Bank data,IMF government finance
statistics,and the OECD’s analytical database.
Definitional issues,The smaller WEO dataset is based
on gross figures,while the World Bank data are for net
debt outstanding.
Combination of external and domestic public debt.
Because the World Bank’s Debtor Reporting System
does not collect statistics on domestic debt,the figures
on total public sector debt (external plus domestic)
presented in this report are derived from several
sources,World Bank data (DRS),IMF data,and
market sources.
4,The growth in bond debt started with the transfor-
mation of distressed bank debt into bonds following the
collapse of the bank credit boom of the 1970s,which had
been driven by the,recycling” of foreign exchange earned
by oil-producing countries following cartel-driven price
increases,A simultaneous increase in real interest rates in
industrial countries (also driven by high oil prices) and the
decline in commodity prices in the 1980s made inter-
national bank debt unsustainable for many developing
85
GLOBAL DEVELOPMENT FINANCE 2005
countries,The defaulted bank debt was converted into
Brady bonds,named for U.S,Treasury Secretary Nicholas
Brady,beginning in the late 1980s,A beneficial side effect of
that innovation was to provide a foundation for modern
bond financing in developing countries.
Short-term credit grew during the early 1990s,as bond
financing was still developing roots and banks were begin-
ning to reengage with the developing countries following
the debt restructuring of the late 1980s,Another boost to
short-term lending came in 1995,following the successful
resolution of the Mexican peso crisis.
5,Long-term bank credit can be more resilient than
bonds during periods of stress for several reasons,Banks pos-
sess informational advantages on their borrowers that can be
used not only to differentiate credit risk during a period of
contagion,but also to exercise greater control over borrow-
ers,And bank debt is easier to restructure than bond financ-
ing,for which default may be the only option,Also,banks
can spread out risk over a syndicate of lenders and keep credit
lines open even in suboptimal circumstances,especially when
other segments of capital markets are experiencing stress.
6,Also important for bond-market development is the
adoption of flexible exchange rates,which encourage
governments to borrow in domestic markets to avoid the
possibility of debt increases stemming from depreciation of
the currency and may also reduce investors’ fear of sharp
depreciation of their real asset values (Claessens,Klingebiel,
and Schmukler 2003).
7,In the Middle East and North Africa domestic debt
rose from 18 percent of GDP in 1995 to 47 percent in 2002.
To a great extent the rise is due to Lebanon,whose overall
public sector debt,both domestic and external,has increased
sharply since the early 1990s to finance the government’s
spending on infrastructure and other public sector facilities.
In comparison,increases in domestic indebtedness have been
much less notable in Egypt and Morocco,In Sub-Saharan
Africa,domestic debt fell to 27 percent of the region’s GDP
from 37 percent in 1995,a movement ascribable largely to
lower borrowing in South Africa.
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87
5
Meeting the Financing Needs
of Poor Countries
T
HE WORLD’S POOREST COUNTRIES
face severe challenges in their efforts to
eradicate extreme poverty and meet basic
human needs,Among the challenges is an external
financing environment that is susceptible to sud-
den and sharp shifts.
From the United Nations Millennium Summit
in 2000 emerged the Millennium Development
Goals (MDGs),which established targets for
progress on poverty,education,health,and sanita-
tion,In March 2002,follow-up meetings in Mon-
terrey addressed the challenges of financing the
development priorities embodied in the MDG
targets,Both conferences acknowledged that
reaching the agreed goals would require actions by
the developing countries themselves—such as pur-
suing sound domestic policies,But they also recog-
nized the need for substantial and stable flows of
external resources,Estimates of the additional re-
sources that poor countries would require to reach
the MDGs by 2015 vary widely,but all point to a
dramatic shortfall unless current trends improve
radically.
1
The external financing environment facing the
poor countries is more complex and fluid than
generally recognized,In many cases official devel-
opment assistance (ODA) is still the major exter-
nal resource; in others,foreign direct investment
(FDI) and private debt are also important,Private
flows from nongovernmental organizations
(NGOs) and migrants (transfers that are included
in the current account) are sizeable in some coun-
tries,So-called South-South linkages among devel-
oping countries—and especially between larger
middle-income countries and poor countries—are
a growing source of trade,FDI,remittances,and
development assistance,
89
.
This chapter examines broad changes in the
pattern of development finance available to a sam-
ple of 28 poor countries (see note to table 5.1),
2
without explicit consideration of whether the
available resources will be adequate to achieve
the MDGs in individual countries or groups of
countries,For a treatment of those issues,see the
World Bank’s Global Monitoring Report 2005.
The key messages of this chapter are:
Aid flows to poor countries must increase sig-
nificantly if the MDGs are to be met by 2015.
ODA to poor countries has declined steadily
over the last decade,Although other sources
of finance have grown,the growth is not suffi-
cient to fill the gap in official financing.
Donors must scale up ODA and other re-
sources substantially if developing countries
are to achieve the MDGs,Current and im-
pending fiscal pressures in donor countries
and strategic factors that can influence the al-
location of aid should not be allowed to cur-
tail this effort,
FDI to poor countries has increased signifi-
cantly since the early 1990s,reflecting im-
proving performance and a sounder in-
vestment climate,But much FDI to poor
countries flows to enclave mining or natural
resource projects,which may limit its bene-
fits and add to volatility,Moreover,current
flows fall far short of needs.
Private transfers are much more important in
poor countries than in other developing coun-
tries,The private sector component of grants
from NGOs (mostly to poor countries)
reached $10 billion in 2003,while workers’
remittances reached $16 billion,Both are
GLOBAL DEVELOPMENT FINANCE 2005
90
Table 5.1 Net capital flows to poor countries,1990–2004
$ billions
1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Current account balance H110027.1 H110028.8 H1100212.4 H110029.4 H1100211.1 H110026.9 H110023.6 H110022.4 H110020.3 H110022.3 H110028.7
as % of GDP H110024.3 H110024.3 H110025.6 H110024.1 H110024.8 H110022.9 H110021.5 H110021.0 H110020.1 H110020.8 H110022.7
Financed by:
Net equity flows 0.7 3.9 5.4 6.5 5.3 5.0 4.2 4.0 5.9 7.7 8.4
Net FDI inflows 0.7 3.9 5.2 6.1 5.3 4.9 4.1 4.1 5.8 7.7 8.4
Net portfolio equity inflows 0.0 0.0 0.2 0.4 0.0 0.1 0.0 H110020.1 0.1 0.0 0.0
Net debt flows 6.4 7.0 4.9 6.8 3.3 4.1 2.6 3.2 3.5 3.2 4.3
Official creditors 4.8 4.8 4.6 4.3 4.4 5.0 4.0 5.3 4.6 3.9 4.2
World Bank 2.2 2.1 2.6 2.7 2.2 2.6 2.2 2.9 3.1 3.0 3.7
IMF H110020.4 0.7 0.2 0.0 0.0 0.6 H110020.1 0.6 0.2 H110020.2 H115460.6
Others 2.9 2.0 1.8 1.7 2.2 1.8 1.9 1.8 1.3 1.0 1.1
Private creditors 1.6 2.2 0.3 2.5 H110021.1 H110020.9 H110021.3 H110022.1 H110021.0 H110020.6 0.1
Net medium- and long-term debt flows 0.2 0.3 0.6 1.7 H110020.1 H110021.4 H110021.1 H110021.1 H110021.4 H110021.0 0.3
Bonds 0.0 0.0 0.4 0.5 0.0 H110020.1 0.0 H110020.1 H110020.2 H110020.4 0.3
Banks H110020.2 0.2 H110020.1 0.5 H110020.3 H110020.9 H110020.6 H110020.8 H110020.9 H110020.3 0.5
Others 0.4 0.2 0.3 0.7 0.2 H110020.4 H110020.5 H110020.2 H110020.3 H110020.4 H115460.5
Net short-term debt flows 1.5 1.8 H110020.3 0.8 H110020.9 0.5 H110020.3 H110021.0 0.4 0.4 H115460.2
Balancing item 0.3 H110021.5 2.9 H110022.4 2.1 0.7 H110021.1 H110020.6 H110020.3 0.6 —
Change in reserves (H11002H11005increase) H110020.4 H110020.6 H110020.8 H110021.5 0.3 H110022.9 H110022.1 H110024.2 H110028.8 H110029.3 —
Memo items:
Official development assistance 14.4 16.2 14.2 13.1 13.6 13.5 13.8 15.6 16.8 19.6 —
Grants (excluding technical cooperation) 8.4 7.4 6.5 5.9 6.7 6.6 6.7 7.7 8.2 10.4 —
Workers’ remittances 5.5 5.4 5.2 6.0 5.6 6.1 6.7 9.6 13.9 15.0 15.9
Net private flows (debt H11001 equity) 2.3 6.1 5.7 8.9 4.3 4.1 2.8 1.9 4.9 7.1 8.7
Exports 30.3 41.4 50.5 55.9 54.2 57.6 66.8 69.5 77.7 89.5 106.6
Imports 43.7 57.0 70.9 73.8 73.8 73.1 80.4 83.2 89.1 106.7 130.0
Note,— H11005 not available,Country sample used in this table and throughout the chapter includes Azerbaijan,Bangladesh,Benin,Bhutan,
Burkina Faso,Cameroon,Ethiopia,Ghana,Kenya,Kyrgyz Republic,Lesotho,Madagascar,Malawi,Mali,Mauritania,Moldova,Mongolia,
Mozambique,Nepal,Nicaragua,Pakistan,Rwanda,Senegal,Tanzania,Uganda,Vietnam,the Republic of Yemen,and Zambia,
Sources,World Bank Debtor Reporting System and staff estimates; OECD; IMF,various years.
large,stable sources of foreign exchange for
poor countries and may be more likely than
other flows to reach poor households.
To increase private capital flows to poor
countries,the international community should
support policies that lead to better market
access for poor countries and encourage in-
vestment through the use of risk mitigation
instruments,Financial instruments such as
securitization (of flows of workers’ remit-
tances,for example) can expand the access of
poor countries to international capital mar-
kets,Most important,poor countries should
continue efforts to improve their investment
climate,which remains crucial not only for
attracting more resources,but also for ensur-
ing their effective use.
Other developing countries can be instrumental
in widening the pool of development resources
in poor countries,Initiatives undertaken by
these countries to advance development in their
low-income neighbors should be supported by
the broader development community.
The external financing environment
in poor countries
F
oreign aid traditionally has been perceived as
the primary source of external financing for
poor countries,To some extent that view remains
correct,poor countries rely on ODA more heavily
than do other developing countries,Ratios of
ODA to GDP are higher in poor countries than in
the developing world as a whole,In 2003,ODA to
the countries in our sample amounted to $19.6
billion (table 5.1),
Declining aid flows throughout the 1990s
Despite the recognized importance of aid,poor
countries as a group are receiving less ODA today
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
91
There has been a shift in the sectoral distribu-
tion of ODA in the poorest countries away from
physical infrastructure and agriculture (figure 5.3).
While education and health recorded an increase
from 8 to 13 percent over the decade,the biggest
increment went to debt relief,which rose from 8
to 22 percent,The shift in part reflects the intro-
duction of the Heavily Indebted Poor Countries
(HIPC) Initiative,launched by the World Bank
and IMF in 1996 (and enhanced in 1999) to ease
the crippling debt burden of some of the world’s
poorest countries (see box 1.2).
4
During the 1990s,infrastructure financing
to all developing countries from bilaterals and
multilaterals declined as private flows rose—
predominantly from a wave of privatizations and
liberalization in the 1990s that encouraged private
investors with limited investment prospects at
home to invest in power plants,roads,and telecom-
munication facilities in the developing world
(World Bank 2004a),The decrease in spending for
agriculture was predominantly due to changes in
India,related in part to the end of external assis-
tance for the Green Revolution (OECD 2004),
although agricultural aid to Sub-Saharan Africa
and other poor South Asian countries also fell.
Some commentators find evidence of a more
selective approach in the allocation of aid
throughout the 1990s,with a better focus on
poorer countries and better performers (World
Bank 2004a; Dollar and Levine 2004),Dollar and
Levine (2004) found that the giving patterns of
Figure 5.2 ODA to poor countries relative to total
ODA,1990–2003
ODA as percentage of donors’ GNI
Source,World Bank staff estimates using data from OECD
Development Assistance Committee.
0
0.30
0.25
0.20
0.10
0.05
0.15
0.35
All developing countries
Poor countries
1990 1992 1994 1996 1998 2000 2002
Sources,OECD; IMF,various years; UNCTAD; World Bank staff
estimates.
1990–92
8.9
6.4
2.2
0.7
H110024.0
H110020.6
2000–3
Figure 5.1 Shift from aid toward FDI in poor
countries,1990–2003
Percentage of recipients’ GDP
H110026
2
H110022
H110024
0
6
4
8
10
FDIODA
Current account balance
than in the early 1990s (figure 5.1),In nominal
terms,ODA to poor countries fell from $16.4 bil-
lion in 1992 to $13.8 billion in 2000,before
recovering to $19.6 billion in 2003,As a share of
GDP,ODA for the poorest countries declined by
about one-third between 1990–92 and 2000–3,By
contrast,FDI rose during the 1990s for the full
sample,tripling its share to 2.2 percent of GDP.
These aggregate movements mask significant
country heterogeneity in the pattern of flows
(box 5.1),
With the end of the Cold War came a decline
in the strategic importance of aid,particularly its
use in supporting,client states.” But Cold War
politics were not the only factor in the decline,The
1990s were a period of fiscal tightening in most
donor countries,With the European Union’s fiscal
policy constrained by the terms of the Maastricht
Treaty,and with political pressure in the United
States for a balanced budget,cyclically adjusted
fiscal positions of the OECD donors improved
from an average deficit of 4.4 percent of GDP in
1992 to 0.8 percent in 2000,while ratios of ODA
to GNI fell from 0.34 to 0.22 percent (figure 5.2).
3
The proportion of total ODA directed to the
poorest countries has been remarkably stable since
the early 1990s,at around one-third of the total,
suggesting that ODA expenditures on this group
by major donors are not protected from fiscal
pressures,On a country-by-country basis,ratios
of ODA to GDP declined throughout the 1990s in
63 percent of the poorest countries,
GLOBAL DEVELOPMENT FINANCE 2005
92
A
verage financing patterns mask enormous country
variation,For example,
Dependence on official development assistance
(ODA) varies enormously in the countries of our
sample—from a high of 36 percent of GDP for
Mozambique to about 2.2 percent of GDP for
Bangladesh and 2.7 percent for Pakistan,The
pattern of allocation of ODA also changed over
the past decade,Several countries (Kyrgyz Republic,
Mongolia) that received no ODA during 1990–92
now receive significant amounts,whereas others
(Nicaragua,Tanzania) have witnessed sharp declines,
Box 5.1 Wide variations in the mix of external
financing in poor countries
Bangladesh
Pakistan
Yemen,Rep,of
Azerbaijan
Kenya
Vietnam
Cameroon
Nepal
Lesotho
Moldova
Madagascar
Senegal
Benin
Ghana
Bhutan
Kyrgyz Rep.
Tanzania
Uganda
Burkina Faso
Mali
Ethiopia
Nicaragua
Zambia
Rwanda
Mongolia
Malawi
Mauritania
Mozambique
Country differences in importance of external financing as a share of GDP,1990–92 and 2000–2
Sources,OECD DAC database; IMF,various years; World Bank Debtor Reporting System; staff estimates.
H1100210 0 10 2030405060 H1100210 0 10 2030405060
ODA/GDP
FDI/GDP
Private debt/GDP
2000–21990–92
The size of and changes in the contribution of other
financing sources—primarily foreign direct investment
(FDI)—vary as well,FDI inflows were significant in
just a few of our sample countries in 1990–92,
whereas by 2000–2 many more were receiving sub-
stantial inflows,Few countries had significant private
debt flows; for most that did,the net flows were
negative,
The picture that emerges is one of diversity and het-
erogeneity,Although these 28 poor countries share the
challenge of reaching the MDGs over the next decade,
the composition and level of external resources avail-
able to them differ enormously.
30 of 40 donors surveyed showed a positive
relationship between aid allocations and the
soundness of recipients’ policies and institutions—
a sharp improvement from a decade ago,
Partially compensating for the decline in ODA
are nontraditional private resource flows,Classi-
fied as current account transfers (and therefore not
as capital flows or external financing),these foreign
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
exchange sources have grown steadily in impor-
tance in recent years,Grants from NGOs have
emerged as a critical counterpart to official aid
flows in some environments,just as NGOs have be-
come key stakeholders and partners in many
development programs and interventions (box 5.2).
And the rapid growth in workers’ remittances high-
lighted in previous editions of Global Development
Finance has specific implications for some coun-
tries because of the pattern of their migrant flows
(box 5.3).
FDI has grown in poor countries,and ratios
of FDI to GDP are similar to those found in
other developing countries
From an annual average of $0.5 billion in the 1980s,
to $3.5 billion in the 1990s (before plummeting in
1998),FDI flows to poor countries rose to some
$8.4 billion in 2004 (box 5.4),At present,the aver-
age ratio of FDI to GDP in poor countries is close to
the developing-country average of 2.7 percent.
In absolute terms,FDI flows have been heav-
ily concentrated in a few countries,In our sample,
only Azerbaijan and Vietnam have annual FDI in-
flows exceeding $1 billion,However,relative
to the size of the economy,FDI has been of con-
siderable importance for some of the smaller
poor countries,particularly Lesotho,Mauritania,
Moldova,and Mozambique,FDI has also made a
significant contribution to gross domestic capital
formation in many poor countries,The share of
FDI in gross capital formation averages 12 percent
for the poorest countries (compared to 10 per-
cent in middle-income countries); it is as high as
60 percent in some poor countries,This in part
reflects a low savings ratio and limited access to
international private debt flows,
The positive trend in FDI has emerged despite
the existence of significant barriers to attracting
external private finance,FDI and other types of
private capital flows are strongly influenced by a
country’s investment climate,which is defined by
its institutional and policy environment,Political
and regulatory risks—among them the risk of
confiscation,expropriation,nationalization,non-
convertibility of currency,losses to political vio-
lence,and lack of enforcement of regulatory
rules—are believed to be higher in poor countries
than in other developing countries and might be
expected to discourage investment,Indeed,almost
all poor countries score significantly lower than
middle-income countries on measures of corrup-
tion,efficiency of bureaucracy,and law and order
(OECD and AfDB 2003; UNCTAD 2003).
Inadequate infrastructure is cited as another
key constraint to FDI,In most poor countries,
foreign investors face unreliable and costly
telecommunications services and electricity supply
and also inefficient transportation links,Thirteen
of the 28 poor countries are landlocked,so that
goods produced for export must pass through
another country as they travel to global markets,
adding additional layers of cost and risk,
93
Figure 5.3 Sectoral distribution of ODA to poor
countries,1990–2002
Note,Data include Indonesia and India.
Source,World Bank staff estimates using data from OECD
Development Assistance Committee.
Education and health 8.1%
1990–92
1995–97
Education and health 10.9%
Action on debt 10.1%
Action on debt
8.5%
Physical
infrastructure
32.2%
Physical
infrastructure
40%
General
program
assistance
19.3%
General program
assistance 6.9%
Agriculture
11.2%
Other
22.1%
Other
20.8%
Agriculture
9.9%
Other
26.3%
Education
and health
13.1%
Action on debt
22%
Physical
infrastructure
17.6%
General program
assistance 14.5%
Agriculture
6.6%
2000–2
GLOBAL DEVELOPMENT FINANCE 2005
94
N
ongovernmental organizations (NGOs) play a
growing role in funding development programs,The
private-sector component of NGO grants to all developing
countries increased from $5 billion in 1990 to $10 billion
in 2003 (figure 1.16)—about 15 percent of the value of
total ODA.
a
Although country breakdowns are not
available,much of this assistance is directed toward poor
countries,The number of global NGOs has increased by
about half since the early 1990s (Union of International
Associations 2002),In Bangladesh alone,the number of
foreign-funded NGOs grew from 382 in 1990 to 1,652
in 2002,This rapid growth can be attributed to several
factors:
Citizens of industrial countries are increasingly
aware of events in the developing world,partly
in response to more frequent and timely foreign
news,
Growing concern over the effectiveness of aid and
limits to state-led development have encouraged
more resources to be directed through nonstate
actors,With greater emphasis on partnerships and
shared ownership,NGOs are perceived to be in
touch with the needs of the poor (Tevdt 1998),For
official donors,international NGOs have become a
means to improve aid effectiveness through their
contacts with locals,Governments’ increasing
acceptance of NGOs as legitimate stakeholders
has helped as well.
Private philanthropy has increased sharply.
International giving by the Bill and Melinda Gates
Foundation to developing countries surpassed
$1 billion in 2003,The Ford Foundation,the
David and Lucile Packard Foundation,and the
Rockefeller Foundation all provide more than
$100 million annually in development assistance
(OECD 2003a),
Box 5.2 Growing financing role for NGOs
Countries that have taken steps to improve
their investment climates and have opened up
industries to privatization have been much more
successful at attracting FDI (Pigato 2000),While
FDI has been concentrated in the extractive sector—
with major oil and mining exporters receiving sig-
nificantly higher FDI relative to the size of their
economy (figure 5.4) than other countries—the
considerable difference in FDI performance be-
tween countries (even in the extractive sector) high-
lights that countries can influence,to some extent,
the degree of inward FDI.
In recent years,a number of poor countries
have improved their macroeconomic performance,
with higher growth rates,lower inflation,greater
openness to trade,and improved exchange-rate
stability.
5
In addition,some countries have
strengthened their foreign investment policy frame-
work by expanding the number of industries open
to foreign investment,easing sectoral restrictions
and limits on foreign exchange,signing double
taxation treaties to reduce tax burdens,
6
and im-
proving corporate regulations,In addition,several
countries established investment promotion agen-
cies (UNCTAD 1998 and 1999; Collier and
Gunning 1999),and signed multilateral agreements
Note,Oil and mineral exporters are countries in which oil and
mineral exports accounted for at least 20 percent of total exports in
1996–2003,These countries include Azerbaijan,Bhutan,Cameroon,
Ghana,Mauritania,Mongolia,the Republic of Yemen,and Zambia.
Sources,World Bank,World Development Indicators and Global
Development Finance,various years.
Oil and mineral exporters
2.1
4.4
2.6
1.5
Other poor countries
Figure 5.4 Natural resource availability and ratios
of FDI to GDP in poor countries,1990–2003
Percent
0
1
3
2
4
5
1996–20031990–95
a
ODA includes grants made by bilateral donors to NGOs,but not
grants made by NGOs using private funds.
to resolve future investment disputes,The result has
been an overall improvement in investment climate
indicators for poor countries,
7
although risks are
still higher there than in middle-income countries
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
95
A
fter a dramatic rise in recent years,workers’ remit-
tances have emerged as a significant source of foreign
exchange earnings for poor countries,Remittances are an
“above-the-line” item feeding into the current account,not
the capital account,of the balance of payments,
In 2004,remittances to poor countries reached
$15.9 billion,averaging 5.1 percent of GDP in 2002/3,
compared to just 2.8 percent in 1990/91,Because remit-
tances generally flow from household to household (a pri-
vate transaction),it is impossible to draw inferences from
aggregate figures about their allocation between consump-
tion and investment—or their eventual development
impact,But their growth and relative size in poor
countries provide ample justification for analyzing their
determinants.
The surge in recorded remittance flows in part re-
flects better data gathering by central banks and statisti-
cal agencies in response to growing scrutiny of remit-
tances flowing through alternative channels,But it also
mirrors the rise in outward migration throughout the
1990s,Since the mid-1990s there has been an increase in
temporary and permanent migrant workers across all
skill and income categories,with OECD countries regis-
tering a 7.6 percent increase in migrant inflows from
1991 to 2000,and similar trends in many non-OECD
countries (OECD 2003b),Finally,security concerns and
heightened scrutiny by immigration authorities in rich
countries may have encouraged some migrants who fear
deportation or investigation to remit a larger portion of
their savings back to their home country (World
Bank 2004a).
Remittances sent to the poorest countries reflect the
stock of emigrants,the work they undertake,and the links
to their country of origin,Migration patterns are influ-
enced by three key factors,the economic attractiveness of
the destination country; the presence of family members
or others of similar ethnic background in the destination
country; and the distance between the destination and
origin countries (OECD 2003b),
A large part of remittance flows to poor countries
comes from other developing countries,Some countries
with the highest ratio of remittances to GDP (Lesotho,
Moldova,and Nepal) are those that are completely
surrounded by richer neighbors that are not in conflict,
In Lesotho,for example,37 percent of households have a
family member working in South Africa,Conversely,
poorer countries receiving few remittances,such as
Madagascar and Tanzania,do not share a common
border with a significantly richer neighbor (see figure),
Box 5.3 Workers’ remittances to poor countries
0
4
12
20
16
8
“Neighborhood” effect on remittances to the poorest
countries,2000–2
Remittances as % GDP
20 40 60 800 100
Sources,IMF,various years; World Bank staff estimates.
Percentage of country’s border shared with richer countries not in conflict
10
18
14
2
6
Bangladesh
Mongolia
Yemen,Republic of
Nicaragua
Lesotho
Moldova
Nepal
Sub-Saharan
Africa
Uganda
Pakistan
Vietnam
(figure 5.5),Mozambique and Uganda are two
poor countries that increased FDI after improving
their investment climate.
Trade policies and agreements have also
played an important role in attracting export-
oriented FDI by providing access to regional and
larger markets (box 5.5),Recent initiatives to
grant African manufacturers greater access to
developed-country markets may lead to higher
levels of FDI in affected sectors,The African
Growth and Opportunity Act (AGOA) initiative
by the United States and the European Union’s
Everything-but-Arms (EBA) program are expected
to help in this respect,So far the impact of AGOA
has been positive,but limited,According to
AGOA progress reports in 2004,the Act contin-
ues to encourage new U.S,investment,In addition,
it has stimulated African investments as firms
work to access AGOA preferences through
regional production,However,the effect of those
investments may be temporary and limited to cer-
tain sectors,For example,the phasing out of
Multi-Fibre Arrangement (MFA) in January 2005
may have repercussions for FDI flows to those
GLOBAL DEVELOPMENT FINANCE 2005
poor countries that developed their garment in-
dustries in response to the MFA or other agree-
ments,Their severity will be determined by a host
of factors—among them labor productivity,the
cost of labor,and proximity to large export mar-
kets,While preferential agreements are in force,it
is essential that countries improve productivity
and build the necessary infrastructure to advance
international competitiveness.
The recent surge in outsourcing of business
services to low-wage countries such as India
may represent another opportunity to attract
export-oriented FDI,Although poor telecommuni-
cations and an inadequate supply of skilled labor
make it difficult to attract FDI in business services,
poor countries can export low-skill services such
as data entry,Recently,countries such as Ghana
and Senegal have benefited from service outsourc-
ing (UNCTAD 2004),Nevertheless,this type of
FDI has limited linkages with the rest of the econ-
omy,despite a potentially significant impact on
employment.
96
T
he rise in FDI to poor countries in the early 1990s
followed the pattern in FDI flows to all developing
countries,A distinctive feature of the world economy in
the past 15 years has been the growth in investments by
multinational firms for the purpose of controlling assets
and managing production in specific countries,Starting in
the early 1990s,the poor countries,like many other devel-
oping countries,eased restrictions on foreign investments
and liberalized their capital accounts,At the same time,the
privatization process accelerated,particularly in the extrac-
tive and service sectors,Privatization stimulated FDI flows
to poor countries,although to a lesser extent and more
slowly than to middle-income countries,As macroeco-
nomic and political conditions improved,governments
undertook structural reforms to upgrade their investment
climates,Some countries also made efforts to attract
export-oriented FDI through export-processing zones,
although with limited success,
Despite these developments,FDI in the poor countries
fell sharply from 1998 to 2000 (see figure),The Asian
crisis of 1997/98 had a significant impact on aggregate
flows to the region,Of the poor countries in the region,
Vietnam was hit particularly hard,The crisis also affected
poor countries elsewhere,particularly in Africa,because a
considerable portion of investments in countries such as
Ethiopia and Malawi had come from Asian investors,In
addition,FDI flows from the United States fell on the heels
of an overall increase in dividend repatriation in 1998–99
(World Bank 2004a),Other reasons for the 1990s decline
include deteriorations in the investment climate of coun-
tries such as Pakistan and Lesotho
a
and the end of large
infrastructure and privatization projects elsewhere.
More recently,FDI flows to poor countries have in-
creased,reaching an estimated $8.4 billion in 2004,up
Box 5.4 The rise,fall,and recovery of FDI to poor
countries,1990–2003
FDI flows to poor countries,1990–2003
$ billions
a
In Pakistan,a major dispute in 1997 between the government and the
multinational energy company,Hub Power,led to a sharp decline in FDI.
In Lesotho,political unrest following the presidential elections was
instrumental in the FDI decrease.
Sources,World Bank,Global Development Finance,various years; World
Bank,World Development Indicators,various years; UNCTAD,World
Investment Report,various years; World Bank staff estimates.
1990 1992 1994 1998 2000 2002 20031996
9
5
4
3
2
1
6
7
8
0
from $7.7 billion in 2003 and $5.8 billion in 2002,As a
result,the share of the poor countries in FDI flows to de-
veloping countries rose to 8.3 percent in 2003,The rise
can be attributed largely to the strong performance of FDI
in the oil and gas sectors in Azerbaijan and Pakistan,That
said,FDI flows to two-thirds of poor countries increased
in 2003,All regions experienced an increase,except the
Middle East and North Africa (largely because of ongoing
disinvestments in Yemen),
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
97
Note,Economic risk index assesses current economic strengths and
weaknesses (GDP per capita,GDP growth,inflation,budget and
current account balance),Financial risk index reflects issues related
to external debt (foreign debt,trade balance and exchange rate
stability),Political risk index evaluates political stability (contract
viability,profit repatriation,corruption,bureaucracy,and law and
order).
Source,International Country Risk Guide Index (ICRG).
Economic risk Financial risk
Middle-income
average in 2003
Less risky
Political risk
Figure 5.5 Improving risk conditions in poor
countries,1985–2003
ICRG index
0
10
30
20
18.1
25.8
30.9
17.7
24.9
32.0
36.9
54.0
59.7
40
70
60
50
1985 1995 2003
E
xport earnings are an important source of foreign ex-
change for poor countries,Spurred by higher commod-
ity prices,robust demand,better trade facilities,and more
tightly integrated supply chains,the value of poor-country
exports has tripled over the last decade,reaching $62 bil-
lion in 2003 from $21 billion in 1990,Even so,poor coun-
tries did not keep up with the explosion of international
trade during the period,their global market share has
declined over the years,
Trade has a significant potential to promote further
development and poverty reduction in poor countries,as it
has done in middle-income countries,A serious obstacle to
the realization of that potential,however,are the restric-
tions and distortions that continue to hobble trade,no-
tably the persistence of high subsidies for agricultural pro-
duction and exports in rich countries,The potential gains
for developing countries of reductions in those subsidies,
accompanied by further multilateral liberalization of trade
rules,are greater than those that could be obtained from
any other source (World Bank 2003 and 2005).
The ongoing Doha Round of world trade talks offers
an opportunity to increase the development potential of
trade,Increasing market access for poor countries is
Box 5.5 Realizing the development promise of trade
especially critical,both developed and developing countries
should reduce barriers to poor-country exports of food
and agricultural products,labor-intensive manufactures,
and services,
As a complement to further liberalization,“aid for
trade” can help widen market access,Most poor countries
suffer significant behind-the-border constraints such as
poor trade-related infrastructure,lack of capacity in trade-
related institutions,and poor access to information on
new opportunities,Targeted aid can play a crucial role in
strengthening critical trade-related infrastructure,such as
transport,and making other improvements in trade
logistics.
Poor countries can improve their competitiveness by
eliminating trade restrictions and anti-export biases (such
as export taxes and onerous administrative fees and pro-
cedures),In a broad sense,they can raise their productiv-
ity by improving their domestic investment climate,Im-
provements in investment climate and governance are
essential in attracting export-oriented foreign direct in-
vestment,which in turn can improve trade logistics as
world-standard technologies and know-how are applied
to trade processes,
Despite such examples,the concentration of
FDI in the extractive sector of poor countries re-
mains high,pointing to several problems:
Inaddition to having limited linkages with the
rest of the economy,high resource flows to the
extractive sector tend to reduce the country’s
competitiveness in other sectors (through the
so-called Dutch disease),increase rent-seeking
behavior,and cause institutions to deteriorate
(Sachs and Warner 1995; Sala-i-Martin and
Subramanian 2003)
FDI flows to these sectors tend to be volatile.
Most investments are large,but also very sensi-
tive to world commodity prices (figure 5.6).
8
Given the large share of such investments in
gross capital formation and their influence on
exchange rates,volatility may cause further
economic difficulties in some countries,But
such a negative impact is not inevitable,For
example,with strong policy and a sound insti-
tutional framework,Botswana relied on large
GLOBAL DEVELOPMENT FINANCE 2005
FDI flows into its diamond and other mining
industries to become a middle-income coun-
try in one generation,Export receipts and
98
P
oor countries have been affected by a reversal in bank
lending,From 1991 to 1993,medium- and long-term
net bank lending averaged $0.6 billion,By 2001–3 that
figure had fallen to H11002$1.2 billion,
Bank lending collapsed across all developing countries
in the years following the Asian crisis,but the decline was far
deeper in poor countries,Behind this substantial retrench-
ment lay a heightened perception of the risk of lending to
developing countries in the wake of the multiple crises of the
1990s and the 2001–2 slowdown in the global economy.
Increased risk sensitivity has made lenders more cautious,
especially toward poor countries,which tend to be perceived
as high-risk borrowers,According to Institutional Investor,
of the 28 poor countries,only four—Ghana,Kenya,
Pakistan,and Vietnam—obtained an average risk rating
during the 1990s of more than 25 (on a scale of 0 to 100,
with 100 representing the highest credit quality),This is far
below the ratings of developing countries that received sig-
nificant capital inflows,Between 1990 and 2003,most bank
lending to poor countries went to countries rated higher than
20 on the Institutional Investor scale.
