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November 18, 2008

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

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November 18, 2008

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  1. November 18, 2008 The Impact of the Global Financial Crisis on the Development Finance Prospects for LDCsDoug HostlandDevelopment Economics Prospects GroupTHE WORLD BANK

  2. Main messages • Expect moderate decline in private capital flows in 2009 • Very tight credit conditions expected to persist • private debt flows will fall dramatically from high levels • Mounting evidence of major global slowdown • curtail workers’ remittances • FDI flows expected to be more resilient • Impending fiscal pressures in high-income countries • from global slowdown & contingent liabilities • more difficult for donors to meet aid commitments

  3. Private capital flows expected to decline in 2009… Net private debt and equity flows 1990-2007, projected 2008-09 $ billions Percent Percent of GDP (right axis) Source: World Bank Debtor Reporting System (DRS) and staff estimates.

  4. Private capital flows expected to decline in 2009… Net private debt and equity flows 1990-2007, projected 2008-09 $ billions Percent Percent of GDP (right axis) Source: World Bank Debtor Reporting System (DRS) and staff estimates.

  5. …amid large external imbalances Current account / GDP in LDCs, 2008 (estimated) Source: World Bank staff estimates.

  6. Emerging market sovereign bond spreads have widened dramatically… Emerging market (EMBI Global) sovereign bond yields Jan 2004 – Nov 13, 2008 Percent Sept 15, 2008 Source: JPMorgan.

  7. …raising financing costs significantly Emerging market (EMBI Global) sovereign bond yields Jan 2004 – Nov 13, 2008 Percent Implied yield on EM sovereign bonds Yield on 10-year US Treasury bills June 2007 Source: JPMorgan and U.S. Board of Governors.

  8. Gradual downturn in credit cycle has been underway since mid-2007… Bank lending to / bond and equity issuance by developing countries Jan. 2004 – Oct. 2008 $ billions (12-month moving average) June 2007 Bank lending Equity issuance Bond issuance Source: Dealogic Analytics.

  9. …private debt flows expected to decline sharply… Net private debt inflows to developing countries 1990-2007, projected 2008-09 Percent $ billions Percent of GDP (right axis) Source: World Bank Debtor Reporting System (DRS) and staff estimates.

  10. …while FDI inflows exhibits resilience FDI inflows to developing countries 1991-2007, projected 2008-10 $ billions Percent Source: World Bank staff estimates.

  11. Bank lending to LDCs has continued to expand… Cross-border bank loan commitments to LDCs 1990-2007, estimated 2008 $ billions Percent Source: Dealogic Analytics and World Bank staff estimates.

  12. …but is concentrated in just a few countries Cross-border bank loan commitments to LDCs, Annual average: 2003-08 Source: Dealogic Analytics.

  13. Remittances as well have expanded… $ billions Source: World Bank staff estimates and Dealogic Analytics.

  14. …but again is concentrated in a few countries Workers’ remittances / GDP in 2007 5% of GDP Source: World Bank staff estimates.

  15. LCDs are more dependent on foreign aid… $ billions Source: World Bank staff estimates and Dealogic Analytics.

  16. …which increased modestly in 2000-06… Net ODA disbursements net of debt relief billions of constant $2005 Percent Source: OECD DAC.

  17. …but outlook bleak as donors face growing fiscal pressures Net disbursements of ODA, 1990-2007, commitments 2008-10 Constant 2006 $ billions Percent Percent of GNI in donor countries (right axis) Debt relief ODA less debt relief Source: OECD DAC.

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