1. Global Development Finance 2004 Harnessing Cyclical Gains for Development Washington DC April 2004

2. Outlook for the global economy The global recovery has found firm footing, and is largely driven by rebound in investment Developing countries continue to grow faster than high-income countries; improved macro policies key to this success Global growth likely peaks this year and the prospects are for somewhat slower growth in 2005

3. Capital stock adjustment drives the cycle Contribution of investment Other contributions World GDP growth Percent Source: World Bank

4. Momentum of global economy at peak World industrial production and merchandise export volumes, excludes China, 3m/3m saar Source: World Bank, DECPG Exports Forecast Industrial production

5. Commodity prices are soaring Petroleum and non-energy weighted price indices, current US dollars, 1990=100. Source: World Bank, DECPG Petroleum Non-energy

6. …yet inflation remains subdued Consumer price inflation, median for Developing- and GDP weighted mean for High-income. Source: World Bank, DECPG Developing High-income

7. Interest rates continue to be low Central bank policy rates Percent Euro Zone United States Japan Source: National Agencies

8. Trade: Developing countries outperform OECD Exports and imports (GNFS), 2003, percentage change Percent Source: World Bank

9. Developing economies are key to growth Industrial production excl. construction indices, seasonally adjusted, Jan 2000=100. * Kinks stem from shifting Lunar New Year not accounted for by seasonal adjustment. Source: World Bank, DECPG Developing excl. China High-income

10. Developing economies are key to growth Industrial production excl. construction indices, seasonally adjusted, Jan 2000=100. * Kinks stem from shifting Lunar New Year not accounted for by the seasonal adjustment. Source: World Bank, DECPG Other Developing China* High-income

11. Policies have fostered environment for growth All Developing1990s2003 GDP 3.44.8 Cont. of Inv. 0.62.6 CAB -1.41.1 MFN Tariffs 25.413.5 Fiscal Balance -7.1-3.6 Inflation 8.43.9 Uptrend in Developing country growth

12. Prospects for slower growth in 2005 Source: World Bank GDP growth Developing countries OECD 20022003200420052006 OECD countries 1.42.03.12.62.5 Developing 3.44.85.45.25.0 East Asia 6.77.77.46.76.3 ECA 4.65.54.94.84.7 Latin America -0.61.33.83.73.5 Mid-East & North Africa 3.35.13.73.94.0 South Asia 4.36.57.26.76.5 Sub-Saharan Africa 3.32.43.44.23.9

13. Policy challenges High-income countries: pursue fiscal adjustment, orderly realignment of current account imbalances and deliberate transition to higher interest rates. Low- and middle-income countries: use current favorable environment to consolidate fiscal balances, and avoid excessive accumulation of short-term debt.

14. Per capita income growth and population in developing countries (1998 – 2003). (16) (8) (16) (14) Number of countries (14) Falling0 and 1%1% and 2%2% and 3%3% and 4%Above 4% Per capita income growth rate (%), 1998-2003

15. Developing countries remain net capital exporters to the developed world $ billion CA as a share of GDP (right axis) Percent Developing countries current account balance

16. Foreign exchange reserves have risen sharply, especially in East Asia $ billion

17. Selected debt indicators Percent Developing countries external liability position has improved

18. $286 in 1997 $ billion $200 in 2003 Net private flows Private capital flows recovered in 2003 …but remain well below 1997 peak

19. $ billion Net private equity flows Net private debt flows Bond issuance and ST bank lending lead the recovery

20. Mar-04 The risk premium on developing country debt has declined steadily EMBIG spreads Basis points 938 points (Sep., 2002) 424 points (Mar., 2004)

21. $ billion Net FDI inflows All developing countries Latin America After 1990s surge, recent FDI flows are down

22. FDI-GDP Ratio Despite FDI concentration, Poor Countries receive sizeable share

23. Aid has started to increase …but much more effort is needed OECD DAC nominal ODA flows As % of OECD GNI Monterrey target, 2006

24. Trade finance is a key source of finance for less creditworthy countries Percent of total bank lending Trade finance by commercial banks, by investment rating, 1980-2003 Investment grade Non-investment grade and non-rated

25. Remittances are a growing and stable source of finance, especially in poor countries Remittances as % of GDP

26. International investment in developing country infrastructure has declined since 1997 $ billion Total international investment in developing country infrastructure East Asia Latin America

27. Concluding messages 1.Developing countries must maintain improvement in fundamentals, and avoid excessive debt accumulation 2.More effort is needed to expand aid flows 3.Sustainability of private capital flow recovery depends on careful management of developed country macro imbalances