The privatization of failed financial institutions and
the removal of entry barriers for foreign banks in the wake
of recent crises drew international banks into poor coun-
tries,thus reducing international lending,Although local-
currency lending could potentially be additional to interna-
tional lending,recent trends suggest that banks have
substituted in-country lending for traditional cross-border
lending,The share of local currency lending in total for-
eign claims nearly doubled between 1990–2003,from 23
to 44 percent,There is a strong incentive for foreign banks
not to make cross-border lending on a significant scale,es-
pecially as local-currency lending largely eliminates ex-
change-rate risk and facilitates penetration of the local re-
tail market,
Part of the reason for the decline in international bank
lending also lies on the demand side,with poor countries
reacting cautiously in the wake of financial crises,Some
countries have acted to limit short-term bank lending and
lengthen the maturity of bank loans,Since 1999,declining
interest margins and lower syndicated loan volumes also
suggest that demand for loans by poor-country borrowers
has declined.
Source,World Bank staff.
Box 5.6 Collapse in international bank lending
to poor countries
government revenues boosted by FDI were in-
vested wisely to create the momentum and the
infrastructure for more broad-based economic
growth (UNCTAD 2003).
With the limited exception of FDI,the world-
wide expansion of private capital flows during the
1990s largely bypassed the poor countries,Private
equity flows to all developing countries tripled from
$55 to $192 billion from 1990 to 2004—yet the
poor countries’ combined 4.3 percent share of this
total remains small (see table 5.1).
Most poor countries have few prospects of
attracting private debt flows or portfolio equity.
In our sample,only Pakistan received sizeable
non-FDI flows because Pakistan was the only
country in the group,according to the S&P/IFC
index,that had companies considered investment-
worthy in the late 1990s—a key indicator for
portfolio equity flows,The general collapse in in-
ternational bank lending to poor countries in the
course of the 1990s further limited flows of private
debt (box 5.6).
Figure 5.6 FDI in oil- and mineral-exporting poor
countries,1990–2003
FDI as % GDP
Note,See note to figure 5.4,
Sources,World Bank,World Development Indicators and Global
Development Finance,various years.
H110022
10
8
6
2
0
4
12
Oil and mineral
exporters
Other
poor countries
1990 1992 1994 1996 1998 2000 2002
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
Other developing countries as a
source of finance for poor countries
D
eveloping countries are often perceived as
recipients and not providers of financial
flows,The final report of the 2002 UN Confer-
ence on Financing for Development in Monterrey
contained only a brief mention of the importance
of encouraging cooperation between developing
countries,However,with respect to poor coun-
tries,other developing countries (especially larger
countries such as Brazil,China,India,Saudi
Arabia,and South Africa) are becoming increas-
ingly important financial players,With wealth in-
creasing and capital controls lifted in the 1990s,
developing countries have emerged as significant
sources of FDI—and even of aid,(New aid
donors include Brazil,China,India,and South
Africa.) Finally,the developing South is the pri-
mary destination for poor country migrants and
also the major source of workers’ remittances.
Below we examine what is known about the
growing South-South financial interdependence.
We suggest that South-South flows represent an
under-recognized pool of development resources
for the poor countries,The international commu-
nity should encourage developing countries to
develop policies to enhance the development of
their poorer neighbors.
South-South FDI
South-South FDI appears significant in the poorest
countries,although precise estimates of its magni-
tude are not available,Companies from China,
India,Malaysia,the Russian Federation,and
South Africa have become important investors in
many poor countries,To minimize risk—and the
cost of acquiring information—they tend to invest
in resource- and market-seeking activities in neigh-
boring countries before expanding on a global
basis,Ethnic and cultural ties often play a role in
the choice of trading partners,particularly for
Asian companies (Aykut and Ratha 2004),
Privatization programs have been especially
important in attracting FDI from these companies,
in particular for Malaysian and South African in-
vestors,who contributed almost a third of the for-
eign exchange raised by privatization efforts in the
poorest countries between 1989 and 1998,Re-
gional companies also expanded their operations
in retailing,banking,brewing,satellite television,
and tourism,All the major players in the African
telecommunications sector are from other devel-
oping countries.
9
Proximity to larger economies has helped
some poor countries such as Lesotho,Mongolia,
and Nepal attract FDI,Nepal,India (in hotels
and manufacturing),and China (manufacturing)
account for more than half of FDI,Most FDI in
Mongolia originates from China and Russia.
Companies from the South have comparative
advantages when investing in poor countries,Such
firms often have lower overhead costs and man-
agers indigenous to the region,In addition,geo-
graphical proximity and cultural similarities can
make coordination of foreign operations less ex-
pensive,Companies from the South may also have
greater experience than companies from developed
countries with the economic and political condi-
tions of the host country (Wells 1983; Aykut and
Ratha 2004),The relative success of the South
African telecommunications company,MTN,in
Uganda,compared to its competitors from devel-
oped countries,is traceable to its in-house exper-
tise in managing pertinent economic and political
risks (Goldstein 2004).
10
Like FDI from the North,South-South FDI
can raise productivity and tax revenue when
the environment is favorable,Following South
African Brewery’s purchase of a controlling share
of the state-owned Tanzanian Brewery Limited in
cooperation with the IFC in 1993,productivity
and capacity utilization increased dramatically
while output tripled in five years (Pigato 2000).
Following the privatization of one Mozambican
state-owned company,taxes paid by the company
rose more than fivefold and by 1998 provided
about 5 percent of the country’s total tax revenues,
However,firms from the South may have
comparatively limited investment capacity,as their
cost of capital is usually higher and affected by
business cycles in their home country,
South-South development assistance
South-South development assistance has expanded
in parallel with South-South FDI,although here,
too,data are lacking.
11
But the potential relevance
of South-South aid in generating economic growth
in the world’s poorest countries should not be un-
derestimated.
12
Other developing countries can be
instrumental in widening the pool of development
resources—and in creating pressure on industrial-
country donors to do more,
99
GLOBAL DEVELOPMENT FINANCE 2005
With many developing countries experiencing
strong economic growth in recent years and seeking
new markets,as well as new spheres of economic
and political influence,it is logical that their role in
providing development assistance should expand.
India’s minister of finance announced in his 2003/4
budget speech that India intended to increase its de-
velopment assistance to other developing countries,
including debt relief to HIPC countries,Grants and
loans from India to other developing countries
grew sharply in the past five years—from $83 mil-
lion to $140 million.
13
China,too,has become
increasingly involved in technical cooperation
projects developed by the United Nations Develop-
ment Programme (UNDP),becoming the first de-
veloping country to donate to the Voluntary Trust
Fund for the Promotion of South-South Coopera-
tion,In mid-2004,the Chinese government also of-
fered $610,000 in humanitarian aid to the troubled
Darfur region of Sudan,Other developments point
in the same direction:
In early 2005,developing countries pledged
$173 million of emergency assistance in the
wake of the Asian tsunami,
Since 1976,Nigeria has promoted South-
South cooperation through the Nigeria Trust
Fund,operated by the African Development
Bank,with current resources of $432 million,
Brazil and Morocco sponsor extensive
university scholarship programs and support
technical and professional training for stu-
dents of developing countries.
The government of India has provided finan-
cial assistance for the construction of all
major hydroelectric power plants in Bhutan.
14
South Africa cofinanced the $2.3 billion con-
struction of the Mozal aluminum smelter in
Mozambique.
Within developing countries,the Arab na-
tions have long been an important source of de-
velopment financing,By the end of 2002,the
Arab national and regional development institu-
tions together had extended $76 billion in
development assistance.
15
Those resources have
supported some 4,500 operations in more than
130 countries around the world,mostly in low-
income countries,Half of the total went to Africa
and most of the remainder to 36 Asian and
Middle Eastern countries,
Cooperative exchange between two develop-
ing countries can help both countries in their de-
velopment process,The capacities of the recipient
are strengthened,while the donor country gains an
understanding of the development challenges of
the recipient—and possibly insight into challenges
at home,The donor may also be able to identify
future market opportunities,By increasing the
national and collective self-reliance of developing
countries,South-South development assistance can
strengthen the voice of developing countries in ne-
gotiations with the North,But it also has features
that make it a valuable complement to North-
South cooperation,First,cooperation between
countries with similar conditions of natural envi-
ronment,culture,and economic development is
likely to result in more appropriate technology
transfer,Second,when a developing country offers
assistance to neighboring countries,personnel and
transportation costs,as well as other expenses,
often are relatively low,Third,when developing
countries take responsibility for development as-
sistance and become donors in their own right,aid
resources can expand,
Because the resources available for South-
South cooperation will remain low compared to
North-South flows,there is clear scope for coordi-
nating South-South and North-South flows.
Among the impediments to greater South-South
cooperation are limited institutional capacity and
lack of resources,One means to alleviate both
constraints is to leverage potential projects with
money from the North,an arrangement called
triangular cooperation,Triangular cooperation
occurs when a group of developing countries
working together to address a common problem
obtains additional financial,technical,and logisti-
cal resources from a developed-country partner or
group of partners,The actors involved are various:
traditional donors,multilateral agencies,private
sector firms,academic institutions,and civil soci-
ety organizations,In policy circles this approach is
looked on as an important way to achieve the
goals of South-South cooperation (Teheran Con-
sensus 2001),Both the UNDP and Japan are active
in South-South cooperation (box 5.7).
The collaboration between the South and the
North has produced some success stories,One is
the New Rice for Africa (NERICA) initiative,Col-
laboration among African,Asian,European,and
North American scientists under the auspices of
100
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
the West Africa Rice Development Association
(WARDA) developed new,high-yielding rice vari-
eties for Africa by combining the best traits of
African and Asian rice species,Growing demand
for NERICA in turn led to the creation of the
African Rice Initiative,a consortium of partners
that includes the Government of Japan,UNDP,the
World Bank,the Rockefeller Foundation,USAID,
the UN Food and Agriculture Organization,and
the African Development Bank (AfDB),According
to the African Rice Initiative,nearly 210,000
hectares in West and Central Africa will be under
NERICA cultivation by 2006,raising local African
rice production and saving nearly $90 million per
year on rice imports,By 2006,1.7 million African
farmers will have been exposed to the advantages
of NERICA,increasing food security in dozens of
African nations.
In another sign that the idea of complement-
ing North-South with South-South development
assistance seems to be gaining momentum,the
Commonwealth Secretariat now advocates direct
101
T
he Special Unit for South-South cooperation of the
United Nations Development Programme (UNDP)
plays an important role in financing South-South
cooperation through UNDP country allocations and
program resources and,indirectly,through the mobiliza-
tion of funds from NGOs and the private sector,In the
UNDP,two funds have been established to which
developed and some developing countries have con-
tributed,the Voluntary Trust Fund for the Promotion of
South-South Cooperation and the Perez-Guerrero Trust
Fund for Economic and Technical Cooperation among
Developing Countries,Between 1996 and 2002,the
Voluntary Trust Fund attracted $33 million,with most
of the money coming from Japan,In 2002 the UNDP
Executive Board approved an annual allocation of
$3.5 million for technical cooperation among
developing countries over the coming years.
Japan’s support for South-South cooperation includes
the following elements,
Japan has partnership programs to encourage eco-
nomically robust developing countries to become
donors themselves,Since 1975 the Japan International
Cooperation Agency (JICA) has sponsored third-
country training programs to help developing coun-
tries become donors,Under the program personnel
in developing countries who were previously trained
in Japanese technical cooperation programs train
technicians and administrators from other devel-
oping countries,In fiscal 2003,2,335 people attended
151 third-country training courses,Developing
countries offering eight or more courses under
the program included Brazil,Indonesia,Kenya,
Malaysia,Philippines,and Thailand,The costs of
the program are shared between Japan and the
host country,
Japan expanded its assistance for South-South
cooperation by introducing the third-country expert
program in 1995,The program involves sending
experts from countries with similar natural environ-
ments,languages,technical levels,and cultures to
recipient countries to enable the smooth transfer of
technology,There has been a steady increase in both
the number of requests received and the number of
countries expressing interest in either sending or
receiving experts,In fiscal 2003,117 new experts
were sent to Africa,Asia,Latin America,and the
Middle East,
Since the establishment of the Human Resources
Development Fund within UNDP in 1996,Japan has
made special contributions to South-South coopera-
tion by earmarking about half of the Fund for that
purpose,In 2002,the Fund was integrated into the
Japan-UNDP Partnership Fund,an important goal of
which is to promote South-South cooperation,
Other developed countries have provided vital support for
South-South cooperation,The Netherlands has cofinanced
sectoral programs in 22 developing countries through
multidonor basket funds,providing support for the use of
developing-country technical resources in the programs.
Sweden has financed knowledge networks,three in Asia
(on renewable energy technologies,energy research,and
environment) and two in Africa (on energy policy and
biotechnology),Australia has set up training arrangements
with ASEAN,Fiji,Papua New Guinea,Samoa,and
Vanuatu,The Organization of American States,through
the Inter-American Agency for Cooperation and Develop-
ment (IACD),coordinates cooperation among the member
states and forges partnerships with the private sector and
civil society,Most of the IACD technical cooperation grants
are supplemented by other donors.
Box 5.7 UNDP,Japan,and triangular cooperation
GLOBAL DEVELOPMENT FINANCE 2005
cooperation and support between Commonwealth
countries without the involvement of the United
Kingdom,
Four of the 10 largest economies today
(measured using purchasing power parity weights)
are developing countries that offer significant
export markets to many poor countries,If larger
developing countries (such as Brazil,China,India,
and South Africa) were to reduce trade barriers
against products from the poorest countries,the
additional resources generated for meeting devel-
opment needs and reducing poverty could easily
dwarf aid and other flows,
The South as a source of workers’ remittances
For developing countries overall,industrialized
countries are the major source of remittance pay-
ments,but in the poor countries,other developing
countries are most prominent,While comprehen-
sive data are not available,estimates are that in
poor countries in East Asia,South Asia,and Sub-
Saharan Africa,more than two-thirds of emigrants
migrate to a country in the same region,while in
South Asia and Sub-Saharan Africa,most of them
migrate to another developing country (OECD
2003b).
The substantial income gap between the
poorest countries and their larger neighbors af-
fects the decision to migrate,For the four poor-
est countries with the largest ratio of remittances
to GDP (Lesotho,Moldova,Nepal,and Republic
of Yemen),the income gap with their largest
developing-country neighbors ranges from $281 per
capita in the case of Nepal and India,to $7,230 per
capita for the Republic of Yemen and Saudi Arabia.
Transport costs and restrictions on migration
also have been important in encouraging migrants
to remain closer to home,OECD countries have
increased restrictions on the admission of immi-
grants over the last three decades (UN 2002b).
Since 2002,70 percent of all legislation on mi-
grant workers has originated in OECD countries
(ILO 2004),making other developing countries an
easier destination,although restrictions are in
place in the developing world as well,
As a result of the concentration of poor
country migrants in other developing countries,
events affecting richer neighbors can have a sig-
nificant impact on the workers’ remittances flow-
ing to poor countries,Remittances to Burkina
Faso have been adversely affected by conflict in
neighboring C?te d’Ivoire,falling from 4.5 per-
cent of GDP in 1990 to 1.2 percent in 2003.
Lesotho has been affected by a decline in mining
employment in neighboring South Africa,In
1990,an estimated 127,000 ethnic Basothos were
employed in South African mines (providing
some 20 percent of the work force),Since then,
however,new recruitment for the mines has virtu-
ally ceased,and total mine employment started
falling,mainly due to the declining profitability
of gold mines,As the number of Basotho emi-
grant workers declined to 60,000 by 2003
(Cobbe 2004),remittances fell from 69.6 percent
of GDP in 1990 to 18.5 in 2003,In the Republic
of Yemen,remittances as a share of GDP fell from
31.0 to 11.9 percent over the same period,re-
flecting the regional situation in the aftermath of
the first Gulf War.
Informal channels of remittances are ex-
tremely important in poor countries,as when mi-
grants carry funds on trips home or when they
call on hand couriers,Cost,speed,convenience,
and trust are key in determining the channel
through which migrants choose to remit money.
Speed and convenience have favored more formal
channels,including wire transfer agencies and
banks,But as with remittances from industrial
countries,lack of competition and inefficiencies in
the regulatory framework for money-transfer
operations raise costs to senders and recipients
(Ratha and Riedberg 2004),South-South coop-
eration to address such issues could yield sizable
gains to participants.
Meeting the Monterrey challenge—an
agenda for donors and recipients
T
he South is becoming a more important part-
ner for poor countries in financing develop-
ment,and poor countries are less exclusively
dependent on aid,but industrialized country
governments continue to play the leading role in
mobilizing finance and managing the vulnerabili-
ties of these countries,Looking ahead,action is
needed on four fronts if progress toward the
MDGs is not to be derailed by a shortage of exter-
nal resources,First,donors must scale up ODA and
other resources substantially—overcoming the dis-
tractions of changing fiscal pressures and shifting
102
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
strategic considerations,Second,they should strive
to make aid more stable and predictable and less
procyclical,Third,they should press for better
donor coordination,selectivity,and country own-
ership to improve the effectiveness of aid and in-
crease the focus on results,And fourth,they
should seek opportunities to engage the private
sector in development efforts,To justify and effec-
tively absorb increases in aid and attract more
private-sector finance,poor countries,for their
part,need to pursue effective economic and pro-
poor policies,
Commitments to support the MDGs
Despite the decline in aid over the past 15 years
that has only recently been reversed (see chapter 1),
the outlook for aid flows is positive,There was
agreement at the UN Conference on Financing for
Development in Monterrey in March 2002 that
ODA and other resources had to be increased
substantially to provide developing countries with
the financial resources required to meet the
MDGs,Developed countries that had not already
done so were urged to,make concrete efforts” to-
ward increasing ODA to the UN target of 0.7 per-
cent of GNP,
The OECD (2005) projects that total ODA
disbursements (to all developing countries) will
increase from 0.25 percent of GNI in donor coun-
tries in 2003 to 0.30 percent by 2006,still signifi-
cantly less than the 0.34 percent level reached in
the early 1990s (see figure 1.14),The projection
assumes an average 9 percent annual increase in
ODA in real terms over the period 2004–6,well
above the average rate of real increases for the
past two years (6 percent),
The case is strong for directing increased re-
sources to poor countries whose economic and
social policies allow them to make effective use
of aid—because they have the greatest potential
to reach the MDGs,In countries with low capac-
ity to attract private investment,ODA is particu-
larly important,both in itself and as an essential
complement to other sources of development
finance.
The G-8 Africa Action Plan announced at
the 2002 G-8 Leaders Summit in Kananaskis
(Canada) suggested that,in aggregate half or
more of our new development assistance could be
directed to African nations that govern justly,
invest in their own people and promote economic
freedom.” Sub-Saharan Africa received 60 percent
of increases in ODA disbursements over the five
years from 1998 to 2003,raising its share of total
ODA disbursements by DAC donors from 24 per-
cent to 34 percent (see figure 1.15),(In 2003,one-
third of ODA was allocated to the poorest
countries,unchanged from its average share over
the previous 10 years.) However,most of these
funds were allocated to postconflict situations,
leaving little for development aid,
A March 2005 report by the Commission for
Africa urged a doubling of aid to Sub-Saharan
Africa,including an investment of $150 billion in
infrastructure over the next decade,The report
calls for an additional $25 billion per year in aid
through 2010 and,subject to a review of progress,
a further $25 billion per year through 2015.
Raising resource flows to the world’s poorest
countries to levels required to support the MDGs
requires donors to remain committed to financing
for development,even in the face of fiscal pres-
sures and strategic considerations,both of which
have had an increasingly important influence on
the distribution of foreign aid,
The budget deficit for the OECD countries as
a group increased from 2.8 percent of GDP in
2002 to 3.4 percent in 2003,The gap is projected
to widen to 3.5 percent in 2004,While counter-
cyclical expansionary fiscal policies helped prevent
the recent global slowdown from deepening,the
same policies,by increasing deficits to unsustain-
able levels,have created risks with clear implica-
tions for developing countries—for example,the
risk that real interest rates could be pushed higher
globally,dampening capital flows to develop-
ing countries as the public sector in advanced
economies competes with developing countries for
global savings (see chapter 3),With aging popula-
tions expected to place a rising fiscal burden on
advanced economies in coming years,the pressure
for fiscal consolidation is not likely to wane any-
time soon.
Historically,as donors’ fiscal deficits have
been reduced,the ratio of ODA to GNI has fallen
in tandem,At a time of fiscal consolidation,in
other words,foreign aid budgets appear particu-
larly vulnerable,Cuts in foreign aid are often more
palatable to the electorate than cuts in domestic
programs,In the face of claims from domestic
103
GLOBAL DEVELOPMENT FINANCE 2005
constituencies,donors may be tempted to over-
look pledges made at events such as the Monterrey
Conference,which are not legally binding under
international law.
The threat to future aid flows appears even
more serious when one considers that in 2003,
eight DAC member countries reported budget
deficits that exceeded 3 percent of their GDP.
Those eight countries account for roughly three-
quarters of ODA,Fiscal consolidation will be a
key element of the policy agenda in many devel-
oped countries over the medium term,In this envi-
ronment,increasing ODA and other resource flows
to the poorest countries must be given high pri-
ority if the developed countries are to hold up
their end of the Monterrey bargain by providing
the financial resources required to support the
MDGs,
The war on terror and the conflict in Iraq
will continue to divert donor attention,While dis-
bursements have fallen considerably short of
commitments in Iraq and Afghanistan,they have
been significant,The share of ODA allocated to
Iraq increased from an average of 0.3 percent be-
tween 1980 and 2000 to 4.2 percent in 2003,Its
share is expected to be significantly higher in
2004,More broadly,the share of ODA allocated
to five countries—Afghanistan,Columbia,Iraq,
Jordan,and Pakistan—increased from 3 percent
over the period 1980–2000 to more than 11 per-
cent in 2003,This pattern is consistent with the
idea that,strategic considerations” are more im-
portant in determining aid flows than are devel-
opment needs (McKinlay and Little 1979; Alesina
and Dollar 1998).
Further evidence of diverted attention is
shown by the link between aid and military ex-
penditure,Since 2001,aid flows have not in-
creased with military expenditures to the extent
that had been expected,In the immediate
post–Cold War world,global military expendi-
tures fell from $847 billion in 1992 to $693 bil-
lion in 1998,During the same period aid fell from
0.34 to 0.22 percent of donors’ GNI,a drop at-
tributable to efforts to balance the budget and to
the perceived decline in the strategic importance
of aid following the end of the Cold War,How-
ever,since September 11,as military expenditures
have increased from $743 to 879 billion,the ratio
of ODA to GNI has not made up the decline suf-
fered in the 1990s (figure 5.7).
If the world is to meet the MDGs,substantial
increases in ODA and other resources are certain to
be needed (World Bank 2004b),Innovative meth-
ods of development finance may help to enrich the
aid effort (box 5.8).
Most important of all,developed countries
could spur development by reducing agricultural
subsidies and trade barriers that discriminate
against developing countries’ exports,Industrial
countries spend more than $300 billion each year
to subsidize domestic agriculture,more than five
times the amount they spend on foreign aid.
Unless progress is made in the Doha round of
trade talks on agricultural protection and subsi-
dies,negotiations within the World Trade Organi-
zation (WTO) are likely to be stalled,to the
detriment of growth and development,
Making aid more predictable
and less procyclical
Aid can be better used if it is predictable,When
aid flows wax and wane with international
economic cycles or with unexpected shifts in
donor policy,recipients often see aid decline when
they need it most,If aid is used for domestic
investment,volatility can generate uncertainty,
discourage investment,and impede growth.
16
Aid volatility also complicates the conduct of
fiscal and monetary policy,Tax increases and
104
Figure 5.7 Global military spending and aid,
1992–2003
ODA as percentage of donors’ GNI
Sources,Stockholm International Peace Research Institute; OECD
Development Assistance Committee.
0.20
0.34
0.32
0.30
0.26
0.22
0.28
0.36
0.24
650 700 750 800 850 900
2002
2003
1992
1993
Post–Cold
War era
1994
1995
2001
War on terror and Iraq
Global military expenditure ($ billions)
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
government spending cuts frequently follow aid
shortfalls (Gemmell and McGillivray 1998),Fur-
thermore,aid-dependent countries are often
unable to offset an unexpected aid shortfall by
borrowing and must resort to unplanned and
costly fiscal adjustment—especially damaging
when aid flows are procyclical,
Despite these damaging effects,aid to poor
countries tends to be volatile.
17
Aid has been more volatile than GDP (fig-
ure 5.8) in virtually all of the poor countries
in our sample,Earlier studies showed similar
results,Pallage and Robe (2001) showed that
aid was highly volatile compared to recipients’
output,Bulir and Hamann (2003) found that
it was more volatile than fiscal revenues,par-
ticularly in highly aid-dependent countries.
Gemmel and McGillivray (1998) found that
aid was significantly more volatile than
revenue,Only Collier (1999) found that aid
(to Sub-Saharan Africa) was less volatile than
tax revenues.
Aid flows to poor countries have become
more volatile over the 1990–2002 period
(figure 5.8),although they are less volatile
than for other low-income countries.
18
The
increased volatility could reflect changing
donor sentiments,better linkages with coun-
try performance,or other factors,For the
105
P
roponents of innovative financing mechanisms—such
as the International Finance Facility,global taxes,and
various voluntary giving arrangements—argue that such
mechanisms can partly offset shortfalls in official develop-
ment assistance (ODA).
International Finance Facility,As proposed by the
British government,the IFF is designed to front-load aid
flows in the short term to help reach the MDGs,Donors’
multiyear aid commitments would be used to back AAA-
rated bonds,Bond proceeds would be channeled through
existing aid programs,Over time,the IFF would draw
down the donor pledges to pay off its bonds,Future aid
budgets would thus be used to support aid disbursements
as and when they are needed in the short term,Critics of
the proposal charge that bond repayments,as well as the
transaction costs of issuing the bonds,would put pressure
on aid budgets in the years ahead.
Technical aspects of the IFF proposal are being
worked through in a pilot project,The IFF for Immuniza-
tion (IFFIm) seeks to raise front-loaded,reliable funding
over several years to expand global immunization and so
help achieve the MDG on child health,IFFIm will use
off-budget donor pledges of future aid increases as back-
ing for AAA bonds,relying largely on the existing gover-
nance structure and country programs of the Global Al-
liance for Vaccines and Immunization (GAVI) and the
Vaccine Fund.
Global taxes,Proposals have been made in the past to
raise funds for development through new global tax instru-
ments,but most have suffered from technical obstacles and
all have faced varying degrees of political opposition,One
prominent example is the proposed,carbon tax” on con-
sumption of hydrocarbons,Such a tax could generate sub-
stantial revenue and help arrest climate change,but it
would be very difficult to achieve politically,On a smaller
scale,a recent proposal in the European Union would,for
the first time,tax the jet fuel used in airliners and address
the environmental harm caused by air transportation,Pro-
ponents observe that the revenues raised from global taxes
could complement the IFF by generating aid funds in the
medium to long term,as IFF flows diminish with repay-
ment of bonds.
Voluntary contributions,Private contributions al-
ready fund development in various ways (see box 5.2)
that could be expanded,encouraged,or made more effec-
tive,Some mechanisms,such as the establishment of affin-
ity credit cards that provide funding for development
through voluntary surcharges,could be undertaken by
interested banks or companies,Others,such as the cre-
ation of a special-purpose global lottery or premium
bond,would require regulatory action by participating
countries,either unilaterally or acting in concert,As with
global tax mechanisms,it would be important—and not
easy—to ensure that voluntary contributions resulted in
additional flows,rather than substituting for some por-
tion of existing flows or overemphasizing some needs at
the expense of others.
Although such innovative mechanisms offer some po-
tential to expand the resources available to support devel-
opment efforts,the legal and political obstacles to their im-
plementation suggest that their practical significance in the
short term will likely be limited.
Box 5.8 New sources of financing
GLOBAL DEVELOPMENT FINANCE 2005
other low-income countries,this rise in aid
volatility may be explained by the fact that
many of these countries experienced conflict
in 1990–2002 period,which disrupts aid
operations and disbursements,
Among the several types of aid,humanitarian
aid and emergency assistance are by their
nature volatile (figure 5.9).
19
But even when
emergency aid is excluded,aid disbursements
are more volatile than other flows,such as
remittances.
Greater predictability in aid flows is one of
the touted benefits of the proposed International
Finance Facility (IFF),sponsored by the British
government,The IFF would require donors to out-
line their intended contributions to aid over the
long term and would then issue bonds backed by
those pledges (see box 5.8),
Volatility of aid need not seriously affect out-
put or growth in developing countries,provided it
offsets fluctuations in GDP,Intuitively,this makes
sense—if flows of external finance are counter-
cyclical to the business cycle (and thus help offset
the downturns),they can help to smooth out fluc-
tuations,But ensuring that aid will be countercycli-
cal implies donor control over volatility,which,of
course,has been lacking,In fact,there are good
reasons why aid flows tend to be procyclical,First,
when donors are unable to adequately monitor the
recipient country’s reform effort,aid disburse-
ments may be implicitly tied to economic perfor-
mance,thus making aid procyclical (Svensson
2000),Second,donors may try to link aid flows to
country performance using measures that are inde-
pendent of domestic economic cycles,When coun-
tries are hit by unforeseen adverse shocks,compli-
ance with donor conditionality may be affected,
which may reduce aid disbursements,Finally,some
donors require matching grants by the recipient,If
more matching resources are available during
cyclical upturns,some procyclicality of foreign aid
disbursements may follow.
In recent years there appears to have been a
shift away from procyclical aid flows—which
should be encouraged.
20
Ratha (2001) found that
multilateral lending played a countercyclical (sta-
bilizing) role relative to private flows,with rising
official flows during periods of private credit re-
duction,Multilateral lending also complemented
private flows with a time lag,Empirical work on
the cyclical character of ODA flows in 1970–90
and 1990–2002 found less evidence of procyclical-
ity in the latter period,although short estimation
periods affect the robustness of these estimates,
106
Note,LICUS H11005 Low-Income Countries Under Stress,Figure measures
median volatility for each group of countries,Volatility is equal to the
standard deviation of the cyclical component of the Holdrick-Prescott
filtered indexed series,Only countries with data available for both
periods are included.
Source,World Bank staff estimates.
GDP
Poor countries
9.7
10.6
16.4
21.2
10.9
16.2
17.3
48.7
LICUS
ODA GDP ODA
Figure 5.8 Change in volatility of aid,1970–2002
Volatility (standard deviation)
0
10
30
20
40
50
1990–20021970–90
Note,IDA H11005 International Development Association,Figure
measures median volatility for each group of countries,Volatility is
equal to the standard deviation of the cyclical component of the
Holdrick-Prescott filtered indexed series,Only countries with data
available for both periods are included.
Source,World Bank staff estimates.
ODA
Structural
Emergency
IDA
Remittances
FDI
Figure 5.9 Volatility of different components of
aid,remittances,and FDI,1990–2002
Volatility (standard deviation)
0
10
30
20
40
80
70
60
50
71.1
19.7
21.4
39.6
16.3
40.0
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
Strengthening the framework for aid
effectiveness
Improving the effectiveness of aid involves four
key steps—donor coordination,aid selectivity,
country ownership,and a focus on results,
Strengthening donor coordination,Ongoing
efforts to align and harmonize aid currently
involve 60 developed and developing countries
and at least 40 bilateral aid agencies and multi-
lateral organizations,Harmonization initia-
tives may involve joint analytical work,joint
preparation of country assistance strategies,
and joint reviews of implementation,The
benefits of successful coordination are to
reduce duplication of effort among donors and
to reduce the bureaucratic burden on recipients.
Improving aid selectivity,A scarce resource,
aid should be directed toward two classes of
countries,those that need it most and those
that can use it to best effect—in other words,
the poorest countries and those with the best
records of using aid to spur growth and re-
duce poverty,Good performers will use signif-
icant increases in aid to improve their
prospects of reaching the MDGs and their
own development goals (Dollar and Levine
2004),At present,donors differ widely in
how they measure performance and select
“merit-based” aid recipients,Initiatives such
as the United States Millennium Challenge
Account,which is intended to provide addi-
tional aid based on 16 economic and political
indicators (including control of corruption,
the rule of law,primary education completion
rate,country credit rating,and trade policy),
have the potential to improve the application
of aid selectivity,but a proliferation of com-
peting criteria among donors raises renewed
concerns about harmonization,
Country ownership,Countries that embrace
development programs as their own will use
aid more carefully and more effectively,With
guidance from the World Bank and the partic-
ipation of civil society,member governments
now prepare poverty reduction strategy pa-
pers (PRSPs),which set forth an agreed pro-
gram of action to reduce poverty with help
from development partners,
Focus on results,By targeting assistance to
meet clearly defined goals—a practice known
as,managing for results”—the international
community can focus on national develop-
ment needs and objectives under the owner-
ship of the recipient country,Bilateral and
multilateral development agencies agreed in
Marrakech in February 2004 to a set of prin-
ciples that include focusing on results at all
stages of the assistance process,including
planning,implementation,and completion;
and keeping reporting systems simple,cost-
effective,and user friendly,
Progress has been made in all these areas over
the past decade,but more needs to be done to
make aid more effective in supporting attainment
of the MDGs (World Bank 2004a and 2004b).
The ongoing replenishment of the International
Development Association (IDA) also has stressed
the link between new resources and effectiveness,
Leveraging private capital
flows to poor countries
Most poor countries will remain heavily reliant on
traditional financing sources for the next few
years,A long-term challenge is to tap the potential
of international capital markets to provide greater
private participation in financing for the poorest
countries,A key role for multilateral institutions is
to devise frameworks for private sector involve-
ment and to find ways to mitigate the risks associ-
ated with investing in poor countries,
Improving the access of poor countries to
markets in developed and some large developing
countries could help to facilitate investment in
poor countries,Programs such as AGOA and EBA
that provide preferential access to poor countries
are one component of this story,but of greater
long-run importance will be multilateral liberaliza-
tion of trade,as is currently being pursued through
the WTO-sponsored Doha negotiations (box 5.5).
Curbing the use of antidumping and similar in-
struments of contingent protection,eliminating
certain repatriation taxes,and liberalizing rules of
origin have the potential to promote trade and
investment in poor countries (World Bank 2005;
Commission on Capital Flows to Africa 2003).
