Demand for World Bank lending

Bridging the external financing gap has been an important factor in borrowing cgovernment's demand for World Bank loans. The demand for IBRD and IDA lending is positively related to an increase in debt service payments and inversely related to a borrowing country's level of reserves. These two variables explain a large part of the variation in IBRD and IDA lending commitments, not only since the Asian crisis but also during tranquil times over the past two decades. Borrowing to service debt during a crisis is consistent with the Bank's role as a lender of last resort as well as with its core development objectives, but such borrowing during tranquil times may conflict with the Bank's long-term objective ofreducing poverty. That investment lending commitments are related to debt service payments implies that aid may be more fungible than previously believed. If Bank lending is fungible and there is no guarantee that a particular Bank loan is financing an identified investment project or program, a case could be made for greater use of programmatic lending (with well-defined conditionality) As developing countries become larger and more integrated with volatile international capaital markets, there is also likely to be a greater need for fast-disbursing, contingent program lending facilities from the Bank.Economic Adjustment and Lending,Payment Systems&Infrastructure,Financial Intermediation,Economic Theory&Research,Banks&Banking Reform,Financial Intermediation,Banks&Banking Reform,Strategic Debt Management,Economic Theory&Research,Economic Adjustment and Lending

Complementarity between multilateral lending and private flows to developing countries : some empirical results

Despite the surge in private capital flows in the 1990s, lending by the multilateral development banks continues to be a significant source of external finance for low-income and lower-middle-income countries. And for middle-income countries, which receive the lion's share of private flows, multilateral lending has played an important stabilizing role during times of credit rationing. Even though multilateral loans may have behaved countercyclically with respect to private flows in the short term, these loans also tended to complement private flows in the medium term by signaling-and often fostering-a better investment environment in the borrowing countries.Banks&Banking Reform,Economic Theory&Research,Financial Intermediation,International Terrorism&Counterterrorism,Payment Systems&Infrastructure,Economic Theory&Research,Poverty Assessment,Economic Development,Macroeconomic Management,Banks&Banking Reform

Impact of the Global Financial Crisis on Migration and Remittances

Remittances to developing countries are estimated to have declined by 6.1 percent in 2009 as a result of weak job markets in major destination countries. Although new migration has fallen, it is still positive. The stock of international migrants, therefore, has continued to grow and remittances have remained resilient. Going forward, remittance flows to Latin America are expected to recover, whereas those to East Asia and South Asia are likely to slow. Policy responses should involve efforts to facilitate migration and remittances to make these flows cheaper, safer, and more productive for both the sending and the receiving countries.remittances, labor, developing countries, development, migration, migrants, financial crisis, Latin America, East Asia, South Asia

