THE WORLD BANK The Impact of the Global Financial Crisis on the Development Finance Prospects for LDCs Doug Hostland Development Economics Prospects Group THE WORLD BANK November 18, 2008

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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