Loans and guarantees to mitigate political,
contractual,regulatory,and foreign-exchange
risks—as currently provided by the International
Financial Corporation (IFC) and the Multilat-
eral Investment Guarantee Agency (MIGA)—are
107
GLOBAL DEVELOPMENT FINANCE 2005
crucial,particularly for investment in infrastruc-
ture in poor countries (World Bank 2004a),Bilat-
eral agencies from developed countries,such as the
U.S,Overseas Private Investment Corporation
(OPIC),Export Development Canada,and the
U.K,Export Credit Guarantee Department should
intensify their assistance to private investments in
poor countries that support the development goals
of the recipient countries,Easing restrictions (such
as on sectoral coverage) and offering broader and
more flexible risk insurance products could extend
the impact of these programs.
Regional export credit agencies can also facili-
tate private sector access,One example is the
African Trade Insurance Agency,established in
2001,The agency provides insurance for exports
from and within Africa and imports to the continent
and as such facilitate trade flows to Africa,The
body was established with World Bank loans under-
written by Lloyd’s of London,The member coun-
tries (originally Burundi,Kenya,Malawi,Rwanda,
Tanzania,Uganda,and Zambia) are financially
responsible for losses.
Poor countries need help in using financial in-
novations to improve their access to international
capital markets,In recent years,the securitization
of future resource flows,such as remittances and
export receipts,has helped several middle-income
countries to raise external financing and might also
be implemented for poor countries (box 5.9).
Among the policy hurdles to be addressed are the
lack of legal infrastructure in many poor countries
and the high fixed cost of necessary legal,invest-
ment banking,and credit-rating services,
108
D
eveloping countries can raise external capital on the
strength of current account flows from workers’
remittances,tourism receipts,and export receipts.
Securities issued on such flows are typically structured to
obtain an investment-grade rating,which allows issuers
to pay a lower interest rate and obtain longer maturity,It
also makes them attractive to a wide range of,buy-and-
hold” investors such as insurance companies,which may
face limitations on buying issues below investment grade.
Because they are free of currency convertibility risk,a
key component of sovereign risk,securities based on
current account flows may be rated better than sovereign
credit.
One important reason for governments to promote
this asset class stems from the related externalities,Such
deals bring closer scrutiny of the legal and institutional
environment (for example,laws relating to property rights
and bankruptcy procedures) than do unsecured transac-
tions,Securitization transactions backed by governments
can thus help usher in reforms of the legal and institutional
environment.
Remittance-backed securities often work as follows.
The borrowing entity,such as a bank,pledges its future
remittance receivables to an offshore Special Purpose
Vehicle,which issues the debt,Designated correspondent
banks are directed to channel all remittance flows of the
borrowing bank directly to an offshore collection account
managed by a trustee,The collection agent makes principal
and interest payments to the investors and sends excess
collections to the borrowing bank,Since remittances do
not enter the issuer’s home country,the rating agencies
believe that the structure mitigates the usual sovereign
transfer and convertibility risks,Such transactions also
often build in excess coverage to mitigate the risk of
volatility and seasonality in remittances.
The first major securitization deal involving interna-
tional migrant remittances occurred in 1994 in Mexico.
Since then the volume of transactions has grown rapidly.
Using this instrument,El Salvador,Mexico,and Turkey
raised about $2.3 billion during 1994–2000,
As electronic transfers became more prevalent and
made it easier to track complex transactions,remittances
securitization gave way to securitization of diversified pay-
ment rights (DPRs) including mainly migrant remittances,
but also certain payments related to exports and foreign
direct investment,During 2000–4,a total of $10.4 billion
was raised through securitization of DPRs by Brazil
($5.3 billion),Turkey ($4.1 billion),El Salvador,
Kazakhstan,Mexico,and Peru,Following a sharp increase
in borrowing costs in 2002,Brazil has raised more than
$4 billion by issuing bonds backed by DPRs,These bonds
resulted in a saving of more than 700 basis points com-
pared with Brazil’s sovereign spread.
As experience with DPRs broadens,and investors
become more comfortable with them,it is possible that
they could be used in a wider range of countries (includ-
ing poor countries) and for a broader range of external
flows (such as tourism receipts and commodity earnings),
Box 5.9 Securitization of future workers’ remittances and
other external flows
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
109
It is not easy to estimate the potential of future-flow
securitization,But preliminary calculations,using an
overcollateralization ratio of 5 to 1 and migrant remittance
figures for 2003,show that developing countries could
potentially issue nearly $9 billion a year,Low-income
countries could raise up to $3 billion annually,
Several policy hurdles remain to be addressed before
securitization deals can approach that potential,Long
lead times and the high fixed costs of legal,investment
banking,and credit-rating services can pose difficulties for
developing countries with few large institutions and high
borrowing needs,A master trust arrangement can permit
issuers to structure a large deal but tap the market in several
tranches,Pooling receivables of several branches (or even
several borrowers) could also help defray large fixed costs.
The absence of an appropriate legal framework for
such transactions is yet another constraint on issuance.
Overcoming it need not require a grand overhaul of the
entire legal system,however,A more focused approach
concentrating on bankruptcy law may suffice,by making
sure that pledged assets remain pledged in the event of
default,Finally,at a broader level,remittance securitiza-
tion can potentially conflict with the negative-pledge
provision included in the IBRD’s (or other multilateral
agencies’) loan and guarantee agreements,which prohibits
the establishment of a priority for other debts over the
debts due to the IBRD,
But as the recent upsurge in securitization suggests,
none of these hurdles is insurmountable,and there would
appear to be ample opportunity for future growth in such
deals,with corresponding benefits to a broad range of
developing countries,
Sources,Ketkar and Ratha (2001,2004).
Box 5.9 (continued)
Sound economic and pro-poor
policies in recipient countries
T
he consensus reached in Monterrey in 2002
centered on a partnership between donors and
recipients,Donors agreed to increase assistance to
developing countries if the latter would pursue
economic policies to improve the effectiveness of
the additional resources,Moreover,by taking
steps to improve their business and investment
climate,countries could expect to attract private
capital.
Many developing countries have held up their
end of the partnership,The World Bank’s Country
Policy and Institutional Assessment—the CPIA—
shows an upward trend in economic management,
structural policies,policies for social inclusion and
equity,and public sector management in the poor-
est countries since 1995,The broad improvement
in the policies of the world’s poorest countries is
shown in the robustness of average annual GDP
growth over the last decade (5.9 percent),Inflation
rates,too,have declined by more than half and
now stand at an average of 6 percent,The current
account moved from a deficit of about 3 percent
of GDP in the early and mid-1990s to a surplus of
1 percent in 2003,Fiscal deficits have been cut in
half,
It is not surprising that those poor countries
that have been most successful at undertaking
economic reforms and creating a sounder climate
for investment,such as Mozambique,Uganda,and
Vietnam,have been among the most successful at
attracting external finance in the form of FDI,
ODA,and South-South financial flows,
The New Partnership for Africa’s Develop-
ment (NEPAD),launched in July 2001,is another
positive step by the poorest countries,NEPAD is
an expression of Africa’s will to improve its own
policies and institutions so as to justify a rise in aid
levels,One especially critical focus of NEPAD is to
strengthen economic,corporate,and political gov-
ernance through targets and a peer review mecha-
nism in which the peer reviewers come from other
poor countries.
The poorest countries in the world remain
vulnerable to external shocks,but they are discov-
ering new ways to shape their own destiny,The
donor community and other developing countries
should be ready to help the poorest as they con-
tinue to move in promising new directions,
The G-8 Africa Action Plan announced at the
2002 G-8 Leaders Summit in Kananaskis aimed to
“ensure that no country genuinely committed to
poverty reduction,good governance,and eco-
nomic reform will be denied the chance to achieve
the Millennium Goals through lack of finance.”
More recently,the Commission for Africa urged a
doubling of aid to Sub-Saharan Africa,A key
theme of the 2005 G-8 Leaders Summit to be held
in Gleneagles will be to strengthen international
GLOBAL DEVELOPMENT FINANCE 2005
cooperation in support of greater progress on the
MDGs in Africa,The next few years will deter-
mine whether developed countries will hold up
their end of the partnership forged at Monterrey.
Notes
1,The Report of the High-level Panel on Financing
for Development estimated that $50 billion in additional
development assistance would be required to meet the
Millennium Development Goals,in addition to humanitarian
assistance and additional resources for global public goods
(UN 2002a),According to the African Development Bank,
Africa needs $20–25 billion per year in addition to current
resources,A recently completed UN report comes up
with even higher financing requirements (UN Millennium
Project 2004).
2,The sample consists of low-income countries (with
GNI per capita of $735 or less),but excludes two larger
economies (India and Indonesia) that in many respects more
closely resemble middle-income emerging-market
economies,It also excludes countries that suffer from ongo-
ing or recent conflict—the so-called LICUS group,Our 28-
country sample thus includes countries in which concerted
efforts are underway to reach the MDG deadline a decade
from now (in 2015),and for which the availability of re-
sources may be a binding constraint,About half of the
countries in our sample are in Sub-Saharan Africa,with the
remainder scattered throughout other regions,
3,For donors,the traditional means of representing
ODA disbursements is as a percentage of donors’ GNI,not
GDP,
4,Twenty-seven countries have reached the HIPC deci-
sion point,The decision point is reached if countries are
considered heavily indebted,once traditional debt relief
mechanisms have been taken into account,To qualify coun-
tries usually must have a debt-to-export ratio of averaging
150 percent over the previous three years,Alternatively,
countries considered to have an open economy (defined as
an export-to-GDP ratio of over 30 percent) and a ratio of
debt to government revenue of more than 250 percent de-
spite a strong revenue collection system may also qualify.
Countries need to have pursued World Bank and IMF ad-
justment and reform programs for at least three years,Dur-
ing this time they must have completed at least an interim
poverty reduction strategy paper,Once the decision point
has been reached,further satisfactory performance in World
Bank and IMF reform and poverty-reduction programs
leads to the completion point,At this point assistance is
provided in the form of relief from up to 90 percent of the
present value of debt,
5,The ratio of trade to GDP increased to 44 percent in
1996–2003,It was 35 percent in the first half of the decade.
6,According to the UNCTAD database,from 1990 to
2002,161 national laws passed by eight poor countries in
our sample were favorable to FDI (out of 168 total),During
the same period,the poor countries signed 3,052 double
taxation treaties and 2,465 bilateral investment treaties,
7,In addition to the ICRG indicator used for the dis-
cussion,the World Bank’s Country Policy and Institutional
Assessment (CPIA) indicator and the Institutional Investor
Rating indicate significant improvements in many of the
poor countries.
8,Another reason for high volatility is that this type of
flow is highly skewed toward intercompany loans,which
tend to be as volatile as private debt flows,In addition,
many countries do not report reinvested earnings that might
bring some level of stability,
9,South Africa’s Vodacom and MTN,Orascom from
Egypt,and Telekom from Malaysia have large subscriber
bases in the region.
10,The main competitor is Celtel,controlled by Voda-
fone of the United Kingdom,South African MTN managed
to develop a subscriber base 22 times larger than Celtel’s
despite the monopoly position of the latter prior to MTN’s
penetration of the market (Goldstein 2004).
11,South-South development assistance refers to aid
from developing countries to poor countries,It is part of a
concept referred to as South-South cooperation,a broad
term used to describe a variety of strands of cooperation
among developing countries,Included are economic cooper-
ation among developing countries,technical cooperation
among developing countries,cooperation among developing
states in multilateral negotiations with the developed coun-
tries,promotion of South-South trade,and the development
of regional political and economic associations.
12,Data are not available to capture the magnitude of
South-South development assistance,but it is clear that the
resources involved are small compared to total ODA.
South-South resources appear to be growing,For example,
grants and loans from India to other developing countries
grew sharply in the five years from 1997 to 2002 (from $83
million to $140 million),During the same period,disburse-
ments from non-DAC donors almost tripled,from $1.2 bil-
lion in 1997 to $3.2 billion in 2002,with the bulk of the
money coming from Arab countries,followed by Korea.
Other contributors are the Czech Republic,Latvia,Lithua-
nia,Poland,the Slovak Republic,and Turkey,Figures on
non-DAC ODA understate the true volume of resources
flowing from developing countries to other developing
countries,because some potentially important donors
(Brazil,China,India,and South Africa) are not included.
13,Through its Technical and Economic Cooperation
Program,India has spent nearly $2 billion on technical as-
sistance to 130 developing countries in all regions over the
past four decades.
14,Except for the Basuchu Project.
15,These include the Arab Bank for Economic Develop-
ment in Africa (BADEA),the Special Arab Fund for Economic
and Social Development,the Arab Gulf Program for United
Nations Development Organizations (AGFUND),the Islamic
Development Bank,the OPEC Fund,the Abu Dhabi Fund for
Development,the Kuwait Fund for Arab Economic Develop-
ment,and the Saudi Fund for Development.
16,Lensink and Morrissey (2000) show that uncer-
tainty in aid flows,as measured by deviations from expected
inflows,reduces the effectiveness of aid,
17,An important question in discussions of volatility is
how to measure the,volatility” of a particular variable,Even
though the measure is in principle built around the standard
deviation of the variable in question,the correct standard
110
MEETING THE FINANCING NEEDS OF POOR COUNTRIES
deviation may be difficult to determine,as a single best mea-
sure is not available,Several considerations can affect the
choice,First,the standard deviation of any variable is deter-
mined both by the trend of the variable as well as the cyclical
behavior around that trend,A strongly trending variable that
shows no cyclical fluctuations will still have a relatively high
standard deviation,If one is interested in the true volatility of
the variable from year to year,it is necessary to correct for the
trending behavior of the variable,Seminal papers,such as
those of Lucas (1977) and Kydland and Prescott (1990),have
defined business cycles as the deviations of output from
trend,A well-established method to detrend a series is using
the Hodrick and Prescott (HP) filter,Second,the standard de-
viation of a variable (whether the series is detrended or not) is
a function of the level of the variable,To make a sensible
comparison between the standard deviations of several vari-
ables,one has to standardize the series,One way to do that is
to detrend the log of the series; another is to detrend the in-
dexed series,Third,sample length will have an impact on the
standard deviation measured,The appropriate length reflects
a cost-benefit trade-off—a longer sample length increases
measurement accuracy,but only if the underlying volatility
has been stable over the sample period,If the sample length is
too long the assumption of stable volatility is unlikely to hold,
as transmission mechanisms are likely to change,The choice
in volatility measure is important and needs to be driven by
careful considerations,because results can be sensitive to the
choice,Following Pallage and Robe (2001) and Bulir and
Hamann (2003),we define volatility as fluctuations in the
business cycles of the different flows defined as the deviation
of the flow from its trend,To estimate the volatility,we first
detrend each data series using the HP filter,To ensure that the
volatility of the different series remains unaffected by differ-
ences in scaling,we use indexed series instead of levels.
18,The average volatility of exports and government
revenues is lower in this group of countries,Our results are
not driven by outliers,Of the countries in the first quarter of
the distribution of GDP volatility,almost 80 percent belong
to our group of poorest countries,while from the 75th per-
centile onwards,35 percent of the countries are part of the
group of poorest countries,
19,ODA consists of several different types of aid:
balance-of-payments support,investment projects,food aid,
emergency assistance,debt relief,peacemaking efforts,and
technical assistance,There is no reason to expect that the
volatility of each component is similar or,as pointed out by
Clemens,Radelet,and Bhavnani (2004),that the impact on
economic performance will be the same,Following
Clemens,Radelet,and Bhavnani (2004),aggregate aid flows
can be divided into three categories,short-impact aid,long-
impact aid,and humanitarian/emergency aid,The first two
categories consist of aid disbursements aimed at creating
economic growth either in the short run or after a longer pe-
riod,The latter category is aimed at very short-term con-
sumption smoothing and is not intended to directly promote
increases in income per capita.
20,Many studies have found evidence of pro-cyclicality
of aid flows in developing countries,Pallage and Robe (2001)
find that aid and output are procyclical,Bulir and Hamann
(2003) and Gemmell and McGillivray (1998) find evidence of
pro-cyclicality between aid and domestic revenue.
References
Alesina,Alberto,and David Dollar,1998.,Who Gives For-
eign Aid to Whom and Why?” NBER Working Paper
6612,National Bureau of Economic Research,United
Nations University,Tokyo.
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112
Statistical Appendix
T
HE SUMMARY STATISTICAL TABLES
are divided into six sections (see index of
tables overleaf for full details):
Summary tables,These tables provide a snap-
shot of recent history and the outlook for the
global economy and each of the six developing
country regions (for the full World Bank clas-
sification of countries by region and income
level,see table A.51).
Key macro variables,These provide detail on
growth and inflation indicators by region and
(historically) for selected economies,Although
detailed country forecasts form the basis for
the regional growth and inflation projections,
detailed developing country forecasts are not
shown separately.
Current account tables,These tables combine
data from the IMF’s balance of payments sta-
tistics,with aid-related data from the OECD’s
Development Assistance Committee publica-
tions,and our own preferred measure of
workers’ remittances.
Capital account tables,New external financ-
ing tables have been developed,They combine
the IMF’s current account,foreign exchange
reserve and net inward foreign direct invest-
ment data with the World Bank’s portfolio
equity and debtor reporting system (DRS)
data to produce an overall tabulation of how
regions finance themselves externally.
External liabilities and assets,These provide a
summary of the DRS debt data that is provided
on a country-by-country basis in volume 2,
115
.
Key debt ratios and country classifications.
These tables provide a summary of indicators
typically used by country risk analysts to
monitor and classify countries,The World
Bank’s own debt classifications are defined
and tabulated,The precise method used to
categorize countries as severely,moderately or
less indebted is shown by a box in table A.50.
The two key ingredients used are the pre-
sent value of future debt-service streams to
(i) gross national income and (ii) to exports
of goods and services,These variables are
averaged over the three years,2001–2003.
The use of critical values to define the bound-
aries between indebtedness categories implies that
changes in country classifications should be inter-
preted with caution,If a country has an indicator
that is close to the critical value,a small change in
the indicator may trigger a change in indebtedness
classification even if economic fundamentals have
not changed significantly,Moreover,these indica-
tors do not represent an exhaustive set of useful
indicators of external debt,They may not,for
example,adequately capture the debt servicing
capacity of countries in which government budget
constraints are key to debt service difficulties.
Moreover,rising external debt may not necessarily
imply payment difficulties,especially if there is a
commensurate increase in the country’s debt servic-
ing capacity,Thus,these indicators should be used
in the broader context of a country-specific analysis
of debt sustainability.
STATISTICAL APPENDIX
Contents
Summary tables Page
A.1,Global outlook in summary,2003–2007 118
A.2,East Asia and Pacific outlook in summary,1981–2005 119
A.3,Europe and Central Asia outlook in summary,1981–2005 120
A.4,Latin America and the Caribbean outlook in summary,1981–2005 121
A.5,Middle East and North Africa outlook in summary,1981–2005 122
A.6,South Asia outlook in summary,1981–2005 123
A.7,Sub-Saharan Africa outlook in summary,1981–2005 124
Key macro variables
A.8,Global real GDP growth,1981–2005 125
A.9,Global inflation,1991–2004 126
A.10,Commodity prices,1980–2005 127
A.11,Commodity price indexes,1980–2005 128
A.12,Global nominal GDP growth,1981–2005 129
Current account
A.13,Global goods export growth,1981–2005 130
A.14,Global goods import growth,1981–2005 131
A.15,Global goods trade balances,1997–2005 132
A.16,Global trade prices and volumes,1981–2005 133
A.17,Global current account balances,1999–2005 134
A.18,Global current account balances,1981–2005 135
A.19,Workers’ remittances received by developing countries,1996–2004 136
A.20,Net official development assistance from DAC countries,1996–2003 137
Capital account
A.21,External financing,all developing countries,1998–2004 138
A.22,External financing,East Asia and Pacific,1998–2004 139
A.23,External financing,Europe and Central Asia,1998–2004 140
A.24,External financing,Latin America and the Caribbean,1998–2004 141
A.25,External financing,Middle East and North Africa,1998–2004 142
A.26,External financing,South Asia,1998–2004 143
A.27,External financing,Sub-Saharan Africa,1998–2004 144
A.28,Net inward foreign direct investment,1996–2004 145
A.29,Net inward portfolio equity flows,1996–2004 146
A.30,Net inward debt flows to developing countries,1996–2004 147
A.31,Net inward short-term debt flows to developing countries,1996–2004 148
A.32,Net inward debt flows to public sector and publicly guaranteed borrowers,1996–2004 149
A.33,Net inward debt flows to private sector borrowers,1996–2004 150
A.34,Net inward debt flows from public sector creditors,1996–2004 151
A.35,Net inward debt flows from private sector creditors,1996–2004 152
A.36,Gross market-based capital flows to developing countries,1996–2004 153
A.37,Gross international equity issuance by developing countries,1996–2004 154
A.38,Gross international bond issues in developing countries,1996–2004 155
A.39,Gross international bank lending to developing country borrower,1996–2004 156
A.40,Change in foreign exchange reserves,1996–2004 157
116
STATISTICAL APPENDIX
External liabilities and assets
A.41,Total external debt of developing countries,1996–2004 158
A.42,Total external medium- and long-term debt of developing countries,1996–2004 159
A.43,Total external short-term debt of developing countries,1996–2004 160
A.44,Total external debt of developing countries owed by public and
publicly guaranteed borrowers,1996–2004 161
A.45,Total external debt of developing countries owed by private sector borrowers,1996–2004 162
A.46,Total external debt of developing countries owed to public sector creditors,1996–2004 163
A.47,Total external debt of developing countries owed to private sector creditors,1996–2004 164
A.48,Gross foreign exchange reserves of developing countries,1996–2004 165
Key debt ratios and country classifications
A.49,Key external debt ratios for developing countries 166
A.50,Classification of countries by levels of external indebtedness 169
A.51,Classification of countries by region and level of income 170
117
STATISTICAL APPENDIX
118
Table A.1 Global outlook in summary,2003–2007
% change from previous year,except interest rates and oil price
GEP 2005 forecasts
2003 2004e 2005f 2006f 2007f 2004 2005
Global Conditions
World Trade Volume 5.6 10.3 7.7 7.7 8.0 10.2 8.4
Consumer Prices
G-7 Countries
a,b
1.6 1.8 1.6 1.6 1.6 1.7 1.4
United States 2.3 2.7 2.0 3.5 3.2 2.7 2.2
Commodity Prices ($ terms)
Non-oil commodities 10.2 17.5 4.7 H110025.2 H110025.4 17.0 H110023.1
Oil Price (OPEC average) 28.9 37.7 42.0 36.0 33.0 39.0 36.0
Oil price (percent change) 15.9 30.6 11.3 H1100214.3 H110028.3 35.0 H110027.7
Manufactures unit export value
c
7.5 7.0 3.0 2.8 1.9 5.2 H110020.8
Interest Rates
$,6-month (%) 1.2 1.6 3.5 4.6 5.0 1.6 3.5
€,6-month (%) 2.3 2.1 2.1 2.8 3.2 2.1 2.4
Real GDP growth
d
World 2.5 3.8 3.1 3.1 3.2 4.0 3.2
Memo item,World (PPP weights)
e
3.9 5.0 4.3 4.2 4.3 4.9 4.2
High income 1.9 3.2 2.4 2.6 2.6 3.5 2.7
OECD Countries
f
1.8 3.1 2.4 2.5 2.6 3.5 2.6
Euro Area 0.5 1.8 1.3 2.1 2.6 1.8 2.1
Japan 1.4 2.6 0.8 1.9 1.9 4.3 1.8
United States 3.0 4.4 3.9 3.0 2.6 4.3 3.2
Non-OECD countries 3.2 6.2 4.4 4.5 4.1 5.9 4.6
Developing countries 5.3 6.6 5.7 5.2 5.4 6.1 5.4
East Asia and Pacific 8.0 8.3 7.4 6.9 7.2 7.8 7.1
Europe and Central Asia 5.9 6.8 5.5 4.9 5.0 7.0 5.6
Latin America and Caribbean 1.7 5.7 4.3 3.7 3.7 4.7 3.7
Middle East and N,Africa 5.8 5.1 4.9 4.3 4.3 4.7 4.7
South Asia 7.8 6.6 6.2 6.4 6.7 6.0 6.3
Sub-Saharan Africa 3.4 3.8 4.1 4.0 4.1 3.2 3.6
Memorandum items
Developing countries
Excluding transition countries 5.2 6.7 5.7 5.3 5.5 5.9 5.4
Excluding China and India 3.9 5.8 4.8 4.4 4.4 5.4 4.6
Note,PPP H11005 purchasing power parity; e H11005 estimate; f H11005 forecast; GEP 2005 H11005 Global Economic Prospects and the Developing Countries,
World Bank,January 2005.
a,Canada,France,Germany,Italy,Japan,the UK,and the United States.
b,In local currency,aggregated using 1995 GDP Weights.
c,Unit value index of manufactured exports from major economies,expressed in $.
d,GDP in 1995 constant $; 1995 prices and market exchange rates.
e,GDP mesaured at 1995 PPP weights.
f,Now excludes the Republic of Korea,which has been reclassified as high-income OECD.
STATISTICAL APPENDIX
119
Table A.2 East Asia and Pacific outlook in summary,1981–2005
Real economy Estimate Forecast
(% change,unless stated) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
Real GDP growth 7.3 7.7 5.6 7.2 5.6 6.9 8.0 8.3 7.4
Private consumption per capita 5.1 5.5 4.9 5.4 3.6 4.4 4.9 6.0 6.3
GDP per capita 5.6 6.4 4.4 5.9 4.6 6.0 7.0 7.4 6.5
Population 1.6 1.2 1.2 1.3 0.9 0.9 0.9 0.9 0.8
Gross domestic investment/GDP
a
26.8 31.9 30.1 31.1 32.1 34.0 37.4 40.9 42.8
Inflation
b
5.5 5.6 2.9 4.1 2.0 3.9 3.6 5.3 2.2
Central Government Budget Balance/GDP H110021.3 H110021.2 H110022.7 H110023.1 H110023.1 H110023.3 H110022.8 H110022.4 H110022.4
Export market growth
c
6.9 8.2 7.2 14.1 H110021.8 4.3 8.2 12.1 8.3
Export volume
d
8.4 12.0 4.2 22.8 2.4 14.8 21.2 23.1 14.9
Terms of Trade/GDP
e
H110020.2 0.1 H110020.6 H110020.3 H110020.3 0.5 H110020.2 H110020.9 0.8
Current Account/GDP H110020.3 0.4 4.1 3.4 2.4 3.4 3.7 3.1 2.5
Workers remittances ($,billions) 2.4 8.5 11.4 11.2 12.9 16.5 19.7 20.3 —
Memorandum items
GDP growth,East Asia excluding China 5.7 4.6 3.2 5.9 2.4 4.6 5.4 6.0 5.4
External Financing and debt
($ billions,unless stated) 1996 1997 1998 1999 2000 2001 2002 2003 2004e
Net inward fixed direct investment (FDI) 58.6 62.1 57.7 49.9 44.2 48.2 55.6 59.6 63.6
Net inward portfolio equity flows 9.7 H110023.9 H110023.4 2.3 4.8 1.4 4.0 11.8 13.6
Net inward debt flows 52.2 44.9 H1100232.5 H1100212.2 H1100216.2 H110029.1 H1100213.2 1.7 17.2
From public sources 3.6 17.3 14.7 12.6 7.0 3.2 H110027.9 H110027.5 H110029.2
From private sources 48.6 27.6 H1100247.1 H1100224.7 H1100223.2 H1100212.3 H110025.3 9.3 26.4
Gross market-based capital flows 69.2 73.1 31.6 32.4 49.7 21.8 44.5 53.1 60.0
Total external debt 494.0 526.3 533.2 538.6 500.7 502.0 498.2 525.5 536.5
Medium- and long-term 365.3 394.3 447.3 464.9 437.5 411.2 399.3 400.1 391.1
Short-term 128.7 132.1 85.9 73.8 63.2 90.8 99.0 125.5 145.4
Owed by public-sector borrowers 256.8 272.0 288.6 307.5 288.1 277.8 277.7 279.6 272.6
Owed by private-sector borrowers 237.2 254.4 244.6 231.1 212.6 224.2 220.6 246.0 263.9
Owed to public-sector creditors 153.7 152.5 179.1 200.3 188.2 180.6 183.4 190.8 179.4
Owed by private-sector creditors 340.3 373.8 354.1 338.3 312.5 321.4 314.8 334.8 357.2
Gross foreign exchange reserves 199.7 212.5 233.2 262.5 272.6 320.3 408.2 544.8 775.1
Note,— H11005 not available; e H11005 estimate; f H11005 forecast.
a,Fixed investment,measured in real terms.
b,Local currency GDP deflator,median.
c,Weighted average growth of import demand in export markets.
d,Goods and non-factor services.
e,Change in terms of trade,measured as a percentage of GDP.
STATISTICAL APPENDIX
120
Table A.3 Europe and Central Asia outlook in summary,1981–2005
Real economy Estimate Forecast
(% change,unless stated) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
Real GDP growth 1.8 H110021.4 3.0 6.7 2.4 4.6 5.9 6.8 5.5
Private consumption per capita 0.6 H110020.3 H110020.2 4.4 3.4 5.7 6.7 7.0 6.3
GDP per capita 0.9 H110021.6 2.8 6.2 2.4 4.6 5.9 6.8 5.4
Population 0.9 0.2 0.2 0.5 0.0 0.0 0.0 0.0 0.0
Gross domestic investment/GDP
a
40.6 23.9 20.9 21.5 20.6 20.3 21.0 22.2 22.7
Inflation
b
1.1 52.5 6.0 7.6 6.5 4.2 5.4 6.8 6.2
Central Government Budget Balance/GDP H110020.5 H110024.4 H110024.2 H110022.5 H110023.5 H110023.7 H110023.1 H110022.1 H110022.5
Export market growth
c
3.9 5.4 H110020.5 11.4 4.9 5.9 8.5 10.5 6.7
Export volume
d
3.1 1.3 4.0 15.9 6.3 7.9 12.0 15.3 9.4
Terms of Trade/GDP
e
H110020.3 H110020.7 H110020.5 2.5 H110020.6 H110020.7 0.4 H110020.7 0.6
Current Account/GDP H110020.3 H110021.1 H110020.1 1.8 2.0 0.5 0.0 0.6 H110020.1
Workers remittances ($,billions) 2.1 8.0 10.7 11.0 11.4 11.5 12.9 12.9 —
Memorandum items
GDP growth,Transition countries 1.4 H110022.2 4.7 6.6 4.4 4.0 6.0 6.5 5.5
Central and Eastern Europe 0.4 1.0 4.0 3.7 2.8 2.9 4.0 5.0 4.5
Commonwealth of Independent States (CIS) 2.0 H110024.2 5.4 9.2 5.8 5.0 7.6 7.7 6.2
External Financing and debt
($ billions,unless stated) 1996 1997 1998 1999 2000 2001 2002 2003 2004e
Net inward FDI 16.4 22.6 26.1 28.4 29.2 31.4 35.0 35.6 37.6
Net inward portfolio equity flows 4.3 4.0 4.0 2.0 1.3 0.4 H110020.1 0.6 3.6
Net inward debt flows 24.1 35.3 43.0 18.9 19.9 2.7 28.0 56.9 56.0
From public sources 8.6 6.6 7.5 H110020.6 0.0 2.2 2.6 H110026.2 H110026.2
From private sources 15.4 28.7 35.5 19.5 19.9 0.6 25.4 63.1 62.3
Gross market-based capital flows 25.7 46.0 42.9 30.1 45.5 26.0 34.6 58.5 87.0
Total external debt 368.3 391.2 490.3 503.5 510.8 507.8 560.2 676.0 728.5
Medium- and long-term 315.1 331.7 414.8 423.7 424.1 425.1 472.0 541.2 562.9
Short-term 53.2 59.5 75.5 79.7 86.7 82.6 88.2 134.8 165.6
Owed by public-sector borrowers 286.9 288.9 321.2 316.5 305.0 292.6 309.8 334.6 340.3
Owed by private-sector borrowers 81.5 102.3 169.1 186.9 205.8 215.2 250.4 341.4 388.2
Owed to public-sector creditors 160.0 156.2 172.4 171.4 166.8 159.2 165.4 176.2 169.6
Owed by private-sector creditors 208.3 235.0 317.9 332.1 344.0 348.6 394.8 499.8 558.9
Gross foreign exchange reserves 83.4 90.8 95.9 102.3 120.4 131.5 175.3 236.2 303.8
Note,— H11005 not available; e H11005 estimate; f H11005 forecast.
a,Fixed investment,measured in real terms.
b,Local currency GDP deflator,median.
c,Weighted average growth of import demand in export markets.
d,Goods and non-factor services.
e,Change in terms of trade,measured as a percentage of GDP.
STATISTICAL APPENDIX
121
Table A.4 Latin America and the Caribbean outlook in summary,1981–2005
Real economy Estimate Forecast
(% change,unless stated) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
Real GDP growth 1.1 3.3 0.1 3.7 0.3 H110020.8 1.7 5.7 4.3
Private consumption per capita H110021.1 2.3 H110021.8 1.8 H110020.9 H110023.3 H110020.2 3.2 2.0
GDP per capita H110020.9 1.6 H110021.5 1.8 H110021.2 H110022.3 0.3 4.2 2.9
Population 2.0 1.7 1.6 1.8 1.5 1.5 1.4 1.4 1.4
Gross domestic investment/GDP
a
20.2 20.0 19.9 19.8 19.1 17.9 17.7 18.6 19.3
Inflation
b
17.3 11.9 5.4 7.6 5.7 6.4 8.4 4.0 4.0
Central Government Budget Balance/GDP H110029.1 H110023.3 H110023.1 H110022.4 H110022.8 H110023.0 H110022.8 H110021.4 H110021.6
Export market growth
c
4.5 9.1 5.1 11.7 H110021.1 0.7 6.9 10.9 6.8
Export volume
d
5.4 8.7 7.2 10.3 0.6 1.9 4.8 11.9 6.1
Terms of Trade/GDP
e
H110020.4 0.1 0.2 1.1 H110020.7 H110020.1 H110020.1 0.4 H110020.2
Current Account/GDP H110020.3 H110022.8 H110023.1 H110022.4 H110022.8 H110021.0 0.5 1.5 0.7
Workers remittances ($,billions) 3.3 13.0 17.7 20.2 24.2 28.1 34.4 36.9 —
Memorandum items
GDP growth,Central America 1.0 4.5 4.6 2.9 1.7 2.3 3.4 3.0 3.2
Caribbean 1.1 4.1 5.7 5.8 2.8 3.2 2.8 2.2 3.4
External Financing and debt
($ billions,unless stated) 1996 1997 1998 1999 2000 2001 2002 2003 2004e
Net inward FDI 44.2 66.7 74.0 88.2 78.9 70.2 45.7 36.5 42.4
Net inward portfolio equity flows 12.2 13.3 H110022.2 H110023.6 H110020.6 2.5 1.4 3.4 H110021.5
Net inward debt flows 40.8 25.2 37.3 12.1 H110028.4 5.4 H110028.5 3.3 2.5
From public sources H1100210.7 H110028.6 10.9 1.6 H1100211.1 20.4 13.0 4.9 H1100210.3
From private sources 51.5 33.8 26.4 10.5 2.8 H1100215.0 H1100221.5 H110021.6 12.8
Gross market-based capital flows 75.7 105.4 74.8 67.0 85.5 71.1 44.3 63.3 77.7
Total external debt 638.5 670.4 752.2 771.8 755.1 749.2 746.2 779.6 773.5
Medium- and long-term 517.1 542.2 633.2 662.5 647.6 655.7 667.3 696.3 680.0
Short-term 121.4 128.2 119.0 109.3 107.5 93.5 78.9 83.3 93.5
Owed by public-sector borrowers 399.9 379.6 413.1 420.1 406.2 417.2 441.5 468.5 484.3
Owed by private-sector borrowers 238.6 290.8 339.1 351.7 348.9 332.0 304.7 311.2 289.1
Owed to public-sector creditors 164.1 145.9 161.0 163.2 150.1 162.9 183.1 196.9 189.2
Owed by private-sector creditors 474.3 524.5 591.2 608.6 605.0 586.3 563.1 582.8 584.2
Gross foreign exchange reserves 153.0 166.5 157.3 149.9 152.8 155.7 156.5 189.7 211.5
Note,— H11005 not available; e H11005 estimate; f H11005 forecast.
a,Fixed investment,measured in real terms.
b,Local currency GDP deflator,median.
c,Weighted average growth of import demand in export markets.
d,Goods and non-factor services.
e,Change in terms of trade,measured as a percentage of GDP.
STATISTICAL APPENDIX
122
Table A.5 Middle East and North Africa outlook in summary,1981–2005
Real economy Estimate Forecast
(% change,unless stated) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
Real GDP growth 3.6 3.7 2.8 4.0 4.0 4.5 5.2 5.1 5.0
Private consumption per capita 1.7 H110020.2 0.2 1.3 2.3 1.3 2.9 1.6 1.9
GDP per capita H110021.1 1.2 H110020.4 2.1 1.2 1.3 3.9 3.1 2.9
Population 3.1 2.1 2.1 2.2 1.7 1.8 1.9 1.9 1.9
Gross domestic investment/GDP
a
25.5 20.5 21.0 20.7 21.2 21.7 21.7 22.3 22.9
Inflation
b
8.4 6.4 7.5 10.7 1.9 2.0 3.6 4.2 4.0
Central Government Budget Balance/GDP H110023.9 H110020.9 H110020.6 1.4 H110022.4 H110023.0 H110020.6 0.0 H110020.5
Export market growth
c
2.9 6.9 7.0 13.2 H110021.0 4.9 7.9 10.0 7.5
Export volume
d
0.8 4.8 0.2 8.1 0.9 H110022.9 9.4 5.9 4.0
Terms of Trade/GDP
e
H110020.6 0.1 4.5 4.2 H110020.2 1.1 1.7 4.1 H110020.1
Current Account/GDP H110020.3 H110020.2 1.3 6.7 4.5 4.2 6.1 9.3 8.0
Workers remittances ($,billions) 6.7 13.3 12.2 12.3 14.4 14.8 16.1 17.0 —
Memorandum items
GDP growth,Resource poor,labor abundant 4.5 3.8 4.3 3.9 4.5 3.0 4.1 4.3 4.6
Resource rich,labor abundant 2.8 3.4 1.9 4.0 3.2 6.1 6.3 6.0 5.5
Resource rich,labor importing H110020.6 3.5 0.3 6.2 1.4 0.5 7.2 5.2 4.8
External Financing and debt
($ billions,unless stated) 1996 1997 1998 1999 2000 2001 2002 2003 2004e
Net inward FDI 1.7 3.2 3.1 3.7 4.3 5.7 3.8 4.8 4.1
Net inward portfolio equity flows 0.2 0.7 0.2 0.6 0.2 H110020.1 H110020.2 0.1 0.2
Net inward debt flows 0.7 H110023.5 3.6 H110023.0 H110024.5 0.1 2.1 H110020.7 H110020.1
From public sources H110020.8 H110024.0 H110021.6 H110022.5 H110022.8 H110021.2 H110022.6 H110022.5 H110022.6
From private sources 1.5 0.5 5.2 H110020.5 H110021.8 1.3 4.6 1.8 2.6
Gross market-based capital flows 3.2 7.9 4.8 8.7 6.5 10.1 8.8 7.3 15.5
Total external debt 163.2 151.3 160.9 155.8 144.6 142.1 150.2 158.8 155.5
Medium- and long-term 144.4 132.7 138.9 132.6 123.8 123.8 131.7 138.5 134.9
Short-term 18.8 18.6 22.1 23.2 20.8 18.3 18.5 20.3 20.5
Owed by public-sector borrowers 140.3 127.7 131.8 125.6 117.2 117.2 125.2 131.8 127.4
Owed by private-sector borrowers 22.9 23.6 29.1 30.2 27.3 24.9 24.9 27.0 28.1
Owed to public-sector creditors 107.3 99.6 103.9 98.3 90.7 88.3 91.3 96.2 93.1
Owed by private-sector creditors 55.9 51.7 57.0 57.5 53.8 53.9 58.8 62.7 62.4
Gross foreign exchange reserves 37.6 43.7 42.0 40.8 45.6 55.1 67.1 89.1 101.3
Note,— H11005 not available; e H11005 estimate; f H11005 forecast.
a,Fixed investment,measured in real terms.
b,Local currency GDP deflator,median.
c,Weighted average growth of import demand in export markets.
d,Goods and non-factor services.
e,Change in terms of trade,measured as a percentage of GDP.
STATISTICAL APPENDIX
123
Table A.6 South Asia outlook in summary,1981–2005
Real Economy Estimate Forecast
(% change,unless stated) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
Real GDP growth 5.6 5.2 6.4 4.2 4.7 4.6 7.8 6.6 6.2
Private consumption per capita 1.7 2.3 3.9 0.9 3.1 2.2 6.0 4.3 3.5
GDP per capita 3.3 3.3 4.5 2.3 2.9 2.9 6.1 4.9 4.6
Population 2.2 1.9 1.8 1.9 1.7 1.7 1.6 1.6 1.6
Gross domestic investment/GDP
a
20.2 21.6 22.3 22.5 22.3 23.1 23.4 23.7 24.0
Inflation
b
8.9 8.1 4.4 3.9 3.8 3.6 4.7 4.4 7.2
Central Government Budget Balance/GDP H1100212.6 H1100210.3 H1100212.2 H110029.1 H110028.5 H110029.1 H110027.9 H110028.3 H110028.3
Export market growth
c
6.3 7.2 5.5 12.5 0.3 3.9 7.9 10.3 6.9
Export volume
d
5.7 11.1 12.5 21.2 7.3 18.3 13.0 13.3 12.4
Terms of Trade/GDP
e
0.0 0.1 H110021.2 H110020.9 H110020.4 H110021.2 H110020.1 H110021.2 H110020.8
Current Account/GDP H110020.3 H110021.5 H110020.9 H110021.0 0.2 1.6 1.6 H110020.1 H110020.7
Workers remittances ($,billions) 5.7 10.9 15.1 16.0 16.0 22.2 26.8 32.7 —
Memorandum items
GDP growth,South Asia excluding India 5.1 4.4 4.2 5.1 3.1 4.5 5.7 5.9 5.8
External Financing and debt
($ billions,unless stated) 1996 1997 1998 1999 2000 2001 2002 2003 2004e
Net inward FDI 3.5 4.9 3.5 3.1 3.3 4.4 4.8 5.2 6.5
Net inward portfolio equity flows 4.1 2.9 H110020.6 2.4 2.5 2.8 1.1 8.2 7.5
Net inward debt flows 2.7 0.7 4.7 0.5 3.5 H110020.9 0.4 H110024.0 4.4
From public sources 1.0 0.3 2.3 2.5 0.5 2.2 H110022.4 H110021.8 1.6
From private sources 1.6 0.4 2.4 H110022.0 3.0 H110023.1 2.9 H110022.2 2.8
Gross market-based capital flows 10.3 12.4 4.9 4.1 4.3 3.2 2.5 7.0 17.5
Total external debt 149.6 149.6 157.6 162.0 160.0 156.2 170.2 182.8 184.7
Medium- and long-term 139.3 141.4 150.5 155.0 154.0 151.3 162.9 175.6 178.2
Short-term 10.3 8.2 7.1 7.0 6.1 5.0 7.3 7.2 6.5
Owed by public-sector borrowers 129.9 129.7 139.3 144.6 138.6 137.1 147.0 157.8 158.8
Owed by private-sector borrowers 19.8 19.9 18.3 17.4 21.5 19.1 23.2 25.0 25.9
Owed to public-sector creditors 104.1 98.9 104.6 113.3 102.7 101.1 106.3 113.8 113.7
Owed by private-sector creditors 45.5 50.7 53.0 48.7 57.3 55.1 63.9 68.9 71.0
Gross foreign exchange reserves 24.8 30.0 32.9 37.9 42.6 52.8 79.8 114.8 141.7
Note,— H11005 not available; e H11005 estimate; f H11005 forecast.
a,Fixed investment,measured in real terms.
b,Local currency GDP deflator,median.
c,Weighted average growth of import demand in export markets.
d,Goods and non-factor services.
e,Change in terms of trade,measured as a percentage of GDP.
STATISTICAL APPENDIX
124
Table A.7 Sub-Saharan Africa outlook in summary,1981–2005
Real economy Estimate Forecast
(% change,unless stated) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
Real GDP growth 1.6 2.3 2.5 3.6 3.1 2.8 3.4 3.8 4.1
Private consumption per capita H110021.0 H110020.4 0.1 H110022.2 3.8 5.9 H110022.5 2.8 2.0
GDP per capita H110021.3 H110020.3 H110020.1 0.8 0.8 0.7 1.2 1.7 2.1
Population 3.0 2.6 2.6 2.7 2.3 2.2 2.1 2.0 2.0
Gross domestic investment/GDP
a
19.0 17.1 17.9 18.1 18.1 19.4 19.4 19.9 20.2
Inflation
b
9.6 9.5 5.8 7.5 6.0 6.5 8.2 4.1 4.0
Central Government Budget Balance/GDP H110024.5 H110024.6 H110023.0 H110022.7 H110022.4 H110022.7 H110022.7 H110022.9 H110023.0
Export market growth
c
3.2 7.0 6.8 11.1 0.4 3.2 6.9 9.6 6.8
Export volume
d
0.8 4.9 2.5 8.4 0.8 H110020.4 5.7 7.3 8.4
Terms of Trade/GDP
e
H110021.0 0.2 H110020.9 2.1 0.6 0.2 1.2 0.5 0.1
Current Account/GDP H110020.3 H110021.5 H110022.1 1.2 H110020.8 H110020.3 H110020.8 0.6 0.3
Workers remittances ($,billions) 1.3 3.3 4.7 4.9 4.9 5.2 6.0 6.1 —
Memorandum items
GDP growth,Sub-Saharan Africa
excluding South Africa 2.3 3.3 3.7 2.4 3.4 2.0 1.7 4.2 4.6
Oil exporters 1.6 2.3 0.9 3.9 3.5 1.9 8.5 3.5 5.1
External financing and debt
($ billions,unless stated) 1996 1997 1998 1999 2000 2001 2002 2003 2004e
Net inward FDI 4.2 8.4 7.0 9.1 6.3 14.9 9.0 10.1 11.3
Net inward portfolio equity flows 2.4 5.6 8.7 9.0 4.2 H110021.0 H110020.4 0.7 3.5
Net inward debt flows 3.2 4.4 H110021.3 H110021.0 H110020.5 H110021.7 H110020.3 2.7 3.6
From public sources 2.0 1.4 0.5 0.3 0.7 0.3 2.5 1.3 1.4
From private sources 1.2 3.0 H110021.8 H110021.3 H110021.2 H110022.0 H110022.8 1.5 2.2
Gross market-based capital flows 7.5 9.3 7.9 9.2 13.9 11.9 8.6 13.7 11.1
Total external debt 231.3 220.8 228.6 215.0 211.3 203.2 211.4 231.4 218.4
Medium- and long-term 188.8 180.0 186.2 174.0 178.2 171.5 182.4 200.3 189.6
Short-term 42.6 40.8 42.4 41.0 33.1 31.7 29.0 31.1 28.8
Owed by public-sector borrowers 178.5 171.1 177.9 163.6 166.9 159.1 170.0 184.7 171.5
Owed by private-sector borrowers 52.9 49.7 50.7 51.4 44.5 44.1 41.5 46.7 46.9
Owed to public-sector creditors 144.0 138.2 145.7 135.2 140.9 134.9 145.1 159.6 151.6
Owed by private-sector creditors 87.3 82.6 82.9 79.8 70.4 68.3 66.3 71.8 66.8
Gross foreign exchange reserves 20.6 28.2 26.7 28.0 34.2 34.5 34.8 39.0 58.4
Note,— H11005 not available; e H11005 estimate; f H11005 forecast.
a,Fixed investment,measured in real terms.
b,Local currency GDP deflator,median.
c,Weighted average growth of import demand in export markets.
d,Goods and non-factor services.
e,Change in terms of trade,measured as a percentage of GDP.
STATISTICAL APPENDIX
125
Table A.8 Global real GDP growth,1981–2005
GDP in 1995 prices and exchange rates,average annual growth (%)
GDP 2003
Average
Estimate Forecast
(1995 $) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
World 35,249 3.1 2.7 3.0 4.0 1.4 1.7 2.5 3.8 3.1
High income 28,448 3.1 2.6 3.0 3.7 1.1 1.3 1.9 3.2 2.4
Industrial countries 27,556 3.1 2.5 2.9 3.5 1.1 1.3 1.8 3.1 2.4
European Union (15) 9,675 2.4 2.1 2.8 3.7 1.8 1.0 0.8 2.0 1.5
Japan 5,702 4.0 1.4 H110020.1 2.4 0.2 H110020.3 1.4 2.6 0.8
United States 9,562 3.2 3.3 4.4 3.7 0.8 1.9 3.0 4.4 3.9
Other high income 892 4.9 5.6 4.5 7.7 H110020.9 2.4 3.2 6.2 4.4
Asian newly industrialized economies (NIEs) 657 7.3 6.0 5.1 7.6 H110021.5 3.1 2.9 6.7 4.4
Developing countries 6,801 2.7 3.2 3.0 5.3 3.0 3.5 5.3 6.6 5.7
Excluding China 5,477 2.2 2.2 2.2 4.7 2.0 2.4 4.3 6.0 5.0
Excl,C.E,Europe/C.I.S,5,641 3.2 4.7 2.7 5.0 2.7 3.4 5.1 6.7 5.7
Severely indebted 1,650 1.5 3.3 0.1 3.4 0.9 0.1 2.8 5.7 4.9
Moderately indebted 1,722 2.8 0.8 1.9 6.3 1.7 3.6 5.0 6.8 5.3
Less indebted 3,429 3.4 4.7 5.4 5.8 4.7 5.2 6.6 7.0 6.3
Middle-income countries 5,590 2.4 3.2 2.7 5.5 2.6 3.3 5.0 6.7 5.7
Upper middle-income countries 2,216 1.1 3.2 0.9 4.1 0.6 H110020.4 2.1 5.8 4.5
Lower middle-income countries 3,374 3.4 3.1 4.2 6.6 4.2 6.0 6.9 7.3 6.4
Low-income countries 1,210 4.4 3.3 4.4 4.4 4.6 4.2 6.7 6.2 5.9
East Asia and Pacific 2,010 7.3 7.7 5.6 7.2 5.6 6.9 8.0 8.3 7.4
China 1,324 9.3 10.1 7.1 8.0 7.5 8.3 9.4 9.5 —
Indonesia 263 6.4 4.3 0.8 5.4 3.8 4.3 4.5 5.4 —
Europe and Central Asia 1,376 1.8 H110021.4 3.0 6.7 2.4 4.6 5.9 6.8 5.5
Russian Federation 506 2.0 H110023.9 6.4 10.0 5.1 4.7 7.3 7.1 —
Turkey 216 5.2 3.6 H110024.7 7.4 H110027.5 7.9 5.5 8.2 —
Poland 186 H110020.3 3.7 4.1 4.0 1.0 1.4 3.8 5.4 —
Latin America and Caribbean 1,954 1.1 3.3 0.1 3.7 0.3 H110020.8 1.7 5.7 4.3
Brazil 807 1.5 2.7 0.8 4.4 1.4 1.5 H110020.2 5.1 —
Mexico 380 1.8 3.5 3.7 6.6 H110020.3 0.7 1.3 4.1 —
Argentina 272 H110021.5 4.5 H110023.4 H110020.8 H110024.4 H1100210.9 8.8 8.6 —
Middle East and North Africa 393 3.6 3.7 2.8 4.0 4.0 4.5 5.2 5.1 5.0
Algeria 56 2.8 1.7 3.2 2.4 2.6 4.1 6.8 5.9 —
Iran,Islamic Rep,of 134 2.7 4.0 1.7 5.0 3.4 7.4 6.6 6.5 —
Egypt,Arab Rep,of 86 5.5 4.3 6.3 5.1 3.5 3.2 3.2 4.3 —
South Asia 723 5.6 5.2 6.4 4.2 4.7 4.6 7.8 6.6 6.2
India 561 5.8 5.5 7.1 3.9 5.2 4.6 8.4 6.8 —
Sub-Saharan Africa 344 1.6 2.3 2.5 3.6 3.1 2.8 3.4 3.8 4.1
South Africa 190 1.3 1.8 2.4 4.2 2.7 3.6 2.8 3.6 —
Nigeria 37 1.1 2.7 1.1 4.2 3.1 1.5 10.7 3.6 —
Note,— H11005 not available.
STATISTICAL APPENDIX
126
Table A.9 Global inflation,1991–2004
Consumer price indexes; local currency (% change)
a
Weights Average Estimate
1995 1991–00 1998 1999 2000 2001 2002 2003 2004
World 100.0 3.3 2.0 1.7 2.6 1.5 2.0 1.8 2.6
High income 82.4 2.2 1.2 1.3 2.1 1.0 1.7 1.3 2.1
Industrial countries 80.2 2.2 1.2 1.4 2.1 1.1 1.8 1.3 2.1
European Union (15) 29.8 2.6 1.0 1.6 2.3 1.9 2.2 1.8 2.2
Japan 18.3 0.7 0.6 H110021.1 H110020.2 H110021.2 H110020.3 H110020.4 0.2
United States 25.3 2.7 1.6 2.7 3.4 1.6 2.4 1.9 3.3
Other high income 2.2 3.9 1.8 H110020.1 0.8 H110021.0 1.2 H110020.4 1.3
Asian NIEs 1.7 3.1 0.4 H110021.0 0.7 H110022.0 0.0 H110020.4 1.2
Developing countries 17.6 8.6 5.6 3.3 5.1 3.9 3.4 3.9 5.0
Excluding China 15.1 8.6 5.6 3.3 5.1 4.0 3.6 3.9 5.1
Excl,C.E,Europe/C.I.S,14.8 8.5 5.8 3.2 4.9 4.1 4.1 3.9 5.3
Severely indebted 4.9 13.4 5.9 2.8 5.9 3.8 6.2 5.2 6.1
Moderately indebted 4.7 8.2 4.5 4.2 4.9 4.5 3.8 3.9 5.0
Less indebted 8.0 7.7 6.4 3.2 4.3 3.6 3.0 3.7 4.0
Middle-income countries 14.6 8.2 4.5 3.3 4.6 4.1 3.0 3.6 4.6
Upper middle-income countries 6.8 7.3 4.3 3.3 4.3 3.2 1.9 2.6 5.0
Lower middle-income countries 7.8 8.3 6.0 3.7 6.1 4.6 3.8 4.2 4.0
Low-income countries 3.0 10.2 6.4 3.3 5.8 3.8 3.9 5.2 6.4
East Asia and Pacific 4.4 4.3 7.0 1.3 2.7 3.2 3.2 3.3 2.9
China 2.4 7.1 H110021.0 H110021.0 1.5 H110020.3 H110020.4 3.2 2.4
Indonesia 0.7 13.4 77.7 1.9 9.3 12.6 10.0 5.1 6.4
Europe and Central Asia 3.4 49.4 5.3 7.0 6.1 3.6 2.1 3.6 4.6
Russian Federation 1.4 — 84.4 36.5 20.2 18.6 15.1 12.0 11.7
Turkey 0.6 74.7 69.7 68.8 39.0 68.5 29.7 12.7 9.4
Poland 0.4 24.2 8.4 9.6 8.4 3.6 0.8 1.6 4.2
Latin America and Caribbean 5.8 13.6 7.4 4.9 5.3 4.4 7.0 5.7 5.3
Brazil 2.4 180.2 2.4 8.4 5.3 9.4 14.7 10.4 6.1
Mexico 1.0 17.5 18.6 12.3 9.0 4.4 5.7 4.0 5.2
Argentina,R,B,de 0.9 9.2 0.7 H110021.8 H110020.7 H110021.5 41.0 3.7 6.1
Middle East and North Africa 1.4 4.0 1.8 2.0 0.6 2.7 1.0 3.6 —
Algeria 0.5 15.0 3.9 1.2 0.1 7.5 H110021.5 3.9 —
Iran,Islamic Rep,of 0.3 24.1 20.2 19.0 12.8 10.6 16.4 15.9 —
Egypt,Arab Rep,of 0.2 8.6 3.6 3.1 2.3 2.4 3.0 5.8 —
South Asia 1.6 8.6 12.7 3.0 3.5 2.7 3.3 4.9 7.4
India 1.2 8.4 15.3 0.5 3.5 5.2 3.2 3.7 3.8
Sub-Saharan Africa 1.0 8.5 5.6 4.5 7.0 4.7 5.0 3.9 —
South Africa 0.5 8.5 9.0 2.2 7.0 4.6 12.4 0.3 3.4
Nigeria 0.1 29.0 11.9 0.2 14.5 16.5 12.2 23.8 —
Note,— H11005 not available.
a,Developing country aggregates computed using median,Industrial aggregates use 1995 $ GDP weights,World total is GDP weighted
average of developing and high-income total,Inflation is calculated on a December/December basis,Where country CPI series ended before
December 2004,estimates were made by extending the index series using the last available y/y change (effectively making the December
inflation reading identical with the latest available one),These were then aggregated.
STATISTICAL APPENDIX
127
Table A.10 Commodity prices,1980–2005
Current $
Forecast
Unit 1980 1990 1999 2000 2001 2002 2003 2004 2005
Energy
Coal,Australia $/mt 29.4 39.7 25.9 26.3 32.3 27.1 27.8 54.7 50.0
Crude oil,average $/bbl 36.9 22.9 18.1 28.2 24.4 24.9 28.9 37.7 42.0
Natural gas,Europe $/mmbtu 3.4 2.5 2.1 3.9 4.1 3.1 3.9 4.3 5.3
Non-energy
Agriculture
Beverages
Cocoa ￠/kg 260.3 126.7 113.5 90.6 106.9 177.8 175.1 155.0 162.0
Coffee,arabica ￠/kg 346.6 197.2 229.1 192.0 137.3 135.7 141.5 177.4 198.4
Coffee,robusta ￠/kg 324.3 118.2 148.9 91.3 60.7 66.2 81.4 79.3 88.2
Food
Fats and oils
Palm oil $/mt 583.7 289.8 436.0 310.3 285.7 390.3 443.3 471.3 450.0
Soybean meal $/mt 262.4 200.2 152.2 189.2 181.0 175.2 210.9 241.2 200.0
Soybeans $/mt 296.2 246.8 201.7 211.8 195.8 212.7 264.0 306.5 240.0
Grains
Maize $/mt 125.3 109.3 90.2 88.5 89.6 99.3 105.4 111.8 100.0
Rice,Thailand,5% $/mt 410.7 270.9 248.4 202.4 172.8 191.9 197.6 237.7 250.0
Wheat,U.S.,HRW $/mt 172.7 135.5 112.0 114.1 126.8 148.1 146.1 156.9 145.0
Other food
Bananas,U.S,$/mt 377.3 540.9 373.8 424.0 583.2 528.6 374.8 524.6 460.0
Sugar,world ￠/kg 63.2 27.7 13.8 18.0 19.0 15.2 15.6 15.8 19.0
Raw materials
Cotton (“A” Index) ￠/kg 206.2 181.9 117.1 130.2 105.8 101.9 139.9 136.6 116.8
Rubber,Malaysia ￠/kg 142.5 86.5 62.8 69.1 60.0 77.1 105.6 144.7 198.3
Sawnwood,Malaysia $/cum 536.5 814.5 507.8 664.3 517.3 452.3 525.7 640.8 110.3
Fertilizers
Triple superphosphate $/mt 180.3 131.8 154.5 137.7 126.9 133.1 149.3 186.3 185.0
Metals and minerals
Aluminum $/mt 1,456.0 1,639.4 1,361.1 1,549.1 1,443.6 1,349.9 1,431.3 1,715.5 1,900.0
Copper $/mt 2,182.1 2,661.5 1,572.9 1,813.5 1,578.3 1,559.5 1,779.1 2,865.9 3,000.0
Gold $/toz 607.9 383.5 278.8 279.0 271.0 310.0 363.5 409.2 435.0
Nickel $/mt 6,518.7 8,864.1 6,011.2 8,637.7 5,944.7 6,771.8 9,629.5 13,823.2 14,000.0
Memo:
Deflator Index 78.8 100.0 99.3 97.2 94.3 93.1 100.1 107.1 110.7
(MUV 1990 H11005 100)
a
Reuters/CRB Commodity
Futures Index (1967 H11005 100)
Note,bbl H11005 barrel; cum H11005 cubic meter; kg H11005 kilogram; mmbtu H11005 million British thermal units; mt H11005 metric ton; n.a,H11005 not available;
toz H11005 troy oz.
a,Unit value index in $ terms of manufactures exported from the G-5 countries weighted by exports to developing countries.
STATISTICAL APPENDIX
128
Table A.11 Commodity price indexes,1980–2005
Real dollar terms,deflated by $MUV (1990 H11005 100)
Forecast
Weights 1980 1990 1999 2000 2001 2002 2003 2004 2005
Energy
Coal,Australia 29.4 39.7 25.9 66.2 81.5 68.2 70.2 137.9 134.2
Crude oil,average 36.9 22.9 18.1 123.4 106.4 109.0 126.3 164.9 191.9
Natural gas,Europe 3.4 100.0 2.1 151.3 159.1 119.7 153.2 167.7 214.7
Non-energy 125.5 100.0 88.0 86.7 78.8 83.0 91.5 107.4 112.5
Agriculture 138.1 100.0 92.8 87.5 79.5 86.4 94.7 104.7 103.3
Beverages 181.4 100.0 107.7 88.4 72.1 84.6 87.1 94.0 102.4
Cocoa 260.3 126.7 113.5 71.5 84.4 140.4 138.2 122.4 125.8
Coffee,arabica 346.6 197.2 229.1 97.3 69.6 68.8 71.8 89.9 127.4
Coffee,robusta 324.3 118.2 148.9 77.3 51.4 56.0 68.9 67.1 72.9
Food 139.3 100.0 87.6 84.5 86.0 90.1 96.4 110.0 102.5
Fats and oils 148.7 100.0 105.0 96.2 89.0 101.2 120.6 137.1 118.4
Palm oil 583.7 289.8 436.0 107.1 98.6 134.7 153.0 162.7 132.0
Soybean meal 262.4 200.2 152.2 94.5 90.4 87.5 105.4 120.5 102.5
Soybeans 296.2 246.8 201.7 85.8 79.4 86.2 107.0 124.2 105.7
Grains 134.3 100.0 86.4 79.5 78.2 88.1 90.2 100.2 96.5
Maize 125.3 109.3 90.2 81.0 82.0 90.8 96.4 102.3 87.1
Rice,Thailand,5% 410.7 270.9 248.4 74.7 63.8 70.8 73.0 87.7 106.5
Wheat,U.S.,HRW 172.7 135.5 112.0 84.2 93.6 109.3 107.8 115.8 112.4
Other food 134.3 100.0 74.0 77.7 87.9 82.1 80.1 93.2 92.7
Bananas,U.S,377.3 540.9 373.8 78.4 107.8 97.7 69.3 97.0 135.0
Sugar,world 63.2 27.7 13.8 65.2 68.8 54.9 56.5 57.1 71.0
Raw materials 104.6 100.0 88.5 90.8 76.7 83.1 98.2 105.8 104.9
Cotton (“A” Index) 206.2 181.9 117.1 71.6 58.2 56.0 76.9 75.1 62.8
Rubber,Malaysia 142.5 86.5 62.8 79.9 69.4 89.1 122.1 191.2 264.8
Sawnwood,Malaysia 536.5 814.5 507.8 81.6 63.5 55.5 64.5 78.7 81.2
Fertilizers 128.9 100.0 114.1 105.8 98.8 100.5 106.2 126.6 126.9
Triple superphosphate 180.3 131.8 154.5 104.5 96.2 100.9 113.3 141.3 153.2
Metals and minerals 94.2 100.0 73.7 83.0 75.1 72.8 82.0 112.4 133.8
Aluminum 1,456.0 1,639.4 1,361.1 94.5 88.1 82.3 87.3 104.6 113.4
Copper 2,182.1 2,661.5 1,572.9 68.1 59.3 58.6 66.8 107.7 120.7
Gold 607.9 383.5 278.8 72.8 70.7 80.8 94.8 106.7 110.5
Nickel 6,518.7 8,864.1 6,011.2 97.4 67.1 76.4 108.6 155.9 168.4
Memo:
Deflator Index 78.8 100.0 99.3 97.2 94.3 93.1 100.1 107.1 110.7
(MUV 1990 H11005 100)
a
Reuters/CRB Commodity
Futures Index (1967 H11005 100)
Note:
a
H11005 unit value index in dollar terms of manufactures exported from the G-7 countries,weighted by exports to developing countries.
STATISTICAL APPENDIX
129
Table A.12 Global nominal GDP growth,1981–2005
% change from a year earlier
Average
Estimate Forecast
1981–90 1991–2000 1998 1999 2000 2001 2002 2003 2004 2005
World 9.7 6.7 4.8 4.4 6.1 3.6 3.5 4.3 5.4 4.7
High income 8.5 4.6 3.6 3.4 4.8 2.5 2.5 3.0 4.4 3.7
Industrial countries 8.0 4.5 3.6 3.4 4.7 2.6 2.5 3.0 4.4 3.6
European Union (15) 8.8 5.0 5.5 3.4 5.1 4.1 3.5 2.9 3.8 3.3
Japan 6.2 1.5 H110021.2 H110021.4 0.8 H110021.1 H110021.6 H110020.1 1.4 H110020.3
United States 7.6 5.4 5.3 6.0 5.9 3.2 3.5 4.9 6.6 6.2
Other high income 25.5 9.6 1.9 4.3 8.5 H110021.7 1.9 1.7 6.6 6.7
Asian NIEs 12.2 8.5 1.9 1.6 5.6 H110021.9 1.6 0.1 5.7 5.8
Developing countries 15.3 16.7 10.5 9.2 12.0 8.8 8.5 10.5 10.2 9.4
Excluding China 15.3 16.7 10.8 9.4 12.1 8.9 8.6 10.5 10.2 9.4
Excl,C.E,Europe/C.I.S,16.6 14.4 9.5 9.2 11.8 8.5 8.1 10.7 9.2 9.0
Severely indebted 19.0 15.7 8.1 8.2 12.3 8.8 8.4 10.3 10.5 9.7
Moderately indebted 15.4 19.0 12.1 8.0 12.6 9.2 8.9 11.2 10.2 8.8
Less indebted 14.1 15.5 10.8 10.9 11.5 9.2 8.2 10.5 9.8 9.5
Middle-income countries 14.4 17.2 9.8 8.5 12.0 8.4 8.7 9.8 9.5 9.0
Upper middle-income countries 14.0 17.4 9.9 6.5 11.0 7.7 8.1 9.0 9.0 8.4
Lower middle-income countries 14.6 16.8 9.8 9.1 12.1 9.9 9.4 10.4 10.2 9.4
Low-income countries 16.0 16.9 12.0 12.4 11.6 9.8 8.3 13.2 10.4 11.5
East Asia and Pacific 12.2 12.1 6.2 8.9 10.9 7.7 8.1 9.1 12.5 11.5
China 15.2 17.0 5.2 4.8 9.0 8.8 8.1 11.5 12.9 —
Indonesia 15.7 19.6 52.3 15.1 14.4 21.2 12.7 10.0 11.3 —
Europe and Central Asia 11.2 48.4 14.6 10.9 12.1 12.7 12.0 10.5 13.3 11.7
Russian Federation 40.0 99.6 12.3 83.5 51.5 22.4 21.1 22.6 18.3 —
Turkey 54.0 77.9 81.2 47.9 61.8 42.9 55.7 31.7 19.4 —
Poland 71.8 29.2 16.8 10.9 11.0 4.9 2.7 3.2 8.3 —
Latin America and Caribbean 25.1 17.3 12.2 6.6 11.1 7.6 8.3 12.2 8.0 7.7
Brazil 337.4 214.7 5.0 6.5 13.1 8.9 12.3 15.6 12.6 —
Mexico 66.7 22.2 21.0 19.5 19.4 5.1 5.9 10.5 8.0 —
Argentina,R,B,de 431.4 15.2 2.1 H110025.2 0.2 H110025.5 16.3 20.3 17.4 —
Middle East and North Africa 13.0 13.3 8.0 9.4 12.1 5.7 5.2 7.1 8.5 9.2
Algeria 13.1 21.9 0.7 13.9 27.0 5.3 5.2 15.6 11.2 —
Iran,Islamic Rep,of 18.6 31.1 9.8 18.2 42.2 23.9 32.5 24.1 14.1 —
Egypt,Arab Rep,of 19.3 13.4 8.1 8.6 12.1 6.8 7.1 7.1 8.5 —
South Asia 14.7 13.1 10.8 9.8 7.9 8.8 8.2 10.4 10.2 12.8
India 14.7 13.9 14.4 11.2 7.9 9.2 8.2 14.3 10.2 —
Sub-Saharan Africa 17.1 15.5 11.4 9.6 13.0 10.6 9.1 13.2 10.2 9.5
South Africa 16.5 12.3 8.3 9.6 13.3 10.6 14.2 7.4 9.8 —
Nigeria 17.9 32.3 H110023.8 13.5 33.3 24.8 5.5 34.0 13.2 —
Note,— H11005 not available,Developing counties aggregated using median growth rates,Industrial aggregates use 1995 $ GDP weights,World
total is GDP weighted average of developing and high-income total.
STATISTICAL APPENDIX
130
Table A.13 Global goods export growth,1981–2005
BOP goods exports (current $); average annual growth (%)
Exports 2002
Average
Estimate Forecast
($ bn.) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
World 6,025 6.1 6.5 3.2 12.4 H115463.8 4.4 15.6 20.6 12.1
High income 4,480 6.8 5.6 2.4 9.6 H115464.7 2.9 14.2 17.8 11.8
Industrial countries 3,916 7.3 5.4 2.1 7.9 H110023.9 2.8 14.2 17.4 12.1
European Union (15) 2,185 7.5 4.3 H110020.7 2.8 0.5 5.8 18.0 17.1 12.7
Japan 395 8.3 5.0 7.4 14.0 H1100216.2 2.8 13.5 19.8 8.8
United States 697 5.7 7.2 2.4 12.5 H110026.8 H110024.7 4.2 12.3 9.7
Other high income 564 3.4 7.4 4.2 22.0 H110029.7 4.1 13.8 21.3 9.5
Asian NIEs 468 5.0 7.2 4.0 19.0 H110029.8 6.1 12.4 19.5 10.3
Developing countries 1,545 3.4 10.0 6.3 22.4 H115461.1 9.0 19.9 28.0 13.1
Excluding China 1,219 2.9 9.0 6.3 21.3 H110022.8 5.9 16.0 25.9 9.5
Excl,C.E,Europe/C.I.S,1,225 4.3 10.4 7.9 22.0 H110022.7 8.7 19.9 28.4 13.5
Severely indebted 207 1.5 6.3 H110020.6 20.5 H110021.8 2.7 14.8 26.1 4.5
Moderately indebted 502 3.9 9.9 7.1 23.0 H110025.9 5.8 16.4 27.2 10.9
Less indebted 836 4.1 11.5 7.9 22.6 2.3 12.7 23.3 29.0 16.3
Middle-income countries 1,360 3.9 10.4 6.2 22.1 H110020.7 9.4 20.1 28.8 13.4
Upper middle-income countries 569 3.8 10.4 6.7 19.5 H110021.7 4.9 11.6 26.8 8.7
Lower middle-income countries 790 4.0 10.4 5.7 24.3 0.0 12.9 26.2 30.0 16.3
Low-income countries 185 1.2 7.9 7.2 24.5 H110024.0 6.2 18.9 22.5 11.1
East Asia and Pacific 597 8.5 14.2 8.6 23.0 H110021.8 14.3 24.0 28.0 20.1
China 326 11.8 17.1 6.1 27.9 6.8 22.4 34.6 34.8 —
Indonesia 57 3.3 9.2 H110020.4 27.6 H110029.3 1.5 6.8 14.4 —
Europe and Central Asia 360 1.5 8.8 H110020.9 22.4 6.0 10.9 20.4 26.2 11.2
Russian Federation 107 — 10.8 1.5 39.0 H110023.0 5.3 26.7 34.3 —
Turkey 40 16.2 9.0 H110025.9 6.5 11.9 16.7 24.3 22.6 —
Poland 47 — 8.5 H110027.4 19.4 16.0 12.2 21.7 20.7 —
Latin America and Caribbean 352 3.9 10.1 5.7 20.1 H110024.3 0.9 9.4 30.4 6.6
Brazil 60 4.5 5.8 H110026.1 14.7 5.7 3.7 21.1 29.8 —
Mexico 161 8.5 15.1 16.1 22.0 H110024.8 1.5 2.6 29.1 —
Argentina,R,B,de 26 4.4 7.9 H1100211.8 13.0 0.8 H110023.1 15.0 16.6 —
Middle East and North Africa 93 3.2 5.1 28.3 37.3 H110026.8 7.7 24.4 29.5 4.2
Algeria 18 H110020.5 5.2 21.5 75.7 H1100211.8 H110022.4 35.4 32.5 —
Iran,Islamic Rep,of 28 — 3.9 60.3 34.8 H1100216.0 17.9 42.2 33.5 —
Egypt,Arab Rep,of 7 0.2 6.1 18.9 34.8 H110020.5 1.3 26.3 25.0 —
South Asia 73 7.9 8.9 5.5 16.8 1.4 11.4 26.7 19.8 12.0
India 51 8.2 9.0 8.2 17.0 3.4 13.6 32.0 20.8 —
Sub-Saharan Africa 71 H110022.1 3.1 5.7 18.6 H110025.5 0.4 22.3 34.0 6.5
South Africa 31 H110020.7 2.7 H110022.0 11.0 H110022.7 1.4 23.2 26.2 —
Nigeria 14 H110026.3 3.7 43.5 51.4 H1100217.7 H1100212.5 31.6 58.0 —
Note,— H11005 not available.
STATISTICAL APPENDIX
131
Table A.14 Global goods import growth,1981–2005
BOP goods imports (current $); average annual growth (%)
Imports 2002
Average
Estimate Forecast
($ bn.) 1981–90 1991–2000 1999 2000 2001 2002 2003 2004 2005
World 6,062 5.8 6.7 4.2 14.0 H115463.8 3.7 15.6 20.4 11.9
High income 4,647 6.5 6.0 5.7 12.5 H115465.2 2.8 14.3 18.5 11.0
Industrial countries 4,125 6.8 5.8 6.1 11.6 H110024.4 2.6 14.6 18.0 11.2
European Union (15) 2,065 6.8 4.2 1.6 5.5 H110021.8 3.8 18.9 18.5 12.0
Japan 301 5.5 4.9 11.4 23.0 H110028.6 H110024.1 13.5 18.7 12.0
United States 1,190 7.2 9.4 12.5 18.9 H110026.1 1.9 7.8 16.1 7.0
Other high income 522 4.2 7.2 2.6 19.8 H1100210.8 4.0 11.6 22.6 9.6
Asian NIEs 436 5.0 7.2 2.6 21.7 H1100212.2 3.9 11.6 23.8 10.2
Developing countries 1,416 2.9 9.7 H115461.2 19.6 1.0 6.8 20.0 26.1 14.5
Excluding China 1,134 2.5 8.7 H110023.6 17.0 H110020.4 3.7 15.1 22.9 10.4
Excl,C.E,Europe/C.I.S,1,112 3.7 10.2 1.3 21.4 H110021.3 5.6 20.1 27.2 15.6
Severely indebted 143 H110021.1 7.7 H1100213.4 12.6 H110021.1 H1100211.7 12.6 31.2 10.8
Moderately indebted 433 4.5 7.7 H110025.3 18.3 H110022.0 6.7 16.6 23.5 10.7
Less indebted 840 3.4 11.6 5.1 22.1 3.1 10.7 23.1 26.6 16.9
Middle-income countries 1,246 3.2 10.2 H110021.0 19.5 1.1 7.1 19.8 25.7 14.3
Upper middle-income countries 531 1.8 12.5 H110020.3 16.2 H110021.1 H110020.2 9.1 21.1 8.8
Lower middle-income countries 715 4.2 8.5 H110021.6 22.5 3.0 13.1 27.7 28.7 17.6
Low-income countries 170 1.7 6.7 H110022.7 20.5 0.2 4.7 22.1 29.1 16.2
East Asia and Pacific 505 9.1 12.2 11.0 30.3 1.3 14.3 26.9 32.5 22.6
China 281 9.3 17.6 15.9 35.2 8.1 21.3 39.8 37.1 —
Indonesia 31 6.5 4.6 H1100212.2 38.9 H110027.1 1.1 4.0 42.8 —
Europe and Central Asia 352 1.7 7.9 H1100210.4 15.9 3.9 12.9 22.1 23.9 10.2
Russian Federation 61 — 4.2 H1100231.8 13.5 19.8 13.4 25.3 24.2 —
Turkey 47 11.6 8.9 H1100212.7 35.0 H1100227.7 24.4 37.6 33.6 —
Poland 54 H110022.5 14.7 H110020.4 6.8 2.3 9.5 18.5 19.7 —
Latin America and Caribbean 329 1.3 12.9 H110024.0 16.2 H110022.2 H110026.7 4.6 18.4 6.0
Brazil 47 H110021.0 10.4 H1100214.6 13.3 H110020.5 H1100215.0 2.2 28.0 —
Mexico 169 7.0 15.4 13.2 22.9 H110023.5 0.2 1.1 11.9 —
Argentina,R,B,de 8 H110028.8 20.4 H1100218.4 H110020.9 H1100219.8 H1100255.8 54.8 65.6 —
Middle East and North Africa 82 2.7 2.4 H110020.4 6.9 5.8 7.3 20.3 16.1 6.4
Algeria 10 H110020.9 H110020.6 3.8 4.3 1.5 13.8 30.3 16.0 —
Iran,Islamic Rep,of 22 5.3 H110021.9 H110026.0 13.2 22.9 20.2 37.1 15.0 —
Egypt,Arab Rep,of 13 4.2 4.1 3.7 1.4 H110029.2 H110027.7 2.4 16.0 —
South Asia 87 4.7 8.5 2.3 23.0 H110023.9 6.5 25.9 31.0 17.2
India 63 5.3 9.8 1.6 30.4 H110023.5 9.4 27.3 31.9 —
Sub-Saharan Africa 60 H110022.4 4.1 H110027.5 3.7 4.5 H110021.8 26.4 26.5 8.6
South Africa 27 H110020.9 4.7 H110029.9 11.1 H110025.3 3.8 30.6 36.1 —
Nigeria 8 H1100210.4 5.9 H110026.8 1.6 32.8 H1100234.9 43.8 17.7 —
Note,— H11005 not available.
STATISTICAL APPENDIX
132
Table A.15 Global goods trade balances,1997–2005
$ billions
% of GDP Estimate Forecast
2002 1997 1998 1999 2000 2001 2002 2003 2004 2005
World 0.1 105.4 79.7 42.1 H1154619.9 H1154626.3 23.2 41.2 45.7 50.3
High income H115460.6 85.3 76.4 H1154656.8 H11546190.2 H11546156.9 H11546148.6 H11546173.7 H11546244.1 H11546227.1
Industrial countries H110020.8 88.7 61.9 H1100279.1 H11002227.9 H11002197.4 H11002191.1 H11002233.5 H11002308.5 H11002297.2
European Union (15) 1.6 158.8 136.0 92.9 40.1 88.4 138.0 142.3 129.6 166.4
Japan 2.4 103.1 123.9 123.2 115.3 70.9 94.4 106.8 131.8 130.2
United States H110024.7 H11002197.7 H11002248.1 H11002348.3 H11002459.1 H11002436.7 H11002492.7 H11002555.6 H11002673.2 H11002697.8
Other high income 5.5 H110023.4 14.5 22.4 37.7 40.5 42.5 59.7 64.4 70.1
Asian NIEs 6.2 H110029.0 12.6 18.6 11.5 22.0 32.6 40.1 27.3 30.8
Developing countries 2.6 13.3 H1154614.1 76.5 145.1 108.4 150.4 192.9 275.3 266.5
Excluding China 2.7 H1100226.2 H1100243.3 62.9 135.9 96.5 127.6 170.2 238.5 227.3
Excl,C.E,Europe/C.I.S,3.0 40.3 24.3 96.7 142.0 114.1 156.6 195.5 249.1 227.8
Severely indebted 6.0 5.5 3.2 24.7 41.2 39.2 63.6 76.2 87.7 48.5
Moderately indebted 5.0 H1100217.1 12.8 59.7 90.1 68.8 69.0 79.2 118.8 132.9
Less indebted 1.1 31.7 H1100212.7 14.5 39.0 22.6 39.3 59.5 83.3 66.0
Middle-income countries 3.2 26.1 7.0 89.8 154.5 122.4 160.1 205.6 291.7 293.6
Upper middle-income countries 4.1 19.4 H1100213.3 25.8 65.1 47.9 68.1 92.8 133.0 134.5
Lower middle-income countries 3.2 15.3 39.2 85.9 114.8 96.6 114.7 138.1 179.0 180.0
Low-income countries H110021.2 H1100212.8 H1100221.0 H1100213.3 H110029.4 H1100214.0 H110029.6 H1100212.7 H1100216.5 H1100227.1
East Asia and Pacific 5.1 44.4 96.7 97.8 95.9 81.0 92.3 99.8 99.2 97.3
China 3.5 46.2 46.6 36.0 34.5 34.0 44.2 44.7 51.3 —
Indonesia 12.7 11.9 21.5 24.7 28.8 25.4 25.9 28.5 23.4 —
Europe and Central Asia 0.7 H1100235.3 H1100235.0 H110028.0 6.4 12.7 7.9 4.0 14.7 20.7
Russian Federation 13.4 14.9 16.4 36.0 60.2 48.1 46.3 59.6 87.8 —
Turkey H110024.0 H1100215.0 H1100214.1 H1100210.2 H1100222.0 H110023.7 H110027.3 H1100215.3 H1100226.0 —
Poland H110023.8 H110029.8 H1100212.8 H1100215.1 H1100212.3 H110027.7 H110027.2 H110027.1 H110027.9 —
Latin America and Caribbean 1.4 H1100214.5 H1100236.5 H110027.3 3.6 H110024.2 22.5 40.8 64.8 55.7
Brazil 2.8 H110026.8 H110026.6 H110021.3 H110020.8 2.7 13.1 24.8 33.1 —
Mexico H110021.3 0.6 H110027.9 H110025.6 H110028.0 H1100210.0 H110027.9 H110025.6 H110027.3 —
Argentina,R,B,de 16.9 H110022.1 H110023.1 H110020.8 2.5 7.4 17.2 16.5 12.8 —
Middle East and North Africa 9.4 34.2 H110024.4 24.5 69.7 48.7 53.2 77.7 125.1 130.0
Algeria 4.7 6.5 2.4 4.3 13.2 10.6 8.9 12.6 18.7 —
Iran,Islamic Rep,of 4.9 4.3 H110021.2 7.6 13.1 5.1 5.6 9.2 17.9 —
Egypt,Arab Rep,of H110026.4 H110028.6 H1100210.2 H110029.9 H110028.3 H110026.9 H110025.8 H110024.2 H110024.1 —
South Asia H110022.3 H1100216.1 H1100215.6 H1100214.3 H1100221.0 H1100216.7 H1100214.6 H1100217.8 H1100233.6 H1100245.3
India H110022.4 H1100210.0 H1100210.8 H110028.7 H1100216.3 H1100212.7 H1100212.0 H1100213.0 H1100224.6 —
Sub-Saharan Africa 3.8 7.4 H110021.9 6.1 15.8 9.1 10.5 10.4 19.6 18.8
South Africa 4.2 2.3 2.1 4.2 4.6 5.2 4.6 3.7 1.2 —
Nigeria 13.9 5.7 H110020.2 4.3 10.8 4.5 6.5 7.6 16.4 —
Note,— H11005 not available.
STATISTICAL APPENDIX
133
Table A.16 Global trade prices and volumes,1981–2005
Average annual % change
Average change
Estimate Forecast
1981–90 1991–2000 1998 1999 2000 2001 2002 2003 2004 2005
Trade prices
Manufactured goods prices 2.4 H110020.3 H110023.8 H110020.3 H110022.1 H110022.9 H110021.3 7.5 7.0 3.3
Developing countries’ export price H110021.7 1.1 H110028.2 H110021.3 4.8 H110023.5 0.4 5.5 9.2 1.6
Oil price H110024.7 2.1 H1100231.9 38.3 56.2 H1100213.7 2.4 15.9 30.6 11.3
Non-oil commodity prices H110022.2 H110021.4 H1100215.7 H1100211.2 H110021.4 H110029.1 5.3 10.2 17.5 4.7
Terms of trade
World H110020.2 H110020.2 0.1 H110020.3 H110020.9 H110020.4 0.5 0.5 H110020.4 0.5
High income 0.7 0.0 0.9 H110020.5 H110022.3 H110020.1 0.7 0.4 H110020.4 0.5
Developing countries H110022.7 H110021.0 H110023.6 0.8 4.3 H110021.6 0.0 0.9 H110020.1 0.8
Severely indebted H110023.7 H110020.2 H110024.7 H110023.0 3.5 H110021.7 H110022.6 H110020.1 H110023.1 H110022.4
Moderately indebted H110022.2 H110021.1 H110024.4 0.4 8.2 H110023.5 0.2 1.5 0.4 1.5
Less indebted H110022.5 H110021.0 H110022.1 2.2 1.6 H110020.4 0.3 0.3 H110020.6 0.6
Middle-income countries H110022.6 H110021.2 H110023.9 1.7 4.5 H110021.6 0.6 1.0 0.2 1.0
Upper middle-income countries H110022.4 0.5 H110026.6 6.1 6.8 H110022.5 1.4 0.9 2.7 0.0
Lower middle-income countries H110022.3 H110021.9 H110021.3 H110021.8 2.4 H110020.8 0.0 0.9 H110021.5 1.3
Low-income countries H110023.5 0.8 H110021.1 H110026.8 1.9 H110021.9 H110025.6 0.3 H110023.6 H110022.3
East Asia and Pacific H110021.5 0.2 1.0 H110022.2 H110021.1 H110020.8 1.5 H110020.6 H110022.6 1.8
Europe and Central Asia H110021.6 H110022.2 H110021.1 H110021.5 6.7 H110021.4 H110021.7 1.1 H110021.7 1.5
Latin America and Caribbean H110022.8 0.1 H110025.0 1.3 5.5 H110023.0 H110020.4 H110020.5 1.7 H110020.7
Middle East and North Africa H110023.2 H110020.2 H1100215.0 16.9 15.1 H110020.8 3.9 5.6 12.8 H110020.3
South Asia 0.5 1.0 5.9 H110028.5 H110026.0 H110022.7 H110027.8 H110020.7 H110027.0 H110024.0
Sub-Saharan Africa H110024.1 0.0 H110027.0 H110023.4 7.6 1.9 0.7 4.0 1.6 0.3
Global export volumes
World 4.8 6.8 4.2 5.4 12.9 0.4 3.8 5.4 10.4 7.4
High income 5.1 6.9 4.1 5.5 12.1 H110020.3 2.6 3.1 8.5 6.3
Developing countries 4.2 7.0 4.6 6.5 15.3 3.1 8.4 13.5 16.6 10.6
Severely indebted 3.0 6.3 6.1 H110026.3 14.0 5.1 3.5 9.3 13.2 9.4
Moderately indebted 4.8 4.7 3.0 6.4 13.2 0.7 5.9 8.4 13.6 8.6
Less indebted 3.5 8.0 5.9 6.9 18.4 4.2 10.9 17.5 18.9 12.3
Middle-income countries 4.4 6.9 4.4 6.3 15.2 2.9 8.1 13.5 17.1 10.5
Upper middle-income countries 2.9 8.9 7.5 5.0 13.6 H110020.2 1.6 6.9 12.4 8.5
Lower middle-income countries 4.6 4.9 2.9 3.7 17.1 4.8 11.6 16.7 19.2 11.8
Low-income countries 2.4 8.0 6.6 9.6 16.8 4.9 11.1 13.0 12.0 11.4
East Asia and Pacific 8.4 12.0 3.1 4.2 22.8 2.4 14.8 21.2 23.1 14.9
Europe and Central Asia 3.1 1.3 6.0 4.0 15.9 6.3 7.9 12.0 15.3 9.4
Latin America and Caribbean 5.4 8.7 7.8 7.2 10.3 0.6 1.9 4.8 11.9 6.1
Middle East and North Africa 0.8 4.8 H110021.2 0.2 8.1 0.9 H110022.9 9.4 5.9 4.0
South Asia 5.7 11.1 9.1 12.5 21.2 7.3 18.3 13.0 13.3 12.4
Sub-Saharan Africa 0.8 4.9 4.4 2.5 8.4 0.8 H110020.4 5.7 7.3 8.4
Note,Prices are in $ terms unless otherwise indicated.
STATISTICAL APPENDIX
134
Table A.17 Global current account balances,1999–2005
$ billions
Percent of GDP (2002)
Income
balance and
Merchandise Services net Estimate Forecast
balance balance transfers 1999 2000 2001 2002 2003 2004 2005
World H115460.2 0.1 H115460.4 H11546155.9 H11546214.0 H11546200.8 H11546184.5 H11546150.0 H11546167.2 H11546216.5
High income H115460.7 0.2 H115460.5 H11546147.9 H11546257.6 H11546217.7 H11546256.6 H11546263.8 H11546319.9 H11546331.1
Industrial countries H110020.8 0.1 H110020.5 H11002175.5 H11002291.6 H11002250.7 H11002290.3 H11002316.1 H11002377.1 H11002391.6
European Union (15) 1.3 0.2 H110021.2 H1100229.4 H1100269.4 H1100215.2 21.3 11.5 19.3 50.6
Japan 2.4 H110021.1 1.5 114.6 119.7 87.8 112.4 136.2 172.2 164.0
United States H110024.6 0.6 H110020.5 H11002296.8 H11002413.4 H11002385.7 H11002473.9 H11002530.7 H11002660.4 H11002691.1
Other high income 2.4 1.8 0.1 27.6 34.1 32.9 33.7 52.3 57.2 61.5
Asian NIEs 2.8 3.3 H110020.2 25.6 20.3 26.0 31.5 44.9 33.5 36.9
Developing countries 1.9 H115460.5 H115460.3 H115468.0 43.6 16.9 72.0 112.8 152.7 114.6
excluding China 1.4 H110020.5 H110020.3 H1100229.1 23.0 H110020.5 36.6 66.9 105.3 70.8
excl,C.E,Europe /C.I.S,1.9 H110020.5 H110020.2 H110026.9 18.3 2.9 66.7 108.6 128.2 96.0
Severely indebted 6.1 H110022.6 H110022.3 H1100238.6 H1100221.0 H1100223.3 9.7 20.1 29.4 19.3
Moderately indebted 4.4 H110020.3 H110021.2 43.8 70.8 48.3 44.4 55.7 90.3 86.3
Less indebted H110020.4 0.1 0.7 H1100213.1 H110026.2 H110028.2 17.9 37.0 33.0 9.0
Middle-income countries 2.1 H110020.3 H110020.8 H110020.7 35.4 13.7 56.7 100.7 145.0 118.5
Upper middle-income countries 1.6 H110020.3 H110022.2 H1100261.3 H1100249.0 H1100249.2 H1100217.1 5.4 22.7 7.9
Lower middle-income countries 2.4 H110020.3 0.3 60.5 84.4 62.9 73.9 95.3 122.3 110.6
Low-income countries 1.0 H110021.2 1.8 H110027.3 8.2 3.2 15.3 12.1 7.6 H110023.9
East Asia and Pacific 5.3 H110021.2 H110020.6 60.2 53.5 39.6 61.4 74.7 71.3 65.6
China 3.5 H110020.5 H110020.2 21.1 20.5 17.4 35.4 45.9 47.3 —
Indonesia — — — 5.8 8.0 6.9 8.1 7.5 3.7 —
Europe and Central Asia 0.7 0.4 H110020.7 H110022.5 15.5 17.4 3.8 H110022.6 9.6 1.7
Russian Federation 13.4 H110022.9 H110022.1 24.6 46.8 33.8 29.1 35.8 55.4 —
Turkey H110024.0 4.3 H110021.2 H110021.3 H110029.8 3.4 H110021.5 H110026.8 H1100214.9 —
Poland H110023.8 0.4 0.7 H1100212.5 H1100210.0 H110025.4 H110025.0 H110024.6 H110024.4 —
Latin America and Caribbean 1.4 H110020.8 H110021.4 H1100255.5 H1100246.9 H1100253.4 H1100215.8 7.9 28.2 14.2
Brazil 2.8 H110021.1 H110023.4 H1100225.4 H1100224.2 H1100223.2 H110027.6 4.0 11.1 —
Mexico H110021.2 H110020.8 H110020.1 H1100214.0 H1100218.2 H1100218.2 H1100214.1 H110029.2 H110028.3 —
Argentina,R,B,de 16.9 H110021.6 H110026.3 H1100211.9 H110029.0 H110023.9 9.1 7.8 3.2 —
Middle East and North Africa H110025.2 2.4 4.8 4.2 24.1 17.3 15.6 25.7 41.7 38.3
Algeria — — — H110020.8 8.0 7.6 6.0 9.8 14.9 —
Iran,Islamic Rep,of — — — 6.6 12.6 5.4 4.1 8.0 16.2 —
Egypt,Arab Rep,of H110026.4 3.0 4.1 H110021.6 H110021.0 H110020.4 0.6 3.7 3.3 —
South Asia H110022.5 1.0 3.1 H110025.2 H110025.8 1.2 10.1 11.6 H110020.7 H110026.8
India H110022.4 1.3 2.2 H110023.2 H110024.3 0.2 5.8 8.0 H110021.1 —
Sub-Saharan Africa 3.2 H110023.1 H110021.4 H110029.3 3.2 H110025.1 H110023.1 H110024.5 2.6 1.5
South Africa 4.4 H110020.6 H110023.2 H110020.5 H110020.3 0.1 0.6 H110021.5 H110025.6 —
Nigeria — — — 0.5 6.5 0.0 1.6 2.3 9.9 —
Note,— H11005 not available.
STATISTICAL APPENDIX
135
Table A.18 Global current account balances,1981–2005
% of GDP
Average
Estimate Forecast
1981–90 1991–2000 1998 1999 2000 2001 2002 2003 2004 2005
World H115460.7 H115460.4 H115460.3 H115460.5 H115460.7 H115460.6 H115460.6 H115460.4 H115460.4 H115460.5
High income H115460.4 H115460.2 0.1 H115460.6 H115461.0 H115460.9 H115461.0 H115460.9 H115461.0 H115461.0
Industrial countries H110020.5 H110020.2 0.0 H110020.7 H110021.2 H110021.0 H110021.2 H110021.1 H110021.2 H110021.2
European Union (15) 0.0 H110020.1 0.6 H110020.4 H110020.9 H110020.2 0.3 0.1 0.2 0.3
Japan 2.3 2.5 3.0 2.6 2.5 2.1 2.8 3.2 3.7 3.4
United States H110021.9 H110021.8 H110022.4 H110023.2 H110024.2 H110023.8 H110024.5 H110024.8 H110025.6 H110025.5
Other high income 3.2 1.7 2.9 3.7 4.2 4.3 4.4 6.6 6.6 6.4
Asian NIEs H110020.1 3.4 4.1 4.8 3.6 4.9 5.9 8.4 5.8 5.9
Developing countries H115461.7 H115461.3 H115461.6 H115460.1 0.8 0.4 1.3 1.8 2.0 1.3
excluding China H110021.8 H110021.9 H110022.7 H110020.6 0.5 0.1 0.9 1.4 1.8 1.1
excl,C.E,Europe /C.I.S,H110021.8 H110021.4 H110021.3 H110020.1 0.4 0.1 1.4 2.0 2.1 1.4
Severely indebted H110022.5 H110022.5 H110024.2 H110022.9 H110021.7 H110021.8 1.0 1.7 2.2 1.3
Moderately indebted H110022.1 H110020.6 0.0 3.9 5.7 4.0 3.5 3.8 4.9 3.9
Less indebted H110021.0 H110021.0 H110021.0 H110020.5 H110020.2 H110020.3 0.5 1.0 0.8 0.2
Middle-income countries H110021.4 H110021.2 H110021.5 0.0 0.8 0.3 1.2 1.9 2.4 1.7
Upper middle-income countries H110021.4 H110022.8 H110024.0 H110023.1 H110022.3 H110022.3 H110020.9 0.3 1.0 0.3
Lower middle-income countries H110021.4 0.1 0.8 2.6 3.4 2.4 2.7 3.0 3.3 2.5
Low-income countries H110022.7 H110021.8 H110022.6 H110020.3 0.9 0.7 1.6 1.1 0.5 H110020.2
East Asia and Pacific H110021.7 0.4 4.5 4.1 3.4 2.4 3.4 3.7 3.1 2.5
China 0.2 1.6 3.3 2.1 1.9 1.5 2.8 3.2 3.0 2.3
Indonesia H110022.8 H110020.3 3.9 3.7 4.8 4.2 4.0 3.1 1.4 2.2
Europe and Central Asia H110020.7 H110021.1 H110022.5 H110020.1 1.8 2.0 0.5 0.0 0.6 0.1
Russian Federation — — 0.1 12.6 18.0 11.0 8.4 8.3 10.7 7.7
Turkey H110021.3 H110021.1 1.0 H110020.7 H110024.9 2.3 H110020.8 H110022.8 H110024.8 H110024.2
Poland H110021.4 H110023.5 H110024.1 H110027.6 H110026.0 H110022.9 H110022.6 H110022.2 H110021.9 H110022.1
Latin America and Caribbean H110021.8 H110022.8 H110024.5 H110023.1 H110022.4 H110022.8 H110021.0 0.5 1.5 0.7
Brazil H110021.6 H110022.1 H110024.3 H110024.7 H110024.0 H110024.6 H110021.7 0.8 1.9 0.8
Mexico H110020.8 H110023.7 H110023.8 H110022.9 H110023.1 H110022.9 H110022.2 H110021.5 H110021.3 H110021.8
Argentina,R,B,de H110022.2 H110023.2 H110024.9 H110024.2 H110023.2 H110021.4 9.0 6.0 2.1 H110020.6
Middle East and North Africa H110021.0 H110020.2 H110023.5 1.3 6.7 4.5 4.2 6.1 9.3 8.0
Algeria H110020.5 H110020.3 H110025.7 H110021.7 15.0 13.8 10.8 14.7 18.7 15.2
Iran,Islamic Rep,of H110020.4 2.0 H110022.1 7.1 13.1 4.6 3.6 5.9 10.9 9.0
Egypt,Arab Rep,of H110023.4 1.5 H110023.1 H110021.8 H110021.0 H110020.4 0.7 4.5 4.6 4.2
South Asia H110022.0 H110021.5 H110021.8 H110020.9 H110021.0 0.2 1.6 1.6 H110020.1 H110020.7
India H110021.7 H110021.2 H110021.7 H110020.7 H110021.0 0.0 1.1 1.3 H110020.1 H110020.7
Sub-Saharan Africa H110022.2 H110021.5 H110025.0 H110022.1 1.2 H110020.8 H110020.3 H110020.8 0.6 0.3
South Africa 0.4 H110020.2 H110021.6 H110020.4 H110020.2 0.0 0.6 H110020.9 H110022.6 H110021.8
Nigeria H110020.7 0.5 H1100213.2 1.5 15.4 H110020.1 3.4 4.0 16.4 15.2
Note,— H11005 not available.
STATISTICAL APPENDIX
136
Table A.19 Workers’ remittances received by developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 61.2 70.9 68.0 71.9 75.6 83.8 98.2 115.9 125.8
East Asia and the Pacific 10.3 15.2 9.1 11.4 11.2 12.9 16.5 19.7 20.3
China 1.7 4.6 0.3 0.5 0.8 1.2 2.4 4.6 4.6
Indonesia 0.8 0.7 1.0 1.1 1.2 1.0 1.3 1.3 1.3
Malaysia 0.9 1.1 0.9 1.0 1.0 0.8 1.0 1.0 1.0
Philippines 4.9 6.8 5.1 6.9 6.2 6.2 7.4 7.9 8.1
Thailand 1.8 1.7 1.4 1.5 1.7 1.3 1.4 1.6 1.6
Europe and Central Asia 9.4 9.7 12.8 10.7 11.0 11.4 11.5 12.9 12.9
Albania 0.6 0.3 0.5 0.4 0.6 0.7 0.7 0.9 0.9
Croatia 0.7 0.6 0.6 0.6 0.6 0.7 0.9 1.1 1.1
Poland 0.8 0.8 1.1 0.8 0.8 1.1 1.4 2.3 2.3
Russian Federation 2.8 2.3 1.9 1.3 1.3 1.4 1.4 1.5 1.5
Turkey 3.5 4.2 5.4 4.5 4.6 2.8 1.9 0.7 0.7
Latin America and the Caribbean 13.6 14.5 15.9 17.7 20.2 24.2 28.1 34.4 36.9
Brazil 2.5 2.0 1.6 1.9 1.6 1.8 2.4 2.8 2.8
Colombia 0.8 0.8 0.8 1.3 1.6 2.1 2.5 3.1 3.1
Dominican Republic 1.0 1.1 1.4 1.6 1.8 2.0 2.2 2.3 2.3
El Salvador 1.1 1.2 1.3 1.4 1.8 1.9 2.0 2.1 2.5
Mexico 5.0 5.5 6.5 6.6 7.6 9.9 11.0 14.6 17.0
Middle East and North Africa 12.4 12.7 12.5 12.2 12.3 14.4 14.8 16.1 17.0
Egypt,Arab Rep,of 3.1 3.7 3.4 3.2 2.9 2.9 2.9 3.0 3.0
Jordon 1.7 1.8 1.6 1.8 1.8 2.0 2.1 2.2 2.2
Lebanon 1.2 1.2 1.2 1.4 1.6 2.3 2.5 2.7 2.7
Morocco 2.2 1.9 2.0 1.9 2.2 3.3 2.9 3.6 3.6
South Asia 12.3 14.6 13.4 15.1 16.0 16.0 22.2 26.8 32.7
Bangladesh 1.3 1.5 1.6 1.8 2.0 2.1 2.9 3.2 3.4
India 8.8 10.3 9.5 11.1 11.7 11.1 13.8 17.4 23.0
Pakistan 1.3 1.7 1.2 1.0 1.1 1.5 3.6 4.0 4.1
Sri Lanka 0.9 0.9 1.0 1.1 1.2 1.2 1.3 1.3 1.3
Sub-Saharan Africa 3.2 4.4 4.3 4.7 4.9 4.9 5.2 6.0 6.1
Lesotho 0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2
Nigeria 0.9 1.9 1.5 1.6 1.7 1.3 1.4 1.7 1.8
Senegal 0.2 0.2 0.1 0.2 0.2 0.3 0.3 0.3 0.3
Sudan 0.2 0.4 0.7 0.7 0.6 0.7 1.0 1.2 1.2
Note,e H11005 estimate.
STATISTICAL APPENDIX
137
Table A.20 Net official development assistance from DAC countries,1996–2003
$ billions
1996 1997 1998 1999 2000 2001 2002 2003
Total ODA 55.6 48.5 52.1 56.4 53.7 52.3 58.3 69.0
Australia 1.1 1.1 1.0 1.0 1.0 0.9 1.0 1.2
Austria 0.6 0.5 0.5 0.5 0.4 0.5 0.5 0.5
Belgium 0.9 0.8 0.9 0.8 0.8 0.9 1.1 1.9
Canada 1.8 2.0 1.7 1.7 1.7 1.5 2.0 2.0
Denmark 1.8 1.6 1.7 1.7 1.7 1.6 1.6 1.7
Finland 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.6
France 7.5 6.3 5.7 5.6 4.1 4.2 5.5 7.3
Germany 7.6 5.9 5.6 5.5 5.0 5.0 5.3 6.8
Greece 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.4
Ireland 0.2 0.2 0.2 0.2 0.2 0.3 0.4 0.5
Italy 2.4 1.3 2.3 1.8 1.4 1.6 2.3 2.4
Japan 9.4 9.4 10.6 15.3 13.5 9.8 9.3 8.9
Luxembourg 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2
Netherlands 3.2 2.9 3.0 3.1 3.1 3.2 3.3 4.0
New Zealand 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.2
Norway 1.3 1.3 1.3 1.4 1.3 1.3 1.7 2.0
Portugal 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Spain 1.3 1.2 1.4 1.4 1.2 1.7 1.7 2.0
Sweden 2.0 1.7 1.6 1.6 1.8 1.7 2.0 2.4
Switzerland 1.0 0.9 0.9 1.0 0.9 0.9 0.9 1.3
United Kingdom 3.2 3.4 3.9 3.4 4.5 4.6 4.9 6.3
United States 9.4 6.9 8.8 9.1 10.0 11.4 13.3 16.3
STATISTICAL APPENDIX
138
Table A.21 External financing,all developing countries,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance H1100293.7 H110028.0 43.6 16.9 72.0 112.8 152.7
as % GDP H110021.6 H110020.1 0.8 0.4 1.3 1.8 2.0
Financed by:
Net equity flows 178.1 195.1 178.6 180.9 159.8 176.6 192.3
Net FDI inflows 171.5 182.4 166.2 174.8 154.0 151.8 165.5
Net portfolio equity inflows 6.6 12.7 12.4 6.0 5.8 24.8 26.8
Net debt flows 54.9 15.4 H110026.2 H110023.5 8.5 60.0 83.7
Official creditors 34.4 13.9 H110025.8 27.0 5.2 H1100211.9 H1100225.3
World Bank 8.7 8.8 7.9 7.5 H110020.2 H110021.2 H110021.4
IMF 14.1 H110022.2 H1100210.7 19.5 14.0 2.4 H1100210.9
Others 11.6 7.3 H110023.0 0.0 H110028.6 H1100213.1 H1100213.1
Private creditors 20.5 1.5 H110020.4 H1100230.5 3.3 71.8 109.0
Net M-L term debt flows 85.0 21.6 7.4 H110026.6 0.5 22.9 55.4
Bonds 39.7 29.8 17.5 11.0 11.2 26.6 63.0
Banks 50.4 H110026.8 H110025.8 H1100211.0 H110024.2 2.5 H110021.8
Others H110025.2 H110021.5 H110024.3 H110026.6 H110026.5 H110026.3 H110025.7
Net short-term debt flows H1100264.5 H1100220.1 H110027.9 H1100223.9 2.8 49.0 53.6
Balancing item* H11002122.9 H11002169.1 H11002169.1 H11002112.6 H1100268.6 H1100257.4 H1100250.4
Change in reserves (H11002H11005increase) H1100216.3 H1100233.4 H1100246.8 H1100281.7 H11002171.7 H11002291.9 H11002378.2
Memo items:
Bilateral aid grants 26.7 28.5 28.7 27.9 32.2 43.4 47.4
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 198.6 196.6 178.1 150.4 163.1 248.4 301.3
Net official flows (aid H11001 debt) 61.1 42.4 23.0 54.9 37.4 31.5 22.1
Workers’ remittances 68.0 71.9 75.6 83.8 98.2 115.9 125.8
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
139
Table A.22 External financing,East Asia and Pacific,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance 59.6 60.2 53.5 39.6 61.4 74.7 71.3
as % GDP 4.5 4.1 3.4 2.4 3.4 3.7 3.1
Financed by:
Net equity flows 54.2 52.3 49.0 49.6 59.7 71.5 77.2
Net FDI inflows 57.7 49.9 44.2 48.2 55.6 59.6 63.6
Net portfolio equity inflows H110023.4 2.3 4.8 1.4 4.0 11.8 13.6
Net debt flows H1100232.5 H1100212.2 H1100216.2 H110029.1 H1100213.2 1.7 17.2
Official creditors 14.7 12.6 7.0 3.2 H110027.9 H110027.5 H110029.2
World Bank 2.8 2.4 1.8 0.9 H110021.7 H110021.5 H110022.4
IMF 7.0 1.9 1.2 H110022.5 H110022.7 H110020.5 H110021.3
Others 4.8 8.2 3.9 4.8 H110023.4 H110025.6 H110025.5
Private creditors H1100247.1 H1100224.7 H1100223.2 H1100212.3 H110025.3 9.3 26.4
Net M-L term debt flows H110023.8 H1100210.9 H1100213.1 H1100213.0 H1100212.6 H110029.4 6.3
Bonds 0.7 0.9 H110020.7 0.4 0.1 2.0 11.9
Banks H110024.8 H1100212.0 H1100211.3 H1100211.8 H1100210.5 H110028.4 H110022.1
Others 0.3 0.2 H110021.0 H110021.6 H110022.2 H110023.0 H110023.5
Net short-term debt flows H1100243.3 H1100213.9 H1100210.1 0.7 7.3 18.7 20.1
Balancing item* H1100260.6 H1100270.9 H1100276.3 H1100232.4 H1100220.0 H1100211.3 64.6
Change in reserves (H11002H11005increase) H1100220.7 H1100229.3 H1100210.1 H1100247.7 H1100287.9 H11002136.7 H11002230.3
Memo items:
Bilateral aid grants 2.5 2.5 2.5 2.2 2.2 2.5 2.7
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 7.1 27.5 25.8 37.3 54.3 80.7 103.5
Net official flows (aid H11001 debt) 17.1 15.1 9.5 5.4 H110025.6 H110025.0 H110026.4
Workers’ remittances 9.1 11.4 11.2 12.9 16.5 19.7 20.3
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
140
Table A.23 External financing,Europe and Central Asia,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance H1100225.8 H110022.5 15.5 17.4 3.8 H110022.6 9.6
as % GDP H110022.5 H110020.1 1.8 2.0 0.5 0.0 0.6
Financed by:
Net equity flows 30.1 30.4 30.4 31.8 34.9 36.2 41.2
Net FDI inflows 26.1 28.4 29.2 31.4 35.0 35.6 37.6
Net portfolio equity inflows 4.0 2.0 1.3 0.4 H110020.1 0.6 3.6
Net debt flows 43.0 18.9 19.9 2.7 28.0 56.9 56.0
Official creditors 7.5 H110020.6 0.0 2.2 2.6 H110026.2 H110026.2
World Bank 1.5 1.9 2.1 2.1 1.0 H110020.7 0.6
IMF 5.3 H110023.1 H110020.7 6.1 4.6 H110022.0 H110024.4
Others 0.6 0.7 H110021.4 H110026.0 H110023.0 H110023.5 H110022.4
Private creditors 35.5 19.5 19.9 0.6 25.4 63.1 62.3
Net M-L term debt flows 29.8 17.9 11.6 5.9 20.5 30.9 33.4
Bonds 16.0 8.2 5.3 1.6 4.0 9.6 30.2
Banks 14.7 10.4 7.9 6.6 18.1 23.3 5.0
Others H110020.9 H110020.8 H110021.6 H110022.2 H110021.6 H110022.0 H110021.7
Net short-term debt flows 5.7 1.6 8.3 H110025.4 4.9 32.2 28.8
Balancing item* H1100242.2 H1100240.5 H1100247.7 H1100240.8 H1100223.0 H1100229.6 H1100239.2
Change in reserves (H11002H11005increase) H110025.1 H110026.4 H1100218.2 H1100211.1 H1100243.7 H1100260.9 H1100267.6
Memo items:
Bilateral aid grants 5.4 8.2 8.6 7.1 8.6 8.7 9.0
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 65.6 49.9 50.4 32.4 60.4 99.3 103.4
Net official flows (aid H11001 debt) 12.9 7.7 8.6 9.3 11.2 2.4 2.7
Workers’ remittances 12.8 10.7 11.0 11.4 11.5 12.9 12.9
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
141
Table A.24 External financing,Latin America and the Caribbean,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance H1100289.5 H1100255.5 H1100246.9 H1100253.4 H1100215.8 7.9 28.2
as % GDP H110024.5 H110023.1 H110022.4 H110022.8 H110021.0 0.5 1.5
Financed by:
Net equity flows 71.8 84.5 78.4 72.7 47.2 39.9 40.9
Net FDI inflows 74.0 88.2 78.9 70.2 45.7 36.5 42.4
Net portfolio equity inflows H110022.2 H110023.6 H110020.6 2.5 1.4 3.4 H110021.5
Net debt flows 37.3 12.1 H110028.4 5.4 H110028.5 3.3 2.5
Official creditors 10.9 1.6 H1100211.1 20.4 13.0 4.9 H1100210.3
World Bank 2.4 2.1 2.0 1.3 H110020.3 H110020.4 H110021.9
IMF 2.5 H110020.9 H1100210.7 15.6 11.9 5.6 H110024.6
Others 6.0 0.3 H110022.4 3.5 1.4 H110020.2 H110023.8
Private creditors 26.4 10.5 2.8 H1100215.0 H1100221.5 H110021.6 12.8
Net M-L term debt flows 54.7 18.8 4.3 H110021.5 H1100211.5 1.2 9.7
Bonds 17.3 19.3 5.3 2.8 H110020.2 12.9 17.7
Banks 39.1 H110021.4 H110020.2 H110022.6 H110029.7 H1100210.8 H110027.8
Others H110021.7 0.9 H110020.8 H110021.6 H110021.6 H110020.9 H110020.2
Net short-term debt flows H1100228.3 H110028.3 H110021.6 H1100213.6 H1100210.0 H110022.8 3.1
Balancing item* H1100228.8 H1100248.6 H1100220.2 H1100221.8 H1100222.0 H1100217.9 H1100249.8
Change in reserves (H11002H11005increase) 9.2 7.4 H110022.9 H110022.9 H110020.8 H1100233.2 H1100221.8
Memo items:
Bilateral aid grants 3.2 2.9 2.5 3.2 2.8 3.1 3.2
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 98.3 95.0 81.1 57.7 25.6 38.3 53.6
Net official flows (aid H11001 debt) 14.1 4.5 H110028.7 23.6 15.7 7.9 H110027.1
Workers’ remittances 15.9 17.7 20.2 24.2 28.1 34.4 36.9
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
142
Table A.25 External financing,Middle East and North Africa,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance H1100211.6 4.2 24.1 17.3 15.6 25.7 41.7
as % GDP H110023.5 1.3 6.7 4.5 4.2 6.1 9.3
Financed by:
Net equity flows 3.4 4.4 4.5 5.6 3.6 4.9 4.3
Net FDI inflows 3.1 3.7 4.3 5.7 3.8 4.8 4.1
Net portfolio equity inflows 0.2 0.6 0.2 H110020.1 H110020.2 0.1 0.2
Net debt flows 3.6 H110023.0 H110024.5 0.1 2.1 H110020.7 H110020.1
Official creditors H110021.6 H110022.5 H110022.8 H110021.2 H110022.6 H110022.5 H110022.6
World Bank H110020.2 0.2 H110020.3 H110020.1 H110020.3 H110020.3 H110020.6
IMF 0.0 0.0 H110020.2 H110020.1 H110020.3 H110020.6 H110020.4
Others H110021.3 H110022.7 H110022.3 H110021.0 H110022.0 H110021.6 H110021.6
Private creditors 5.2 H110020.5 H110021.8 1.3 4.61.82.6
Net M-L term debt flows 1.8 H110021.5 0.8 3.8 4.5 0.0 2.4
Bonds 1.3 1.4 1.2 4.4 5.0 0.7 1.5
Banks 2.0 H110021.6 0.5 H110020.1 H110020.3 H110021.1 0.9
Others H110021.5 H110021.2 H110020.9 H110020.4 H110020.2 0.4 0.0
Net short-term debt flows 3.3 1.0 H110022.5 H110022.5 0.1 1.8 0.2
Balancing item* 3.0 H110026.8 H1100219.3 H1100213.5 H110029.2 H110027.9 H1100233.7
Change in reserves (H11002H11005increase) 1.7 1.2 H110024.8 H110029.5 H1100212.0 H1100222.0 H1100212.2
Memo items:
Bilateral aid grants 3.5 2.7 3.1 2.2 2.4 3.6 4.0
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 8.5 3.9 2.8 6.9 8.2 6.7 6.8
Net official flows (aid H11001 debt) 1.9 0.2 0.3 1.1 H110020.1 1.1 1.3
Workers’ remittances 12.5 12.2 12.3 14.4 14.8 16.1 17.0
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
143
Table A.26 External financing,South Asia,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance H110029.4 H110025.2 H110025.8 1.2 10.1 11.6 H110020.7
as % GDP H110021.8 H110020.9 H110021.0 0.2 1.6 1.6 H110020.1
Financed by:
Net equity flows 2.9 5.5 5.8 7.2 5.9 13.4 14.0
Net FDI inflows 3.5 3.1 3.3 4.4 4.8 5.2 6.5
Net portfolio equity inflows H110020.6 2.4 2.5 2.8 1.1 8.2 7.5
Net debt flows 4.7 0.5 3.5 H110020.9 0.4 H110024.0 4.4
Official creditors 2.3 2.5 0.5 2.2 H110022.4 H110021.8 1.6
World Bank 0.8 1.0 0.7 1.5 H110021.0 H110020.4 1.1
IMF H110020.4 H110020.1 H110020.3 0.3 0.1 H110020.1 H110020.2
Others 2.0 1.6 0.0 0.4 H110021.4 H110021.3 0.7
Private creditors 2.4 H110022.0 3.0 H110023.1 2.9 H110022.2 2.8
Net M-L term debt flows 3.7 H110022.1 3.9 H110022.0 0.6 H110022.2 3.0
Bonds 4.2 H110021.2 5.4 H110020.2 H110020.5 H110023.1 3.2
Banks 0.7 H110020.5 H110022.0 H110021.4 1.2 0.8 H110020.3
Others H110021.1 H110020.4 0.5 H110020.3 H110020.1 0.1 0.1
Net short-term debt flows H110021.3 0.1 H110020.9 H110021.1 2.3 0.0 H110020.2
Balancing item* 4.8 4.1 1.3 2.7 10.5 14.0 9.2
Change in reserves (H11002 H11005 increase) H110023.0 H110025.0 H110024.7 H1100210.2 H1100227.0 H1100235.0 H1100226.9
Memo items:
Bilateral aid grants 2.1 2.3 2.1 3.2 2.5 3.9 4.3
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 5.3 3.5 8.8 4.1 8.7 11.2 16.7
Net official flows (aid H11001 debt) 4.5 4.8 2.6 5.3 0.1 2.2 5.9
Workers’ remittances 13.4 15.1 16.0 16.0 22.2 26.8 32.7
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
144
Table A.27 External financing,Sub-Saharan Africa,1998–2004
$ billions
1998 1999 2000 2001 2002 2003 2004e
Current account balance H1100216.9 H110029.3 3.2 H110025.1 H110023.1 H110024.5 2.6
as % GDP H110025.0 H110022.1 1.2 H110020.8 H110020.3 H110020.8 0.6
Financed by:
Net equity flows 15.6 18.1 10.5 13.9 8.6 10.8 14.8
Net FDI inflows 7.0 9.1 6.3 14.9 9.0 10.1 11.3
Net portfolio equity inflows 8.7 9.0 4.2 H110021.0 H110020.4 0.7 3.5
Net debt flows H110021.3 H110021.0 H110020.5 H110021.7 H110020.3 2.7 3.6
Official creditors 0.5 0.3 0.7 0.3 2.5 1.3 1.4
World Bank 1.3 1.1 1.5 1.8 2.2 2.2 1.8
IMF H110020.3 0.0 0.1 0.1 0.5 H110020.1 0.0
Others H110020.5 H110020.8 H110020.9 H110021.7 H110020.1 H110020.9 H110020.4
Private creditors H110021.8 H110021.3 H110021.2 H110022.0 H110022.8 1.5 2.2
Net M-L term debt flows H110021.3 H110020.7 H110020.1 0.1 H110021.0 2.4 0.7
Bonds 0.3 1.2 1.0 1.9 2.7 4.6 H110021.6
Banks H110021.3 H110021.7 H110020.7 H110021.5 H110023.0 H110021.4 2.6
Others H110020.2 H110020.2 H110020.5 H110020.3 H110020.8 H110020.8 H110020.3
Net short-term debt flows H110020.5 H110020.6 H110021.0 H110022.0 H110021.8 H110020.9 1.6
Balancing item* 1.1 H110026.5 H110027.0 H110026.8 H110024.9 H110024.8 H110021.6
Change in reserves (H11002 H11005 increase) 1.5 H110021.4 H110026.1 H110020.3 H110020.3 H110024.2 H1100219.4
Memo items:
Bilateral aid grants 10.1 9.9 10.0 10.0 13.6 21.6 24.2
(ex technical cooperation grants)
Net private flows (debt H11001 equity) 13.8 16.8 9.3 12.0 5.8 12.3 17.1
Net official flows (aid H11001 debt) 10.6 10.2 10.6 10.3 16.1 22.9 25.6
Workers’ remittances 4.3 4.7 4.9 4.9 5.2 6.0 6.1
Note,e H11005 estimate.
*Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries.
STATISTICAL APPENDIX
145
Table A.28 Net inward foreign direct investment,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 128.6 168.1 171.5 182.4 166.2 174.8 154.0 151.8 165.5
East Asia and Pacific 58.6 62.1 57.7 49.9 44.2 48.2 55.6 59.6 63.6
China 40.2 44.2 43.8 38.8 38.4 44.2 49.3 53.5 56.0
Indonesia 6.2 4.7 H110020.4 H110022.7 H110024.6 H110023.3 H110021.5 H110020.6 0.5
Malaysia 5.1 5.1 2.2 3.9 3.8 0.6 3.2 2.5 2.8
Philippines 1.5 1.2 2.3 1.7 1.3 1.0 1.8 0.3 0.1
Thailand 2.3 3.9 7.3 6.1 3.4 3.9 1.0 2.0 1.7
Vietnam 2.4 2.2 1.7 1.4 1.3 1.3 1.4 1.5 1.8
East Europe and Central Asia 16.4 22.6 26.1 28.4 29.2 31.4 35.0 35.6 37.6
Bulgaria 0.1 0.5 0.5 0.8 1.0 0.8 0.9 1.4 1.6
Czech Republic 1.4 1.3 3.7 6.3 5.0 5.6 8.5 2.5 3.8
Hungary 2.4 2.2 2.1 2.0 1.7 2.6 2.9 2.5 2.9
Poland 4.5 4.9 6.4 7.3 9.3 5.7 4.1 4.1 4.7
Russian Federation 2.6 4.9 2.8 3.3 2.7 2.5 3.5 8.0 7.8
Turkey 0.7 0.8 0.9 0.8 1.0 3.3 1.0 1.6 2.4
Latin America and Caribbean 44.2 66.7 74.0 88.2 78.9 70.2 45.7 36.5 42.4
Argentina 7.0 9.2 7.3 24.0 10.4 2.2 1.1 1.0 0.6
Brazil 11.2 19.7 31.9 28.6 32.8 22.5 16.6 10.1 15.3
Chile 4.8 5.3 4.6 8.8 4.9 4.2 1.9 3.0 5.6
Mexico 9.2 12.8 12.4 13.2 16.6 26.8 14.8 10.8 14.1
Venezuela,R,B,de 2.2 6.2 5.0 2.9 4.7 3.7 0.8 2.5 0.7
Middle East and North Africa 1.7 3.2 3.1 3.7 4.3 5.7 3.8 4.8 4.1
Algeria 0.3 0.3 0.5 0.5 0.4 1.2 1.1 0.6 0.9
Egypt,Arab Rep,of 0.6 0.9 1.1 1.1 1.2 0.5 0.7 0.2 0.6
Morocco 0.3 1.2 0.4 1.4 0.4 2.8 0.5 2.3 1.6
Tunisia 0.2 0.3 0.7 0.4 0.8 0.5 0.8 0.5 0.4
South Asia 3.5 4.9 3.5 3.1 3.3 4.4 4.8 5.2 6.5
India 2.4 3.6 2.6 2.2 2.5 3.8 3.7 4.3 5.3
Pakistan 0.9 0.7 0.5 0.5 0.3 0.4 0.8 0.5 0.9
Sub-Saharan Africa 4.2 8.4 7.0 9.1 6.3 14.9 9.0 10.1 11.3
Angola 0.2 0.4 1.1 2.5 0.9 2.2 1.7 1.4 1.6
Nigeria 1.6 1.5 1.1 1.0 0.9 1.1 1.3 1.2 1.4
South Africa 0.8 3.8 0.6 1.5 1.0 7.3 0.7 0.8 1.1
Note,e H11005 estimate.
STATISTICAL APPENDIX
146
Table A.29 Net inward portfolio equity flows,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 32.9 22.6 6.6 12.7 12.4 6.0 5.8 24.8 26.8
East Asia and the Pacific 9.7 H110023.9 H110023.4 2.3 4.8 1.4 4.0 11.8 13.6
China 1.9 5.7 0.8 0.6 6.9 0.8 2.2 7.7 10.5
Indonesia 1.8 H110025.0 H110024.4 H110020.8 H110021.0 0.4 0.9 1.1 1.1
Malaysia 2.7 H110028.0 H110020.4 0.1 H110021.8 H110020.7 H110020.1 1.3 1.7
Philippines 2.1 H110020.4 0.3 1.4 H110020.2 0.4 0.4 0.5 0.5
Thailand 1.2 3.9 0.3 0.9 0.9 0.4 0.5 1.2 H110020.2
Europe and Central Asia 4.3 4.0 4.0 2.0 1.3 0.4 H110020.1 0.6 3.6
Czech Republic 0.6 0.4 1.1 0.1 0.6 0.6 H110020.3 1.1 0.8
Hungary 0.4 1.0 0.6 1.2 H110020.4 0.1 H110020.1 0.3 0.8
Poland 0.7 0.6 1.7 0.0 0.4 H110020.3 H110020.5 H110020.8 0.8
Russian Federation 2.2 1.3 0.7 H110020.3 0.2 0.5 2.6 0.4 1.0
Turkey 0.2 0.0 H110020.5 0.4 0.5 H110020.1 0.0 1.0 1.0
Latin America and the Caribbean 12.2 13.3 H110022.2 H110023.6 H110020.6 2.5 1.4 3.4 H110021.5
Argentina 1.0 1.4 H110020.2 H1100210.8 H110023.2 0.0 H110020.1 0.1 0.0
Brazil 5.8 5.1 H110021.8 2.6 3.1 2.5 2.0 3.0 0.9
Chile 0.7 1.7 0.6 0.5 H110020.4 H110020.2 H110020.3 0.3 H110020.1
Mexico 2.8 3.2 H110020.7 3.8 0.4 0.2 H110020.1 H110020.1 H110022.3
Venezuela,R,B,de 1.3 1.4 0.2 0.4 H110020.6 0.0 0.0 0.1 H110020.2
Middle East and North Africa 0.2 0.7 0.2 0.6 0.2 H110020.1 H110020.2 0.1 0.2
Egypt,Arab Rep,of 0.0 0.5 H110020.2 0.7 0.3 0.0 H110020.2 0.0 0.1
South Asia 4.1 2.9 H110020.6 2.4 2.5 2.8 1.1 8.2 7.5
India 4.0 2.6 H110020.6 2.3 2.5 3.0 1.1 8.2 7.5
Sub-Saharan Africa 2.4 5.6 8.7 9.0 4.2 H110021.0 H110020.4 0.7 3.5
South Africa 2.3 5.5 8.6 9.0 4.2 H110021.0 H110020.4 0.7 3.5
Note,e H11005 estimate.
STATISTICAL APPENDIX
147
Table A.30 Net inward debt flows to developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 123.7 106.9 54.9 15.4 H115466.2 H115463.5 8.5 60.0 83.7
East Asia and Pacific 52.2 44.9 H1100232.5 H1100212.2 H1100216.2 H110029.1 H1100213.2 1.7 17.2
China 13.9 18.5 H1100214.2 H110021.6 H110025.2 0.0 0.6 13.5 —
Indonesia 12.3 10.1 H110024.6 H110023.8 H110020.7 H110026.0 H110027.5 H110025.5 —
Malaysia 6.4 8.4 H110023.6 H110020.7 0.4 4.7 4.0 H110021.2 —
Philippines 4.5 7.6 H110023.1 3.1 2.3 1.7 H110020.9 0.6 —
Thailand 13.9 H110021.3 H110027.9 H110029.4 H1100213.7 H1100210.0 H110029.9 H110027.6 —
Eastern Europe and Central Asia 24.1 35.3 43.0 18.9 19.9 2.7 28.0 56.9 56.0
Bulgaria 0.2 1.0 0.2 0.3 0.5 H110020.2 0.6 1.0 —
Czech Republic 4.1 3.2 1.4 H110020.2 H110021.7 H110020.5 1.0 3.5 —
Hungary H110022.0 H110021.4 2.7 2.0 0.4 1.7 0.5 4.4 —
Poland 1.0 3.8 5.1 4.8 0.8 2.5 1.2 7.0 —
Russian Federation 7.3 7.6 21.9 H110024.2 H110022.8 H110023.9 H110022.6 12.8 —
Turkey 3.1 4.2 5.5 10.9 18.2 H110024.5 13.2 4.9 —
Latin America and Caribbean 40.8 25.2 37.3 12.1 H110028.4 5.4 H110028.5 3.3 2.5
Argentina 14.1 17.1 11.7 6.3 4.3 H110025.7 H110021.8 H110020.1 —
Brazil 19.2 H110021.3 6.7 H110025.6 H110024.0 5.2 H110021.2 H110020.5 —
Chile 5.6 1.8 4.0 1.7 2.9 0.5 1.6 2.1 —
Colombia 4.4 3.6 0.8 1.3 H110020.2 2.8 H110020.9 H110020.9 —
Mexico H110024.9 H110024.9 9.0 6.9 H1100216.4 H110023.2 H110028.7 H110022.2 —
Venezuela,R,B,de H110020.2 2.6 1.7 0.2 0.9 H110021.1 H110023.2 0.1 —
Middle East and North Africa 0.7 H110023.5 3.6 H110023.0 H110024.5 0.1 2.1 H110020.7 H110020.1
Algeria 1.6 H110020.4 H110021.6 H110021.9 H110021.6 H110022.0 H110021.4 H110021.4 —
Egypt,Arab Rep,of H110020.5 0.6 1.1 H110020.6 H110020.7 0.1 H110020.7 H110021.1 —
Lebanon 1.1 1.1 1.7 1.5 1.8 2.7 4.4 1.2 —
South Asia 2.7 0.7 4.7 0.5 3.5 H110020.9 0.4 H110024.0 4.4
India 0.7 H110021.6 3.0 H110021.1 3.4 H110021.9 H110021.0 H110024.5 —
Pakistan 1.1 1.6 0.7 0.7 H110020.3 0.3 0.6 H110020.9 —
Sub-Saharan Africa 3.2 4.4 H110021.3 H110021.0 H110020.5 H110021.7 H110020.3 2.7 3.6
South Africa 0.7 H110020.4 H110020.3 H110020.7 1.2 H110020.8 H110020.5 2.7 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
148
Table A.31 Net inward short-term debt flows to developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 37.4 9.2 H1154664.5 H1154620.1 H115467.9 H1154623.9 2.8 49.0 53.6
East Asia and Pacific 19.6 4.7 H1100243.3 H1100213.9 H1100210.1 0.7 7.3 18.7 20.1
China 3.1 6.1 H1100214.1 H110022.2 H110022.1 1.8 6.3 18.4 —
Indonesia 6.3 0.6 H110029.7 H110021.6 1.5 H110021.0 0.2 H110020.9 —
Malaysia 3.8 3.9 H110026.5 H110022.5 H110021.4 1.7 2.1 0.5 —
Philippines 2.7 3.8 H110024.6 H110021.4 0.2 0.1 H110020.4 0.6 —
Thailand 3.6 H110029.9 H110028.2 H110026.2 H110028.5 H110021.7 H110021.3 H110021.0 —
Eastern Europe and Central Asia 7.8 10.9 5.7 1.6 8.3 H110025.4 4.9 32.2 28.8
Bulgaria 0.6 0.8 H110020.2 H110020.3 0.2 H110020.2 0.6 0.6 —
Czech Republic 0.7 2.4 H110020.5 1.1 0.2 0.6 H110020.3 1.6 —
Hungary 0.2 0.0 1.4 H110021.2 0.6 0.5 1.0 2.5 —
Poland 0.6 2.5 3.3 2.8 H110021.7 1.5 0.4 4.8 —
Russian Federation 0.3 H110021.4 H110020.5 H110021.0 2.0 2.5 H110021.6 9.6 —
Turkey 1.6 0.6 3.2 2.3 5.4 H1100212.6 0.1 4.4 —
Latin America and Caribbean 4.6 H110027.8 H1100228.3 H110028.3 H110021.6 H1100213.6 H1100210.0 H110022.8 3.1
Argentina 2.1 8.5 H110021.0 H110021.5 H110021.1 H110028.3 H110020.4 0.7 —
Brazil 4.3 H1100216.0 H1100224.0 0.7 1.8 H110022.5 H110024.9 H110023.8 —
Chile 3.6 H110021.5 H110020.4 H110020.8 1.9 H110020.9 0.5 1.7 —
Colombia 0.3 H110020.1 0.5 H110022.3 H110021.1 0.4 0.4 H110020.1 —
Mexico H110027.5 H110022.0 H110021.5 H110022.3 H110025.1 H110024.4 H110024.7 H110020.7 —
Venezuela,R,B,de H110020.2 1.5 H110022.0 H110020.1 2.0 0.7 H110020.2 H110020.2 —
Middle East and North Africa 1.9 0.0 3.3 1.0 H110022.5 H110022.5 0.1 1.8 0.2
Algeria 0.1 H110020.2 0.0 0.0 0.0 0.0 H110020.1 0.0 —
Egypt,Arab Rep,of 0.0 0.6 1.3 0.0 H110020.2 H110020.7 0.1 0.3 —
Lebanon 0.3 0.1 0.2 0.2 0.3 0.1 H110020.1 0.6 —
South Asia 1.2 H110022.1 H110021.3 0.1 H110020.9 H110021.1 2.3 0.0 H110020.2
India 1.7 H110021.7 H110020.7 H110020.4 H110020.5 H110020.7 1.8 0.2 —
Pakistan H110020.4 H110020.3 H110020.5 H110020.1 H110020.3 H110020.2 0.2 H110020.3 —
Sub-Saharan Africa 2.4 3.5 H110020.5 H110020.6 H110021.0 H110022.0 H110021.8 H110020.9 1.6
South Africa 1.2 0.1 0.5 H110020.6 0.3 H110021.2 H110021.0 0.0 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
149
Table A.32 Net inward debt flows to public sector and publicly guaranteed borrowers,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 39.1 42.0 68.5 30.3 5.0 18.9 4.5 H1154617.0 22.3
East Asia and Pacific 12.8 29.0 18.8 11.2 4.7 H110020.8 H1100211.8 H1100212.7 H110021.5
China 10.7 11.1 2.5 1.6 H110021.1 0.0 H110025.3 H110025.9 —
Indonesia H110020.6 3.6 9.0 2.0 0.9 H110022.2 H110023.1 H110020.9 —
Malaysia 0.3 1.7 0.5 0.9 1.4 3.1 2.1 H110022.0 —
Philippines 0.3 1.8 1.3 4.6 3.1 0.2 0.5 0.7 —
Thailand 1.3 9.4 4.6 1.9 H110020.2 H110022.7 H110026.2 H110025.6 —
Eastern Europe and Central Asia 11.8 15.5 21.8 7.0 5.2 H110021.5 3.3 H110025.9 8.5
Bulgaria H110020.4 0.2 0.3 0.4 0.2 H110020.1 H110020.3 0.0 —
Czech Republic 2.8 0.9 1.0 H110021.0 H110021.0 H110020.9 0.1 0.5 —
Hungary H110023.1 H110021.8 H110020.4 1.5 H110021.4 H110020.8 H110020.8 H110021.4 —
Poland 0.2 0.5 H110020.1 H110020.3 H110021.4 H110023.3 0.1 1.7 —
Russian Federation 7.0 7.1 16.2 H110023.5 H110023.9 H110027.0 H110024.1 H110027.1 —
Turkey 0.5 2.5 H110021.0 4.6 11.39.27.5H110021.3 —
Latin America and Caribbean 13.7 H110022.0 24.6 11.7 H110026.6 18.6 9.6 8.5 14.5
Argentina 10.1 4.9 8.3 8.7 6.4 6.6 H110021.4 H110020.9 —
Brazil 2.7 H110020.3 12.1 0.8 H110026.5 9.4 10.8 3.7 —
Chile H110022.0 H110020.3 0.6 0.6 H110020.4 0.4 1.1 1.1 —
Colombia 1.4 1.1 1.0 3.4 0.9 2.5 H110021.3 1.4 —
Mexico 0.6 H110029.9 0.7 H110023.7 H110029.8 H110023.3 H110022.4 H110021.5 —
Venezuela,R,B,de 0.2 0.4 0.2 H110020.6 H110020.5 H110021.7 H110022.6 0.3 —
Middle East and North Africa H110021.4 H110024.1 H110021.9 H110022.9 H110022.6 2.3 2.2 H110022.6 H110021.7
Algeria 1.5 H110020.3 H110021.6 H110022.0 H110021.6 H110021.9 H110021.4 H110021.9 —
Egypt,Arab Rep,of H110020.2 H110020.1 H110020.5 H110020.7 H110020.6 0.8 H110020.8 H110021.1 —
Lebanon 0.4 0.5 1.7 1.4 1.4 2.5 4.7 0.6 —
South Asia 0.5 0.8 5.5 1.4 4.5 0.5 H110021.7 H110025.7 2.8
India H110021.5 H110021.5 3.6 H110020.1 3.8 H110021.2 H110022.7 H110026.7 —
Pakistan 1.1 1.6 0.9 1.2 0.3 0.9 0.4 H110020.3 —
Sub-Saharan Africa 1.6 2.8 H110020.4 1.8 H110020.2 H110020.1 2.8 1.5 H110020.3
South Africa 0.6 1.1 H110021.0 1.6 0.0 H110020.4 1.4 0.0 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
150
Table A.33 Net inward debt flows to private sector borrowers,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 84.6 65.0 H1154613.6 H1154614.9 H1154611.2 H1154622.3 3.9 76.9 61.4
East Asia and Pacific 39.3 15.9 H1100251.3 H1100223.4 H1100220.9 H110028.3 H110021.5 14.4 18.7
China 3.2 7.4 H1100216.7 H110023.2 H110024.1 H110020.1 5.9 19.4 —
Indonesia 12.9 6.5 H1100213.6 H110025.8 H110021.6 H110023.8 H110024.4 H110024.6 —
Malaysia 6.1 6.7 H110024.0 H110021.6 H110021.0 1.6 1.9 0.8 —
Philippines 4.2 5.8 H110024.3 H110021.4 H110020.8 1.5 H110021.5 H110020.1 —
Thailand 12.6 H1100210.7 H1100212.5 H1100211.3 H1100213.5 H110027.3 H110023.7 H110022.1 —
Eastern Europe and Central Asia 12.3 19.8 21.1 11.9 14.7 4.2 24.7 62.8 47.5
Bulgaria 0.6 0.8 H110020.1 H110020.1 0.3 H110020.1 0.9 1.0 —
Czech Republic 1.3 2.3 0.4 0.8 H110020.6 0.4 1.6 3.0 —
Hungary 1.1 0.5 3.1 0.5 1.8 2.5 1.3 5.8 —
Poland 0.8 3.3 5.2 5.1 2.2 5.8 1.0 5.3 —
Russian Federation 0.3 0.5 2.4 H110020.7 1.1 3.1 1.5 20.0 —
Turkey 2.7 1.8 6.5 6.3 6.8 H1100213.7 5.7 4.7 —
Latin America and Caribbean 27.1 27.2 12.7 0.4 H110021.8 H1100213.2 H1100218.1 H110025.2 H1100212.0
Argentina 3.9 12.3 3.4 H110022.4 H110022.1 H1100212.3 H110020.5 0.8 —
Brazil 16.5 H110021.0 H110025.3 H110026.4 2.4 H110024.2 H1100211.9 H110024.2 —
Chile 7.6 2.1 3.5 1.1 3.3 0.1 0.5 1.0 —
Colombia 3.0 2.5 H110020.2 H110022.1 H110021.1 0.3 0.4 H110022.4 —
Mexico H110025.5 5.0 8.3 10.5 H110026.6 0.1 H110026.2 H110020.7 —
Venezuela,R,B,de H110020.4 2.2 1.5 0.7 1.4 0.6 H110020.6 H110020.2 —
Middle East and North Africa 2.1 0.6 5.5 H110020.1 H110021.9 H110022.1 H110020.2 1.9 1.7
Algeria 0.1 H110020.2 0.0 0.0 0.0 0.0 H110020.1 0.5 —
Egypt,Arab Rep,of H110020.2 0.6 1.5 0.1 H110020.1 H110020.7 0.1 0.0 —
Lebanon 0.7 0.6 0.1 0.1 0.4 0.2 H110020.2 0.6 —
South Asia 2.1 H110020.1 H110020.8 H110020.9 H110021.1 H110021.4 2.1 1.8 1.5
India 2.2 H110020.1 H110020.5 H110021.0 H110020.4 H110020.7 1.7 2.3 —
Pakistan 0.0 0.0 H110020.2 H110020.5 H110020.6 H110020.5 0.1 H110020.6 —
Sub-Saharan Africa 1.6 1.6 H110020.9 H110022.7 H110020.3 H110021.6 H110023.1 1.2 3.9
South Africa 0.1 H110021.5 0.7 H110022.3 1.3 H110020.4 H110021.9 2.6 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
151
Table A.34 Net inward debt flows from public sector creditors,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 3.8 12.9 34.4 13.9 H115465.8 27.0 5.2 H1154611.9 H1154625.3
East Asia and Pacific 3.6 17.3 14.7 12.6 7.0 3.2 H110027.9 H110027.5 H110029.2
China 4.4 4.3 2.3 3.4 1.5 2.2 H110021.2 H110023.1 —
Indonesia H110020.8 3.6 8.5 4.8 2.9 H110020.8 H110021.4 H110020.3 —
Malaysia H110020.8 H110020.2 0.2 0.6 0.6 2.1 H110020.2 H110020.1 —
Philippines H110020.3 0.6 0.7 0.2 0.3 H110020.3 H110020.4 H110020.6 —
Thailand 0.4 8.4 1.8 2.5 0.3 H110021.5 H110025.5 H110024.6 —
Eastern Europe and Central Asia 8.6 6.6 7.5 H110020.6 0.0 2.2 2.6 H110026.2 H110026.2
Bulgaria H110020.1 0.3 0.4 0.3 0.2 H110020.3 H110020.3 0.1 —
Czech Republic 0.1 H110020.1 0.0 0.0 0.1 0.2 0.0 0.2 —
Hungary H110020.9 H110020.1 H110021.1 0.2 H110020.2 H110020.2 0.0 H110020.5 —
Poland 0.2 H110020.1 H110020.5 H110020.4 H110020.5 H110024.1 H110021.1 H110021.7 —
Russian Federation 6.8 4.2 6.3 H110023.0 H110023.3 H110024.8 H110023.3 H110024.2 —
Turkey H110020.8 H110020.2 H110020.4 H110020.1 4.4 10.4 6.7 H110021.3 —
Latin America and Caribbean H1100210.7 H110028.6 10.9 1.6 H1100211.1 20.4 13.0 4.9 H1100210.3
Argentina 0.4 H110020.1 1.0 H110020.1 0.9 10.3 H110021.4 H110020.9 —
Brazil H110020.8 H110021.2 9.5 4.5 H110028.5 9.5 12.1 3.0 —
Chile H110020.6 H110020.4 H110020.1 H110020.1 H110020.1 H110020.1 H110020.3 H110020.1 —
Colombia H110020.1 H110020.5 0.2 1.0 0.1 1.1 0.0 2.1 —
Mexico H110029.6 H110028.0 H110021.9 H110025.4 H110024.8 H110020.7 0.2 H110020.3 —
Venezuela,R,B,de H110020.1 H110020.3 1.0 H110020.1 H110020.3 H110021.1 H110020.6 H110020.6 —
Middle East and North Africa H110020.8 H110024.0 H110021.6 H110022.5 H110022.8 H110021.2 H110022.6 H110022.5 H110022.6
Algeria 1.5 0.3 H110020.3 H110020.4 H110020.4 H110021.0 H110021.3 H110021.4 —
Egypt,Arab Rep,of 0.0 0.0 H110020.2 H110020.5 H110020.6 H110020.7 H110020.8 H110020.8 —
Lebanon 0.2 0.1 0.2 0.1 0.1 0.1 0.0 0.6 —
South Asia 1.0 0.3 2.3 2.5 0.5 2.2 H110022.4 H110021.8 1.6
India H110020.8 H110021.0 0.6 0.8 H110020.3 0.4 H110023.8 H110022.8 —
Pakistan 0.9 0.7 0.9 1.2 0.3 1.1 0.9 H110020.2 —
Sub-Saharan Africa 2.0 1.4 0.5 0.3 0.7 0.3 2.5 1.3 1.4
South Africa 0.0 H110020.4 H110020.4 0.0 0.1 0.0 0.0 0.1 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
152
Table A.35 Net inward debt flows from private sector creditors,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 119.9 94.0 20.5 1.5 H115460.4 H1154630.5 3.3 71.8 109.0
East Asia and Pacific 48.6 27.6 H1100247.1 H1100224.7 H1100223.2 H1100212.3 H110025.3 9.3 26.4
China 9.5 14.2 H1100216.5 H110025.0 H110026.8 H110022.2 1.8 16.6 —
Indonesia 13.1 6.5 H1100213.0 H110028.6 H110023.6 H110025.2 H110026.1 H110025.1 —
Malaysia 7.2 8.6 H110023.8 H110021.3 H110020.2 2.6 4.2 H110021.1 —
Philippines 4.9 7.0 H110023.7 2.9 1.9 2.0 H110020.5 1.2 —
Thailand 13.4 H110029.7 H110029.6 H1100211.9 H1100214.0 H110028.5 H110024.4 H110023.0 —
Eastern Europe and Central Asia 15.4 28.7 35.5 19.5 19.9 0.6 25.4 63.1 62.3
Bulgaria 0.3 0.7 H110020.2 H110020.1 0.2 0.1 0.9 0.9 —
Czech Republic 4.0 3.2 1.4 H110020.2 H110021.7 H110020.7 1.7 3.3 —
Hungary H110021.1 H110021.3 3.8 1.8 0.7 1.9 0.6 4.9 —
Poland 0.7 3.9 5.6 5.2 1.3 6.6 2.2 8.7 —
Russian Federation 0.5 3.4 12.3 H110021.2 0.5 0.9 0.8 17.0 —
Turkey 4.0 4.4 5.9 11.0 13.8 H1100214.9 6.5 4.7 —
Latin America and Caribbean 51.5 33.8 26.4 10.5 2.8 H1100215.0 H1100221.5 H110021.6 12.8
Argentina 13.7 17.3 10.7 6.4 3.4 H1100216.0 H110020.5 0.8 —
Brazil 20.1 H110020.1 H110022.7 H1100210.1 4.4 H110024.2 H1100213.2 H110023.5 —
Chile 6.2 2.2 4.1 1.8 3.0 0.6 1.9 2.2 —
Colombia 4.5 4.1 0.6 0.2 H110020.3 1.7 H110020.9 H110023.0 —
Mexico 4.8 3.1 10.8 12.2 H1100211.6 H110022.5 H110028.9 H110021.8 —
Venezuela,R,B,de 0.0 2.9 0.7 0.3 1.2 0.0 H110022.6 0.7 —
Middle East and North Africa 1.5 0.5 5.2 H110020.5 H110021.8 1.3 4.6 1.8 2.6
Algeria 0.1 H110020.7 H110021.3 H110021.5 H110021.2 H110021.0 H110020.1 0.0 —
Egypt,Arab Rep,of H110020.4 0.6 1.3 H110020.1 H110020.1 0.8 0.1 H110020.3 —
Lebanon 0.8 1.0 1.6 1.4 1.7 2.6 4.4 0.6 —
South Asia 1.6 0.4 2.4 H110022.0 3.0 H110023.1 2.9 H110022.2 2.8
India 1.5 H110020.6 2.5 H110021.9 3.6 H110022.3 2.9 H110021.7 —
Pakistan 0.1 0.9 H110020.2 H110020.6 H110020.7 H110020.7 H110020.3 H110020.7 —
Sub-Saharan Africa 1.2 3.0 H110021.8 H110021.3 H110021.2 H110022.0 H110022.8 1.5 2.2
South Africa 0.7 0.0 0.1 H110020.7 1.2 H110020.8 H110020.5 2.6 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
153
Table A.36 Gross market-based capital flows to developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004
All developing countries 196.1 264.5 176.9 160.0 213.5 151.6 146.5 206.5 269.4
East Asia and the Pacific 69.2 73.1 31.6 32.4 49.7 21.8 44.5 53.1 60.0
China 16.6 25.9 8.9 8.4 29.0 7.3 15.6 25.1 30.5
Indonesia 21.9 17.6 0.7 2.4 1.1 1.0 1.6 6.6 4.4
Malaysia 10.7 11.5 3.4 7.4 7.0 5.1 12.8 7.7 12.5
Philippines 6.0 9.2 11.7 11.9 8.5 5.8 10.1 8.9 8.1
Thailand 13.2 8.7 6.8 2.0 4.1 2.5 3.6 4.3 4.3
Europe and Central Asia 25.7 46.0 42.9 30.1 45.5 26.0 34.6 58.5 87.0
Hungary 3.5 3.3 3.8 3.4 2.1 2.7 1.8 6.5 9.3
Poland 0.8 4.3 3.6 4.5 3.8 5.4 6.4 10.2 6.8
Russian Federation 5.7 16.9 15.0 0.7 10.0 4.7 10.1 17.0 28.4
Turkey 8.6 9.9 9.7 12.9 22.4 6.9 7.4 10.2 15.7
Latin America and the Caribbean 75.7 105.4 74.8 67.0 85.5 71.1 44.3 63.3 77.7
Argentina 23.2 25.5 26.0 20.9 18.8 8.4 2.0 0.7 2.0
Brazil 13.7 32.7 18.1 15.0 28.7 24.9 15.0 19.1 22.4
Chile 3.7 6.5 3.8 7.2 7.3 3.9 2.3 2.7 5.8
Mexico 29.2 30.7 19.8 17.5 23.2 18.8 13.8 28.0 30.0
Middle East and North Africa 3.2 7.9 4.8 8.7 6.5 10.1 8.8 7.3 15.5
Egypt,Arab Rep,of 0.2 1.5 1.8 4.6 1.1 2.5 1.0 2.0 1.7
Lebanon 0.5 1.1 1.5 1.4 1.9 3.3 1.0 0.2 3.3
South Asia 10.3 12.4 4.9 4.1 4.3 3.2 2.5 7.0 17.5
India 7.4 10.5 3.8 3.7 3.9 2.7 2.1 5.2 15.9
Pakistan 2.9 1.7 0.9 0.0 0.0 0.2 0.4 1.5 1.4
Sub-Saharan Africa 7.5 9.3 7.9 9.2 13.9 11.9 8.6 13.7 11.1
South Africa 5.7 7.1 4.9 5.6 10.9 7.5 4.7 7.8 5.5
STATISTICAL APPENDIX
154
Table A.37 Gross international equity issuance by developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004
All developing countries 12.9 19.9 7.5 10.9 35.0 5.9 10.4 16.7 33.4
East Asia and the Pacific 6.5 11.6 4.3 5.7 21.6 3.4 7.0 12.0 19.0
China 3.3 10.1 1.4 3.6 21.1 2.9 5.5 8.9 16.6
Indonesia 1.3 0.8 0.0 0.8 0.0 0.3 0.2 0.9 0.5
Malaysia 0.6 0.4 0.2 0.1 0.2 0.0 1.2 0.6 0.7
Philippines 1.0 0.3 0.5 0.2 0.2 0.0 0.0 0.1 0.1
Thailand 0.2 0.0 2.3 0.8 0.0 0.2 0.1 1.5 1.0
Europe and Central Asia 1.3 1.7 2.2 1.0 3.3 0.3 1.6 1.2 5.2
Hungary 0.4 0.8 0.2 0.2 0.0 0.0 0.0 0.0 0.8
Poland 0.0 0.5 0.8 0.3 0.1 0.0 0.2 0.6 0.8
Russian Federation 0.8 0.1 0.0 0.1 0.5 0.2 1.3 0.5 2.6
Turkey 0.0 0.3 0.8 0.0 2.4 0.0 0.1 0.1 0.8
Latin America and the Caribbean 2.7 4.1 0.2 0.7 6.7 1.3 1.1 1.1 2.3
Argentina 0.4 0.5 0.0 0.3 0.2 0.0 0.0 0.0 0.1
Brazil 0.4 2.3 0.0 0.2 3.1 1.2 1.1 0.5 1.9
Chile 0.1 0.5 0.1 0.0 1.7 0.0 0.0 0.1 0.1
Mexico 0.7 0.8 0.0 0.2 1.6 0.0 0.0 0.5 0.2
Middle East and North Africa 0.4 0.4 0.4 0.3 0.3 0.0 0.0 0.0 1.0
Egypt,Arab Rep,of 0.2 0.3 0.1 0.3 0.3 0.0 0.0 0.0 0.1
South Asia 1.3 1.1 0.0 0.9 0.9 0.5 0.2 1.3 4.6
India 1.3 1.0 0.0 0.9 0.9 0.5 0.2 1.3 4.6
Sub-Saharan Africa 0.7 1.0 0.4 2.3 2.2 0.5 0.5 1.1 1.2
South Africa 0.6 1.0 0.4 0.8 2.0 0.5 0.4 1.1 1.1
STATISTICAL APPENDIX
155
Table A.38 Gross international bond issues in developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004
All developing countries 71.6 90.8 70.9 67.5 67.2 65.4 59.9 87.5 110.7
East Asia and the Pacific 17.3 15.8 10.1 12.9 6.7 8.1 16.1 13.4 19.6
China 3.9 5.0 1.9 1.4 1.3 2.6 0.9 3.4 6.4
Indonesia 2.8 1.6 0.0 0.0 0.0 0.1 0.8 1.5 1.7
Malaysia 2.5 2.4 0.1 2.6 1.4 2.4 6.0 1.5 4.1
Philippines 3.7 4.7 7.8 8.9 4.0 2.8 8.4 6.8 6.0
Thailand 4.4 2.1 0.3 0.0 0.0 0.3 0.0 0.3 1.4
Europe and Central Asia 6.2 15.2 21.8 12.9 19.5 10.3 15.1 26.4 39.2
Croatia 0.1 0.5 0.1 0.6 0.9 0.9 0.8 0.8 1.1
Hungary 0.3 0.4 1.7 2.3 0.5 1.2 0.0 2.3 5.1
Poland 0.2 1.4 1.1 1.6 1.4 2.5 2.7 4.7 3.9
Russian Federation 1.1 6.9 12.2 0.0 4.8 1.4 3.7 8.3 10.5
Turkey 2.9 3.9 3.2 5.7 8.7 2.2 3.6 5.5 6.4
Latin America and the Caribbean 45.0 54.3 36.5 38.0 37.2 39.5 23.9 41.6 40.4
Argentina 13.1 13.5 14.2 13.3 11.9 3.3 0.0 0.0 1.0
Brazil 10.0 15.5 6.4 7.8 11.4 12.8 7.4 14.9 11.5
Colombia 1.9 1.3 1.4 1.7 1.5 4.3 1.0 1.8 1.5
Mexico 17.8 15.2 8.3 8.8 8.5 8.2 7.4 14.1 15.7
Venezuela,R,B,de 0.5 4.5 3.3 1.4 0.5 1.7 0.0 3.7 4.3
Middle East and North Africa 0.9 2.0 1.5 1.9 2.4 5.3 2.7 1.0 4.6
Egypt,Arab Rep,of 0.0 0.0 0.0 0.1 0.0 1.5 0.0 0.0 0.0
Lebanon 0.5 1.1 1.5 1.4 1.9 3.3 1.0 0.2 3.3
Tunisia 0.1 0.5 0.0 0.2 0.5 0.5 0.7 0.4 0.5
South Asia 1.2 2.5 0.0 0.0 0.0 0.1 0.2 0.5 5.0
India 1.1 2.0 0.0 0.0 0.0 0.1 0.2 0.5 4.4
Pakistan 0.1 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.5
Sub-Saharan Africa 1.0 1.1 1.0 1.8 1.5 2.2 1.9 4.7 2.0
South Africa 1.0 1.1 1.0 1.8 1.5 1.5 1.5 3.4 2.0
STATISTICAL APPENDIX
156
Table A.39 Gross international bank lending to developing country borrower,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004
All developing countries 111.6 153.8 98.5 81.6 111.3 80.2 76.2 102.2 125.3
East Asia and the Pacific 45.4 45.7 17.2 13.8 21.4 10.2 21.4 27.7 21.4
China 9.4 10.8 5.5 3.4 6.6 1.9 9.3 12.8 7.5
Indonesia 17.8 15.3 0.7 1.6 1.0 0.5 0.5 4.2 2.1
Malaysia 7.6 8.7 3.2 4.7 5.4 2.7 5.6 5.7 7.6
Philippines 1.3 4.2 3.4 2.8 4.3 3.1 1.7 2.0 2.1
Thailand 8.7 6.5 4.3 1.2 4.1 2.0 3.5 2.5 1.9
Europe and Central Asia 18.2 29.1 18.9 16.2 22.8 15.4 17.9 30.9 42.7
Czech Republic 3.2 3.6 2.4 0.6 1.2 0.9 0.3 2.2 1.8
Hungary 2.8 2.1 1.9 0.9 1.5 1.5 1.8 4.2 3.3
Poland 0.6 2.5 1.6 2.6 2.3 2.9 3.5 4.9 2.2
Russian Federation 3.8 9.9 2.7 0.7 4.7 3.1 5.1 8.2 15.3
Turkey 5.7 5.7 5.7 7.1 11.3 4.7 3.8 4.7 8.5
Latin America and the Caribbean 28.1 47.0 38.1 28.4 41.6 30.3 19.3 20.6 35.1
Argentina 9.8 11.5 11.8 7.2 6.7 5.0 2.0 0.7 0.9
Brazil 3.3 14.9 11.7 7.1 14.2 10.8 6.5 3.8 8.9
Chile 3.6 6.0 3.7 7.2 5.6 3.9 2.3 2.6 5.7
Colombia 2.3 4.9 1.8 2.0 2.3 0.6 1.3 0.2 0.4
Mexico 10.6 14.7 11.5 8.6 13.2 10.6 6.4 13.4 14.2
Middle East and North Africa 1.9 5.5 2.9 6.5 3.8 4.8 6.1 6.3 10.0
Egypt,Arab Rep,of 0.0 1.2 1.6 4.2 0.8 1.0 1.0 2.0 1.5
Iran 0.6 0.5 0.5 0.7 1.0 1.0 3.0 2.2 5.7
South Asia 7.8 8.9 4.9 3.2 3.4 2.6 2.2 5.2 7.9
India 5.0 7.5 3.8 2.8 3.0 2.1 1.8 3.5 7.0
Pakistan 2.8 1.3 0.9 0.0 0.0 0.2 0.4 1.5 0.9
Sub-Saharan Africa 5.8 7.2 6.5 5.1 10.3 9.2 6.2 7.9 7.9
South Africa 4.1 5.1 3.5 3.1 7.4 5.5 2.8 3.3 2.5
STATISTICAL APPENDIX
157
Table A.40 Change in foreign exchange reserves,1996–2004
$ billions (H11002H11005increase)
Gross foreign
exchange
reserves
2003 1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 1,213.6 H1154684.6 H1154652.5 H1154616.3 H1154633.4 H1154646.8 H1154681.7 H11546171.7 H11546291.9 H11546378.2
East Asia and the Pacific 544.8 H1100245.2 H1100212.8 H1100220.7 H1100229.3 H1100210.1 H1100247.7 H1100287.9 H11002136.7 H11002230.3
China 403.3 H1100231.5 H1100234.9 H110025.1 H110029.7 H1100210.9 H1100246.6 H1100274.2 H11002116.8 H11002206.7
Indonesia 34.7 H110024.5 1.7 H110026.3 H110023.8 H110022.0 1.2 H110023.7 H110024.0 0.5
Malaysia 43.5 H110023.2 6.1 H110024.7 H110024.9 1.0 H110021.0 H110023.7 H1100210.2 H1100218.2
Philippines 13.3 H110023.7 2.8 H110022.0 H110024.0 0.2 H110020.4 0.3 H110020.3 0.8
Thailand 41.0 H110021.7 11.5 H110022.7 H110025.4 1.9 H110020.4 H110025.7 H110022.9 H110026.0
Europe and Central Asia 236.2 H110022.3 H110027.4 H110025.1 H110026.4 H1100218.2 H1100211.1 H1100243.7 H1100260.9 H1100267.6
Czech Republic 26.3 1.5 2.6 H110022.8 H110020.3 H110020.2 H110021.2 H110029.1 H110023.0 H110021.1
Hungary 12.0 2.3 1.3 H110020.9 H110021.5 H110020.2 0.6 0.6 H110022.3 H110022.6
Poland 31.7 H110023.1 H110022.6 H110026.9 1.1 H110020.2 1.2 H110022.8 H110023.8 H110023.3
Russian Federation 73.2 3.0 H110021.5 5.0 H110020.7 H1100215.8 H110028.3 H1100211.5 H1100229.1 H1100240.5
Turkey 33.8 H110024.0 H110022.2 H110020.8 H110023.7 0.9 3.6 H110028.2 H110026.9 H110022.1
Latin America and the Caribbean 189.7 H1100228.1 H1100213.5 9.2 7.4 H110022.9 H110022.9 H110020.8 H1100233.2 H1100221.8
Argentina 13.1 H110024.0 H110024.4 H110022.3 H110021.6 1.7 9.9 4.1 H110022.7 H110024.2
Brazil 49.1 H110028.6 7.5 8.2 7.8 2.3 H110023.2 H110021.7 H1100211.7 H110023.6
Chile 15.2 H110020.8 H110022.3 2.0 1.1 H110020.5 0.6 H110020.8 H110020.4 H110020.3
Mexico 57.7 H110023.9 H110029.0 H110023.3 0.5 H110024.2 H110029.2 H110025.5 H110027.8 H110025.0
Venezuela,R,B,de 15.5 H110025.4 H110022.9 2.4 H110020.1 H110020.9 3.8 0.8 H110027.5 H110022.1
Middle East and North Africa 89.1 H110025.6 H110026.0 1.7 1.2 H110024.8 H110029.5 H1100212.0 H1100222.0 H1100212.2
Algeria 32.9 H110022.2 H110023.8 1.2 2.4 H110027.5 H110026.1 H110025.1 H110029.8 H110028.4
Egypt,Arab Rep,of 13.4 H110021.2 H110021.3 0.6 3.6 1.4 0.0 H110020.3 H110020.2 0.0
Lebanon 12.5 H110021.4 0.0 H110020.6 H110021.2 1.8 0.9 H110022.2 H110025.3 0.3
South Asia 114.8 H110020.6 H110025.2 H110023.0 H110025.0 H110024.7 H1100210.2 H1100227.0 H1100235.0 H1100226.9
Bangladesh 2.6 0.5 0.2 H110020.3 0.3 0.1 0.2 H110020.4 H110020.9 H110020.5
India 97.6 H110022.3 H110024.6 H110022.6 H110025.0 H110025.3 H110028.0 H1100221.7 H1100230.6 H1100227.5
Pakistan 10.7 1.2 H110020.6 0.2 H110020.5 0.0 H110022.1 H110024.4 H110022.6 1.1
Sub-Saharan Africa 39.0 H110022.8 H110027.6 1.5 H110021.4 H110026.1 H110020.3 H110020.3 H110024.2 H1100219.4
Botswana 5.2 H110020.3 H110020.7 H110020.2 H110020.4 0.0 0.4 0.4 0.2 0.1
Nigeria 7.1 H110022.6 H110023.5 0.5 1.7 H110024.5 H110020.5 3.1 0.2 H110029.8
South Africa 6.2 1.9 H110023.8 0.6 H110021.9 0.3 0.0 0.2 H110020.6 H110026.1
Note,e H11005 estimate.
STATISTICAL APPENDIX
158
Table A.41 Total external debt of developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 2,045.0 2,109.7 2,322.9 2,346.6 2,282.6 2,260.5 2,336.5 2,554.1 2,597.1
East Asia and Pacific 494.0 526.3 533.2 538.6 500.7 502.0 498.2 525.5 536.5
China 128.8 146.7 144.0 152.1 145.7 170.1 168.3 193.6 —
Indonesia 128.9 136.2 151.2 151.2 144.4 134.0 131.8 134.4 —
Malaysia 39.7 47.2 42.4 41.9 41.9 44.6 48.8 49.1 —
Philippines 44.0 50.7 53.5 58.1 60.9 58.5 60.1 62.7 —
Thailand 112.8 109.7 104.9 96.8 79.7 67.2 59.5 51.8 —
Eastern Europe and Central Asia 368.3 391.2 490.3 503.5 510.8 507.8 560.2 676.0 728.5
Bulgaria 10.4 11.1 11.4 11.0 11.2 10.5 11.5 13.3 —
Czech Republic 20.1 23.1 24.2 22.8 21.5 22.7 27.6 34.6 —
Hungary 27.3 24.6 28.5 29.9 29.5 30.3 35.0 45.8 —
Poland 43.5 41.7 57.7 65.9 65.8 67.4 78.5 95.2 —
Russian Federation 126.4 127.6 177.9 174.8 160.0 152.5 147.4 175.3 —
Turkey 79.8 84.8 97.1 102.2 117.3 113.4 131.2 145.7 —
Latin America and Caribbean 638.5 670.4 752.2 771.8 755.1 749.2 746.2 779.6 773.5
Argentina 111.4 128.4 141.5 145.8 147.5 154.1 150.0 166.2 —
Brazil 181.3 198.0 241.0 244.0 239.2 226.8 228.6 235.4 —
Chile 27.5 27.0 33.7 34.8 37.3 38.6 41.2 43.2 —
Colombia 28.9 31.9 33.1 34.4 33.9 36.2 33.2 33.0 —
Mexico 156.3 147.6 159.0 166.5 150.3 145.7 140.2 140.0 —
Venezuela,R,B,de 34.5 35.7 37.8 37.6 38.2 36.0 34.0 34.9 —
Middle East and North Africa 163.2 151.3 160.9 155.8 144.6 142.1 150.2 158.8 155.5
Algeria 33.6 30.9 30.7 28.0 25.3 22.6 22.9 23.4 —
Egypt,Arab Rep,of 31.5 30.1 32.4 31.0 29.2 29.3 30.0 31.4 —
Lebanon 4.0 5.0 6.8 8.2 9.9 12.4 17.1 18.6 —
South Asia 149.6 149.6 157.6 162.0 160.0 156.2 170.2 182.8 184.7
India 93.5 94.3 97.6 98.3 99.1 97.5 106.3 113.5 —
Pakistan 29.8 30.1 32.3 33.9 32.8 31.7 33.7 36.3 —
Sub-Saharan Africa 231.3 220.8 228.6 215.0 211.3 203.2 211.4 231.4 218.4
South Africa 26.1 25.3 24.8 23.9 24.9 24.1 25.0 27.8 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
159
Table A.42 Total external medium- and long-term debt of developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 1,670.0 1,722.2 1,970.9 2,012.6 1,965.2 1,938.6 2,015.6 2,152.1 2,136.7
East Asia and Pacific 365.3 394.3 447.3 464.9 437.5 411.2 399.3 400.1 391.1
China 103.4 115.2 126.7 136.9 132.6 128.5 120.5 120.6 —
Indonesia 96.7 103.3 131.1 131.2 121.8 112.2 108.9 111.5 —
Malaysia 28.6 32.3 33.9 35.9 37.3 38.3 40.5 40.2 —
Philippines 36.1 39.0 46.3 52.3 54.9 52.5 54.5 56.5 —
Thailand 65.1 71.9 75.3 73.4 64.8 54.0 47.5 40.9 —
Eastern Europe and Central Asia 315.1 331.7 414.8 423.7 424.1 425.1 472.0 541.2 562.9
Bulgaria 9.2 9.1 9.6 9.7 9.8 9.3 9.6 10.6 —
Czech Republic 14.3 15.0 16.6 14.0 12.5 13.2 16.8 20.7 —
Hungary 23.9 21.2 23.7 26.3 25.4 25.7 29.3 36.8 —
Poland 40.8 36.6 49.3 54.6 56.2 56.3 64.6 75.7 —
Russian Federation 114.5 121.7 163.1 159.0 144.4 133.5 131.1 144.5 —
Turkey 62.5 66.8 75.9 78.8 88.4 97.0 114.8 122.6 —
Latin America and Caribbean 517.1 542.2 633.2 662.5 647.6 655.7 667.3 696.3 680.0
Argentina 87.9 96.4 110.6 116.3 119.2 134.1 134.9 143.2 —
Brazil 145.4 163.2 211.1 214.7 208.2 198.5 205.2 215.8 —
Chile 20.4 21.5 28.6 30.5 31.1 33.3 35.4 35.7 —
Colombia 23.0 26.2 26.9 30.5 31.1 33.0 29.5 29.4 —
Mexico 126.4 119.8 132.7 142.4 131.4 131.1 130.3 130.8 —
Venezuela,R,B,de 31.8 31.5 35.5 35.5 34.1 31.2 29.4 30.5 —
Middle East and North Africa 144.4 132.7 138.9 132.6 123.8 123.8 131.7 138.5 134.9
Algeria 33.3 30.7 30.5 27.8 25.0 22.4 22.8 23.2 —
Egypt,Arab Rep,of 29.2 27.1 28.2 26.8 25.1 26.0 26.5 27.6 —
Lebanon 2.3 3.2 4.8 6.0 7.3 9.8 14.5 15.5 —
South Asia 139.3 141.4 150.5 155.0 154.0 151.3 162.9 175.6 178.2
India 86.7 89.3 93.3 94.4 95.6 94.8 101.7 108.7 —
Pakistan 27.0 27.6 30.1 32.1 31.3 30.4 32.1 35.1 —
Sub-Saharan Africa 188.8 180.0 186.2 174.0 178.2 171.5 182.4 200.3 189.6
South Africa 15.2 14.3 13.3 13.1 15.3 15.7 17.6 20.4 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
160
Table A.43 Total external short-term debt of developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 375.0 387.4 352.0 334.0 317.3 321.9 320.8 402.1 460.4
East Asia and Pacific 128.7 132.1 85.9 73.8 63.2 90.8 99.0 125.5 145.4
China 25.4 31.5 17.3 15.2 13.1 41.6 47.9 73.0 —
Indonesia 32.2 32.9 20.1 20.0 22.6 21.8 22.8 22.9 —
Malaysia 11.1 14.9 8.5 6.0 4.6 6.3 8.4 8.8 —
Philippines 8.0 11.8 7.2 5.7 5.9 6.0 5.6 6.2 —
Thailand 47.7 37.8 29.7 23.4 14.9 13.2 11.9 10.9 —
Eastern Europe and Central Asia 53.2 59.5 75.5 79.7 86.7 82.6 88.2 134.8 165.6
Bulgaria 1.1 2.0 1.8 1.3 1.5 1.2 1.8 2.7 —
Czech Republic 5.7 8.1 7.6 8.8 9.0 9.6 10.8 14.0 —
Hungary 3.4 3.4 4.8 3.5 4.2 4.6 5.7 9.0 —
Poland 2.7 5.1 8.4 11.3 9.7 11.1 13.9 19.5 —
Russian Federation 12.0 5.9 14.8 15.7 15.6 19.0 16.3 30.8 —
Turkey 17.3 18.0 21.2 23.5 28.9 16.3 16.4 23.0 —
Latin America and Caribbean 121.4 128.2 119.0 109.3 107.5 93.5 78.9 83.3 93.5
Argentina 23.5 32.0 31.0 29.4 28.3 20.0 15.1 23.0 —
Brazil 35.9 34.9 29.9 29.2 31.0 28.3 23.4 19.6 —
Chile 7.0 5.5 5.1 4.3 6.2 5.3 5.8 7.5 —
Colombia 5.9 5.8 6.2 4.0 2.9 3.3 3.7 3.6 —
Mexico 29.8 27.9 26.3 24.1 18.9 14.6 9.9 9.2 —
Venezuela,R,B,de 2.7 4.2 2.2 2.1 4.1 4.8 4.6 4.3 —
Middle East and North Africa 18.8 18.6 22.1 23.2 20.8 18.3 18.5 20.3 20.5
Algeria 0.3 0.2 0.2 0.2 0.2 0.2 0.1 0.1 —
Egypt,Arab Rep,of 2.3 3.0 4.3 4.3 4.1 3.4 3.5 3.8 —
Lebanon 1.7 1.8 2.0 2.2 2.5 2.7 2.5 3.1 —
South Asia 10.3 8.2 7.17.06.15.07.37.26.5
India 6.7 5.0 4.3 3.9 3.5 2.7 4.6 4.7 —
Pakistan 2.8 2.5 2.2 1.8 1.5 1.3 1.5 1.2 —
Sub-Saharan Africa 42.6 40.8 42.4 41.0 33.1 31.7 29.0 31.1 28.8
South Africa 10.8 10.9 11.4 10.8 9.6 8.4 7.4 7.4 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
161
Table A.44 Total external debt of developing countries owed by public and publicly guaranteed
borrowers,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 1,392.2 1,369.1 1,471.9 1,477.9 1,421.9 1,400.9 1,471.2 1,557.0 1,555.0
East Asia and Pacific 256.8 272.0 288.6 307.5 288.1 277.8 277.7 279.6 272.6
China 102.3 112.8 99.4 99.2 94.9 91.8 88.6 85.6 —
Indonesia 60.0 58.8 76.4 83.9 80.6 77.8 78.9 83.7 —
Malaysia 15.7 16.8 18.2 18.9 19.2 24.1 26.5 25.5 —
Philippines 27.5 27.3 30.5 36.6 35.9 31.4 34.2 37.4 —
Thailand 16.9 24.7 31.3 34.7 32.5 27.9 23.0 17.8 —
Eastern Europe and Central Asia 286.9 288.9 321.2 316.5 305.0 292.6 309.8 334.6 340.3
Bulgaria 8.8 8.7 9.1 9.0 9.0 8.5 8.5 8.9 —
Czech Republic 12.2 12.8 11.6 7.7 6.5 5.7 7.0 8.6 —
Hungary 18.9 15.3 15.9 16.9 14.4 12.7 13.6 14.8 —
Poland 39.2 34.2 35.1 33.2 30.8 25.7 29.4 35.0 —
Russian Federation 114.5 119.8 140.9 136.4 122.6 111.2 102.6 103.3 —
Turkey 49.1 48.1 50.6 51.6 60.6 68.4 82.3 88.8 —
Latin America and Caribbean 399.9 379.6 413.1 420.1 406.2 417.2 441.5 468.5 484.3
Argentina 68.8 73.0 82.7 89.0 93.2 102.4 106.4 114.8 —
Brazil 96.4 87.4 103.0 101.2 95.5 102.2 117.8 123.3 —
Chile 4.9 4.4 5.0 5.7 5.3 5.6 6.8 8.1 —
Colombia 14.9 15.4 16.7 20.2 20.8 21.8 20.7 22.8 —
Mexico 106.1 92.4 95.4 92.4 81.5 77.0 76.3 77.5 —
Venezuela,R,B,de 29.9 29.0 29.6 28.7 28.0 25.2 23.4 24.5 —
Middle East and North Africa 140.3 127.7 131.8 125.6 117.2 117.2 125.2 131.8 127.4
Algeria 33.3 30.7 30.5 27.8 25.0 22.4 22.7 22.7 —
Egypt,Arab Rep,of 29.1 27.0 27.8 26.3 24.5 25.3 25.9 27.3 —
Lebanon 1.9 2.3 4.0 5.3 6.6 9.0 13.8 14.8 —
South Asia 129.9 129.7 139.3 144.6 138.6 137.1 147.0 157.8 158.8
India 79.4 80.1 84.9 86.4 83.2 83.1 88.2 92.8 —
Pakistan 25.0 25.3 27.5 29.8 28.7 28.3 30.1 33.5 —
Sub-Saharan Africa 178.5 171.1 177.9 163.6 166.9 159.1 170.0 184.7 171.5
South Africa 11.2 11.9 10.7 8.2 9.1 7.9 9.4 9.1 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
162
Table A.45 Total external debt of developing countries owed by private sector borrowers,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 652.8 740.6 851.0 868.7 860.7 859.6 865.2 997.2 1,042.1
East Asia and Pacific 237.2 254.4 244.6 231.1 212.6 224.2 220.6 246.0 263.9
China 26.6 33.9 44.6 52.9 50.9 78.4 79.7 108.0 —
Indonesia 68.9 77.3 74.8 67.3 63.8 56.2 52.8 50.7 —
Malaysia 24.0 30.4 24.3 23.0 22.7 20.5 22.4 23.6 —
Philippines 16.5 23.5 23.0 21.4 25.0 27.1 25.9 25.2 —
Thailand 96.0 85.0 73.6 62.0 47.2 39.3 36.5 34.0 —
Eastern Europe and Central Asia 81.5 102.3 169.1 186.9 205.8 215.2 250.4 341.4 388.2
Bulgaria 1.6 2.4 2.3 2.0 2.2 2.0 2.9 4.4 —
Czech Republic 7.8 10.2 12.7 15.1 15.0 17.1 20.6 26.1 —
Hungary 8.4 9.3 12.6 13.0 15.2 17.6 21.4 31.0 —
Poland 4.3 7.5 22.6 32.8 35.1 41.7 49.1 60.3 —
Russian Federation 12.0 7.8 36.9 38.3 37.4 41.3 44.8 71.9 —
Turkey 30.8 36.7 46.6 50.6 56.7 45.0 48.9 56.8 —
Latin America and Caribbean 238.6 290.8 339.1 351.7 348.9 332.0 304.7 311.2 289.1
Argentina 42.6 55.4 58.8 56.7 54.2 51.6 43.6 51.4 —
Brazil 84.9 110.7 138.0 142.8 143.7 124.6 110.8 112.1 —
Chile 22.6 22.7 28.7 29.2 32.0 33.0 34.4 35.2 —
Colombia 14.0 16.5 16.3 14.2 13.1 14.5 12.5 10.2 —
Mexico 50.2 55.2 63.5 74.1 68.8 68.6 63.8 62.5 —
Venezuela,R,B,de 4.5 6.7 8.2 8.9 10.2 10.8 10.6 10.4 —
Middle East and North Africa 22.9 23.6 29.1 30.2 27.3 24.9 24.9 27.0 28.1
Algeria 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.7 —
Egypt,Arab Rep,of 2.5 3.1 4.6 4.8 4.7 4.0 4.1 4.1 —
Lebanon 2.1 2.7 2.7 2.9 3.3 3.5 3.2 3.8 —
South Asia 19.8 19.9 18.3 17.4 21.5 19.1 23.2 25.0 25.9
India 14.1 14.3 12.7 11.9 15.9 14.4 18.1 20.6 —
Pakistan 4.8 4.8 4.8 4.1 4.1 3.4 3.5 2.9 —
Sub-Saharan Africa 52.9 49.7 50.7 51.4 44.5 44.1 41.5 46.7 46.9
South Africa 14.8 13.3 14.1 15.7 15.8 16.1 15.6 18.7 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
163
Table A.46 Total external debt of developing countries owed to public sector creditors,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 833.3 791.3 866.8 881.8 839.5 826.9 874.7 933.3 896.6
East Asia and Pacific 153.7 152.5 179.1 200.3 188.2 180.6 183.4 190.8 179.4
China 39.4 39.8 45.1 50.4 50.4 50.6 50.8 51.5 —
Indonesia 46.1 45.5 58.2 66.3 65.9 62.1 65.2 70.5 —
Malaysia 4.2 4.0 4.5 4.8 5.0 5.9 5.8 6.1 —
Philippines 21.0 19.7 22.2 23.6 22.0 19.8 21.0 22.3 —
Thailand 10.6 17.8 21.4 25.3 23.9 20.8 16.7 13.2 —
Eastern Europe and Central Asia 160.0 156.2 172.4 171.4 166.8 159.2 165.4 176.2 169.6
Bulgaria 3.4 3.4 3.9 3.9 3.9 3.4 3.5 4.1 —
Czech Republic 1.3 1.1 1.1 1.1 1.1 1.2 1.5 1.9 —
Hungary 3.7 3.3 2.3 2.3 1.9 1.7 1.9 1.8 —
Poland 30.5 26.6 27.1 25.1 23.7 17.8 19.7 20.4 —
Russian Federation 75.6 76.8 88.3 86.7 82.5 71.7 62.2 64.7 —
Turkey 15.9 14.3 15.0 13.8 17.3 26.9 35.8 37.5 —
Latin America and Caribbean 164.1 145.9 161.0 163.2 150.1 162.9 183.1 196.9 189.2
Argentina 26.1 24.2 25.9 25.5 25.6 35.2 35.6 36.9 —
Brazil 25.4 22.2 32.7 37.7 31.1 37.2 52.1 58.2 —
Chile 2.7 2.2 2.2 2.1 1.9 1.7 1.5 1.4 —
Colombia 6.5 5.6 6.0 7.8 7.7 8.6 8.9 11.4 —
Mexico 42.6 32.1 31.4 26.3 20.8 19.9 20.5 20.6 —
Venezuela,R,B,de 6.3 5.5 6.7 6.6 6.1 4.9 4.4 3.9 —
Middle East and North Africa 107.3 99.6 103.9 98.3 90.7 88.3 91.3 96.2 93.1
Algeria 20.2 20.3 21.5 20.4 19.2 17.7 17.7 17.8 —
Egypt,Arab Rep,of 27.7 25.9 26.9 25.7 24.0 23.4 24.7 26.4 —
Lebanon 0.6 0.7 0.9 0.9 0.9 1.0 1.0 1.7 —
South Asia 104.1 98.9 104.6 113.3 102.7 101.1 106.3 113.8 113.7
India 55.9 52.8 53.9 58.6 50.6 49.8 49.8 50.9 —
Pakistan 23.8 22.8 25.1 27.7 26.6 27.0 29.3 32.7 —
Sub-Saharan Africa 144.0 138.2 145.7 135.2 140.9 134.9 145.1 159.6 151.6
South Africa 0.9 0.4 0.0 0.0 0.1 0.1 0.1 0.2 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
164
Table A.47 Total external debt of developing countries owed to private sector creditors,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 1,211.7 1,318.4 1,456.1 1,464.9 1,443.1 1,433.6 1,461.8 1,620.8 1,700.5
East Asia and Pacific 340.3 373.8 354.1 338.3 312.5 321.4 314.8 334.8 357.2
China 89.4 106.9 98.9 101.6 95.3 119.6 117.5 142.1 —
Indonesia 82.8 90.7 93.1 84.9 78.5 72.0 66.5 63.9 —
Malaysia 35.5 43.2 37.9 37.1 37.0 38.8 43.1 43.0 —
Philippines 23.0 31.1 31.4 34.4 38.8 38.7 39.1 40.3 —
Thailand 102.3 91.9 83.5 71.5 55.8 46.4 42.7 38.6 —
Eastern Europe and Central Asia 208.3 235.0 317.9 332.1 344.0 348.6 394.8 499.8 558.9
Bulgaria 7.0 7.7 7.5 7.1 7.3 7.1 8.0 9.2 —
Czech Republic 18.7 22.0 23.1 21.7 20.4 21.5 26.0 32.7 —
Hungary 23.6 21.3 26.2 27.6 27.6 28.6 33.1 44.0 —
Poland 13.0 15.1 30.6 40.9 42.2 49.6 58.8 74.9 —
Russian Federation 50.8 50.8 89.6 88.1 77.6 80.8 85.3 110.6 —
Turkey 64.0 70.5 82.2 88.4 100.0 86.5 95.4 108.2 —
Latin America and Caribbean 474.3 524.5 591.2 608.6 605.0 586.3 563.1 582.8 584.2
Argentina 85.3 104.2 115.6 120.3 121.9 118.9 114.3 129.3 —
Brazil 155.9 175.8 208.4 206.3 208.1 189.6 176.5 177.2 —
Chile 24.7 24.9 31.5 32.7 35.4 36.9 39.7 41.8 —
Colombia 22.4 26.3 27.1 26.6 26.2 27.7 24.3 21.6 —
Mexico 113.6 115.6 127.5 140.2 129.5 125.8 119.6 119.4 —
Venezuela,R,B,de 28.2 30.2 31.0 31.0 32.0 31.1 29.6 31.0 —
Middle East and North Africa 55.9 51.7 57.0 57.5 53.8 53.9 58.8 62.7 62.4
Algeria 13.4 10.6 9.2 7.6 6.1 4.9 5.2 5.6 —
Egypt,Arab Rep,of 3.8 4.2 5.5 5.3 5.2 6.0 5.3 5.0 —
Lebanon 3.4 4.3 5.9 7.3 8.9 11.5 16.1 16.9 —
South Asia 45.5 50.7 53.0 48.7 57.3 55.1 63.9 68.9 71.0
India 37.6 41.5 43.7 39.7 48.5 47.7 56.5 62.6 —
Pakistan 6.0 7.2 7.2 6.2 6.1 4.7 4.4 3.7 —
Sub-Saharan Africa 87.3 82.6 82.9 79.8 70.4 68.3 66.3 71.8 66.8
South Africa 25.2 24.9 24.8 23.9 24.7 23.9 24.9 27.6 —
Note,— H11005 not available; e H11005 estimate.
STATISTICAL APPENDIX
165
Table A.48 Gross foreign exchange reserves of developing countries,1996–2004
$ billions
1996 1997 1998 1999 2000 2001 2002 2003 2004e
All developing countries 519.2 571.7 588.0 621.5 668.3 750.0 921.7 1,213.6 1,591.8
East Asia and the Pacific 199.7 212.5 233.2 262.5 272.6 320.3 408.2 544.8 775.1
China 105.0 139.9 145.0 154.7 165.6 212.2 286.4 403.3 610.0
Indonesia 17.8 16.1 22.4 26.2 28.3 27.0 30.8 34.7 34.3
Malaysia 26.2 20.0 24.7 29.7 28.6 29.6 33.3 43.5 61.7
Philippines 9.9 7.1 9.1 13.1 12.9 13.3 13.0 13.3 12.5
Thailand 37.2 25.7 28.4 33.8 31.9 32.3 38.0 41.0 46.9
Europe and Central Asia 83.4 90.8 95.9 102.3 120.4 131.5 175.3 236.2 303.8
Czech Republic 12.4 9.7 12.5 12.8 13.0 14.2 23.3 26.3 27.4
Hungary 9.6 8.3 9.2 10.7 10.9 10.3 9.7 12.0 14.6
Poland 17.7 20.3 27.2 26.1 26.3 25.2 28.0 31.7 35.0
Russian Federation 11.3 12.8 7.8 8.5 24.3 32.5 44.1 73.2 113.7
Turkey 16.4 18.6 19.4 23.2 22.3 18.7 26.9 33.8 35.9
Latin America and the Caribbean 153.0 166.5 157.3 149.9 152.8 155.7 156.5 189.7 211.5
Argentina 17.7 22.2 24.5 26.1 24.4 14.5 10.4 13.1 17.3
Brazil 58.3 50.8 42.6 34.8 32.5 35.7 37.4 49.1 52.7
Chile 14.9 17.3 15.3 14.2 14.7 14.0 14.8 15.2 15.5
Mexico 19.2 28.1 31.5 31.0 35.1 44.4 49.9 57.7 62.8
Venezuela,R,B,de 11.1 14.0 11.6 11.7 12.6 8.8 8.0 15.5 17.7
Middle East and North Africa 37.6 43.7 42.0 40.8 45.6 55.1 67.1 89.1 101.3
Algeria 4.2 8.0 6.8 4.4 11.9 18.0 23.1 32.9 41.4
Egypt,Arab Rep,of 17.2 18.5 17.9 14.3 12.9 12.9 13.2 13.4 13.4
South Asia 24.8 30.0 32.9 37.9 42.6 52.8 79.8 114.8 141.7
Bangladesh 1.7 1.6 1.9 1.6 1.5 1.3 1.7 2.6 3.1
India 19.7 24.3 27.0 32.0 37.3 45.3 67.0 97.6 125.2
Pakistan 0.5 1.2 1.0 1.5 1.5 3.6 8.1 10.7 9.6
Sub-Saharan Africa 20.6 28.2 26.7 28.0 34.2 34.5 34.8 39.0 58.4
Botswana 5.0 5.6 5.9 6.2 6.3 5.8 5.4 5.2 5.1
Nigeria 4.1 7.6 7.1 5.5 9.9 10.5 7.3 7.1 16.9
South Africa 0.9 4.8 4.2 6.1 5.8 5.8 5.6 6.2 12.3
Note,e H11005 estimate.
STATISTICAL APPENDIX
166
Table A.49 Key external debt ratios for developing countries
%,averages for 2001–3
Total external debt Present value EDT as % of gross Total debt Interest
(EDT) to exports of (PV) of EDT as national income PV as % service as % of service as %
G&S (XGS) % of XGS (GNI) of GNI XGS of XGS
Albania 81 57 28 20 3 1
Algeria 103 100 41 40 19 5
Angola 120 117 104 102 17 2
Argentina 473 531 104 117 40 6
Armenia 131 85 45 29 11 1
Azerbaijan 58 47 28 23 9 1
Bangladesh 188 128 37 25 7 2
Barbados 47 53 29 33 5 3
Belarus 27 27 18 18 3 1
Belize 206 241 125 146 26 13
Benin 347 151 65 28 11 3
Bhutan 270 252 79 74 5 1
Bolivia 308 157 74 38 23 7
Bosnia and Herzegovina 102 78 48 37 6 2
Botswana 16 13 9 8 2 0
Brazil 299 323 50 54 72 19
Bulgaria 148 152 83 86 13 5
Burkina Faso 497 178 54 19 14 5
Burundi 3,051 2,182 210 150 68 18
Cambodia 125 107 82 70 1 0
Cameroon 335 185 96 53 16 7
Cape Verde 156 107 74 51 7 2
Central African Republic 1,061 1,319 125 155 0 0
Chad 427 254 75 45 13 4
Chile 174 178 66 67 34 8
China 49 48 15 15 9 2
Colombia 182 200 43 47 46 12
Comoros 397 289 109 79 4 1
Congo,Dem,Rep,923 625 222 150 12 8
Congo,Rep,266 404 242 368 31
Costa Rica 69 74 34 36 11 4
C?te d’Ivoire 210 176 107 90 10 2
Croatia 183 183 102 102 26 6
Czech Republic 69 69 48 48 11 2
Djibouti 141 95 65 44 6 1
Dominica 243 234 123 119 14 7
Dominican Republic 59 58 34 33 9 3
Ecuador 217 240 74 82 31 14
Egypt,Arab Rep,of 147 131 35 31 13 4
El Salvador 119 132 50 55 9 5
Equatorial Guinea 15 13 — — — —
Eritrea 543 333 76 47 10 5
Estonia 118 119 100 101 21 5
Ethiopia 621 135 112 24 84
Fiji 25 24 15 15 3 1
Gabon 111 114 87 89 11 4
Gambia,The 379 202 170 90 12 5
Georgia 155 122 54 43 14 3
Ghana 285 85 128 38 17 3
Grenada 205 190 99 92 17 10
Guatemala 88 86 22 21 8 3
Guinea 408 225 106 59 15 4
Guinea-Bissau 891 594 369 246 18 5
Guyana 198 78 215 84 83
Haiti 114 83 39 29 5 1
Honduras 171 106 87 54 13 3
Hungary 102 99 73 71 34 3
India 120 106 22 19 22 6
Indonesia 196 200 80 82 27 6
Iran,Islamic Rep,of 33 30 9 8 5 1
(Table continues on next page)
STATISTICAL APPENDIX
167
(Table continues on next page)
Table A.49 Key external debt ratios for developing countries (continued)
%,averages for 2001–3
Total external debt Present value EDT as % of gross Total debt Interest
(EDT) to exports of (PV) of EDT as national income PV as % service as % of service as %
G&S (XGS) % of XGS (GNI) of GNI XGS of XGS
Jamaica 119 131 73 80 18 7
Jordan 125 117 90 84 17 3
Kazakhstan 181 183 94 95 42 6
Kenya 206 162 54 43 17 4
Kyrgyz Republic 282 221 125 98 19 2
Lao PDR 611 356 155 91 11 3
Latvia 206 204 93 92 22 4
Lebanon 458 482 104 110 80 35
Lesotho 112 80 66 47 11 2
Liberia 1,522 1,630 603 646 0 0
Lithuania 105 106 58 58 84 4
Macedonia,FYR 112 97 47 40 15 3
Madagascar 466 138 105 31 7 3
Malawi 660 393 181 108 74
Malaysia 44 45 55 56 8 2
Maldives 54 41 45 35 4 1
Mali 282 124 97 42 72
Mauritania 459 153 218 73 11 3
Mauritius 83 81 54 52 8 3
Mexico 74 83 23 25 22 6
Moldova 154 146 100 95 13 4
Mongolia
1
188 140 127 95 37 2
Morocco 116 109 51 47 27 8
Mozambique 430 118 139 38 82
Myanmar 247 187 — — 4 1
Nepal 200 131 57 38 7 2
Nicaragua 436 98 178 40 13 4
Niger 542 148 93 26 93
Nigeria 153 148 78 76 7 2
Oman 32 32 19 19 11 1
Pakistan 232 189 50 41 19 5
Panama 99 123 75 93 11 6
Papua New Guinea 113 104 87 80 14 3
Paraguay 111 107 52 51 11 4
Peru 279 311 54 60 24 13
Philippines 141 147 77 80 23 6
Poland 150 147 49 48 30 4
Romania 124 126 45 46 21 5
Russian Federation 128 135 50 52 14 6
Rwanda 974 615 91 57 13 5
Samoa 253 209 148 122 9 6
Sao Tome and Principe 1,773 770 723 314 35 15
Senegal 222 96 84 36 12 4
Serbia and Montenegro 268 238 94 83 17 6
Seychelles 100 103 87 89 14 3
Sierra Leone 1,152 632 216 118 18 8
Slovak Republic 93 90 72 70 18 3
Solomon Islands 224 176 76 60 11 5
Somalia — — — — — —
South Africa 67 69 23 23 10 3
Sri Lanka 134 110 62 51 8 2
St,Kitts and Nevis 210 212 102 103 29 14
St,Lucia 106 104 59 58 9 5
St,Vincent and the Grenadines 128 107 67 56 8 3
Sudan 561 550 123 120 1 0
Swaziland 28 28 27 26 2 1
Syrian Arab Republic 264 262 112 111 4 2
Tajikistan 139 112 96 77 11 2
Tanzania 457 132 77 22 62
Thailand 59 59 41 41 17 2
STATISTICAL APPENDIX
168
Table A.49 Key external debt ratios for developing countries (continued)
%,averages for 2001–3
Total external debt Present value EDT as % of gross Total debt Interest
(EDT) to exports of (PV) of EDT as national income PV as % service as % of service as %
G&S (XGS) % of XGS (GNI) of GNI XGS of XGS
Togo 259 203 116 91 2 0
Tonga 106 74 57 40 5 1
Trinidad and Tobago 52 59 31 35 5 3
Tunisia 139 140 74 75 14 5
Turkey 232 243 77 81 45 11
Turkmenistan — — — — — —
Uganda 408 170 78 33 82
Ukraine 66 64 38 37 15 2
Uruguay 334 351 86 90 25 9
Uzbekistan 149 142 49 47 24 5
Vanuatu 64 46 39 28 1 1
Venezuela,R,B,de 117 139 35 42 30 8
Vietnam 77 67 45 39 4 1
Yemen,Rep,of 102 72 57 40 3 1
Zambia 529 372 172 121 32 12
Zimbabwe 274 272 50 50 3 1
Notes,— H11005 not available,For definition of indicators,see Sources and Definitions section,Numbers in italics include the effects of traditional
relief and HIPC relief and are based on public and publicly guaranteed debt only,Exports comprise the total value of goods and services
exported,receipts of compensations of employees and investment income and worker’s remittances,In the ratios,the numerator refers to the
2003 data and the denominator is an average of 2001 to 2003 data.
STATISTICAL APPENDIX
169
Table A.50 Classification of countries by levels of external indebtedness
136 economies in the World Bank Debtor Reporting System
Severely indebted Severely indebted Moderately indebted Moderately indebted Less indebted Less indebted
low-income middle-income low-income middle-income low-income middle-income
Angola Argentina Benin Bolivia Bangladesh Albania
Bhutan Belize Burkina Faso Cape Verde Equatorial Guinea Algeria
Burundi Brazil Cambodia Chile Ghana Armenia
Central African Republic Bulgaria Cameroon Colombia Haiti Azerbaijan
Chad Croatia Ethiopia El Salvador India Barbados
Comoros Dominica Kenya Honduras Lesotho Belarus
Congo,Dem,Rep,of Ecuador Madagascar Hungary Mali Bosnia and Herzegovina
Congo,Rep,of Estonia Mauritania Jamaica Mozambique Botswana
C?te d’Ivoire Gabon Moldova Lithuania Nepal China
Eritrea Grenada Mongolia
a
Malaysia Nicaragua Costa Rica
Gambia,The Guyana Niger Mauritius Senegal Czech Republic
Guinea Indonesia Nigeria Paraguay Tanzania Djibouti
Guinea-Bissau Jordan Pakistan Philippines Vietnam Dominican Republic
Kyrgyz Republic Kazakhstan Papua New Guinea Poland Yemen,Rep,of Egypt,Arab Rep,of
Lao PDR Latvia Solomon Islands Russian Federation Fiji
Liberia Lebanon Uganda Slovak Republic Georgia
Malawi Maldives Uzbekistan Sri Lanka Guatemala
Myanmar Panama St,Lucia Iran,Islamic Rep,of
Rwanda Peru St,Vincent and the Grenadines Macedonia,FYR
S?o Tomé and Principe Samoa Tunisia Mexico
Sierra Leone Serbia and Montenegro Turkmenistan Morocco
Somalia Seychelles Venezuela,R,B,de Oman
Sudan St,Kitts and Nevis Romania
Tajikistan Syrian Arab Republic South Africa
Togo Turkey Swaziland
Zambia Uruguay Thailand
Zimbabwe Tonga
Trinidad and Tobago
Ukraine
Notes,Tables classify all World Bank member economies and all other economies with populations more than 30,000,Economies are divided among income groups
according to 2003 GNI per capita,calculated using the World Bank Atlas method,Income groups are low income,$765 or less; lower middle-income,$766–$3,035;
upper middle-income,$3,036–$9,385; and high income,$9,386 or more,
a,Classification excludes the effect of Russian debt settlement.
STATISTICAL APPENDIX
170
Table A.51 Classification of countries by region and level of income
Europe and
Middle EastSub-Saharan Africa
Asia
Central Asia
and North Africa
East and Eastern
Income Southern West East Asia South Europe and Rest of Middle North
group Subgroup Africa Africa and Pacific Asia Central Asia Europe East Africa Americas
Low- Angola Benin Cambodia Afghanistan Kyrgyz Yemen,Haiti
income Burundi Burkina Faso Korea,Dem,Bangladesh Republic Rep,of Nicaragua
Comoros Cameroon Rep,of Bhutan Moldova
Congo,Dem,Central African Lao PDR India Tajikistan
Rep,of Republic Mongolia Nepal Uzbekistan
Eritrea Chad Myanmar Pakistan
Ethiopia Congo,Rep,Papua New
Kenya C?te d’Ivoire Guinea
Lesotho Equatorial Solomon
Madagascar Guinea Islands
Malawi Gambia,The Timor-Leste
Mozambique Ghana Vietnam
Rwanda Guinea
Somalia Guinea-Bissau
Sudan Liberia
Tanzania Mali
Uganda Mauritania
Zambia Niger
Zimbabwe Nigeria
S?o Tomé
and Principe
Senegal
Sierra Leone
Togo
Middle- Lower Namibia Cape Verde China Maldives Albania Turkey Iran,Islamic Algeria Bolivia
income South Africa Fiji Sri Lanka Armenia Rep,of Djibouti Brazil
Swaziland Indonesia Azerbaijan Iraq Egypt,Colombia
Kiribati Belarus Jordan Arab Cuba
Marshall Bosnia and Syrian Arab Rep,of Dominican
Islands Herzegovina Republic Morocco Republic
Micronesia,Bulgaria West Bank Tunisia Ecuador
Fed,Sts,of Georgia and Gaza El Salvador
Philippines Kazakhstan Guatemala
Samoa Macedonia,Guyana
Thailand FYR
a
Honduras
Tonga Romania Jamaica
Vanuatu Russian Paraguay
Federation Peru
Serbia and Suriname
Montenegro
Turkmenistan
Ukraine
Upper Botswana Gabon American Croatia Lebanon Libya Antigua and
Mauritius Samoa Czech Oman Barbuda
Mayotte Malaysia Republic Saudi Argentina
Seychelles N,Mariana Estonia Arabia Barbados
Islands Hungary Belize
Palau Latvia Chile
Lithuania Costa Rica
Poland Dominica
Slovak Grenada
Republic Mexico
Panama
St,Kitts and Nevis
St,Lucia
St,Vincent and
the Grenadines
Trinidad
and Tobago
Uruguay
Venezuela,R,B,de
STATISTICAL APPENDIX
171
Table A.51 Classification of countries by region and level of income (continued)
Europe and
Middle East
Sub-Saharan Africa
Asia
Central Asia
and North Africa
East and Eastern
Income Southern West East Asia South Europe and Rest of Middle North
group Subgroup Africa Africa and Pacific Asia Central Asia Europe East Africa Americas
High- OECD Australia Austria Canada
income Japan Belgium United States
Korea,Rep,of Denmark
New Zealand Finland
France
b
Germany
Greece
Iceland
Ireland
Italy
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United
Kingdom
Non- Brunei Slovenia Andorra Bahrain Malta Aruba
OECD French Channel Israel Bahamas,The
Polynesia Islands Kuwait Bermuda
Guam Cyprus Qatar Cayman Islands
Hong Kong,Faeroe United Arab Netherlands
China
c
Islands Emirates Antilles
Macao,Greenland Puerto Rico
China
d
Isle of Man Virgin
New Liechtenstein Islands (U.S.)
Caledonia Monaco
Singapore San Marino
Taiwan,
China
Note,For operational and analytical purposes,the World Bank’s main criterion for classifying economies is GNI per capita,Every economy is classified as low income,
middle income (subdivided into lower middle and upper middle),or high income,Other analytical groups,based on geographic regions and levels of external debt,are
also used.
Low-income and middle-income economies are sometimes referred to as developing economies,The use of the term is convenient; it is not intended to imply that all
economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development,Classification by income
does not necessarily reflect development status.
This table classifies all World Bank member economies,and all other economies with populations of more than 30,000,Economies are divided among income groups
according to 2003 GNI per capita,calculated using the World Bank Atlas method,The groups are,low income,$765 or less; lower middle–income,$766–3,035;
upper middle-income,$3,036–9,385; and high income,$9,386 or more,
a,Former Yugoslav Republic of Macedonia.
b,The French overseas departments French Guiana,Guadeloupe,Martinique,and Réunion are included in France.
c,On July 1,1997 China resumed its exercise of sovereignty over Hong Kong.
d,On December 20,1999 China resumed its exercise of sovereignty over Macao.
Source,World Bank data.

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课件名称：	2005年全球金融及经济发展
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1. 2005年全球金融及经济发展：全球发展金融2005

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