Development financing during a crisis : securitization of future receivables

Mexico's Telmex undertook the first future-flow securitization transaction in 1987. From then through 1999, the principal credit rating agencies rated more than 200 transactions totaling $47.3 billion. Studying several sources, the authors draw conclusions about the rationale for using this asset class, the size of its unrealized potential, and the main constraints on its growth. Typically the borrowing entity (the originator) sells its future product (receivable) directly or indirectly to an offshore special purpose vehicle (SPV), which issues the debt instrument. Designated international customers make their payments for the exports directly to an offshore collection account managed by a trustee. The collection agent makes principal and interest payments to investors and pays the rest to the originator. This transaction structure allows many investment-grade borrowers in developing countries to pierce the sovereign credit ceiling and get longer-term financing at significantly lower interest costs. The investment-grade rating attracts a wider group of investors. And establishing a credit history for the borrower makes it easier for it to access capital markets later, at lower costs. This asset class is attractive forinvestors-especially buy-and-hold investors, such as insurance companies-because of its good credit rating and stellar performance in good and bad times. Defaults in this asset class are rare, despite frequent liquidity crises in developing countries. Latin American issuers (Argentina, Brazil, Mexico, and Venezuela) dominate this market. Nearly half the dollar amounts raised are backed by receivables on oil and gas. Recent transactions have involved receivables on credit cards, telephones, workers'remittances, taxes, and exports. The potential for securing future receivables is several times the current level ($10 billion annually). The greatest potential lies outside Latin America, in Eastern Europe and Central Asia (fuel and mineral exports), the Middle East (oil), and South Asia (remittances, credit card vouchers, and telephone receivables). One constraint on growth is the paucity of good collateral in developing countries. Crude oil may be better collateral than refined petroleum. Agricultural commodities are harder to securitize. Another constraint: the dearth of high-quality issuers in developing countries. Securitization deals are complex, with high preparation costs and long lead times. The ideal candidates are investment-grade entities (in terms of local currency) in sub-investment-grade countries (in terms of foreign currency). Establishing indigenous rating agencies can slash out-of-pocket costs. Developing standardized templates for certain types of securitizations might help. A master trust arrangement can reduce constraints on size. Multilateral institutions might consider providing seed money and technical assistance for contingent private credit facilities.Financial Intermediation,Payment Systems&Infrastructure,International Terrorism&Counterterrorism,Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Banks&Banking Reform,Housing Finance,Environmental Economics&Policies,Economic Theory&Research

Beyond aid : new sources and innovative mechanisms for financing development in Sub-Saharan Africa

Given Sub-Saharan Africa's enormous resource needs for growth, poverty reduction, and other Millennium Development Goals, the development community has little choice but to continue to explore new sources of financing, innovative private-to-private sector solutions, and public-private partnerships to mobilize additional international financing. The paper suggests several new instruments for improving access to capital. An analysis of country creditworthiness suggests that many countries in the region may be more creditworthy than previously believed. Establishing sovereign rating benchmarks and credit enhancement through guarantee instruments provided by multilateral aid agencies would facilitate market access. Creative financial structuring, such as the International Financing Facility for Immunization, would help front-load aid commitments, although these may not result in additional financing in the long run. Preliminary estimates suggest that Sub-Saharan African countries can potentially raise USD 1-3 billion by reducing the cost of international migrant remittances, USD 5-10 billion by issuing diaspora bonds, and USD 17 billion by securitizing future remittances and other future receivables. African countries that have recently received debt relief however need to be cautious when resorting to market-based borrowing.Debt Markets,Access to Finance,Emerging Markets,Banks&Banking Reform,

Impact of migration on economic and social development : a review of evidence and emerging issues

This paper provides a review of the literature on the development impact of migration and remittances on origin countries and on destination countries in the South. International migration is an ever-growing phenomenon that has important development implications for both sending and receiving countries. For a sending country, migration and the resulting remittances lead to increased incomes and poverty reduction, and improved health and educational outcomes, and promote economic development. Yet these gains might come at substantial social costs to the migrants and their families. Since many developing countries are also large recipients of international migrants, they face challenges of integration of immigrants, job competition between migrant and native workers, and fiscal costs associated with provision of social services to the migrants. This paper also summarizes incipient discussions on the impacts of migration on climate change, democratic values, demographics, national identity, and security. In conclusion, the paper highlights a few policy recommendations calling for better integration of migration in development policies in the South and the North, improving data collection on migration and remittance flows, leveraging remittances for improving access to finance of recipient households and countries, improving recruitment mechanisms, and facilitating international labor mobility through safe and legal channels.Population Policies,Health Monitoring&Evaluation,Access to Finance,Voluntary and Involuntary Resettlement,Banks&Banking Reform

Shadow sovereign ratings for unrated developing countries

The authors attempt to predict sovereign ratings for developing countries that do not have risk ratings from agencies such as Fitch, Moody's, and Standard and Poor's. Ratings affect capital flows to developing countries through international bond, loan, and equity markets. Sovereign rating also acts as a ceiling for the foreign currency rating of sub-sovereign borrowers. As of the end of 2006, however, only 86 developing countries have been rated by the rating agencies. Of these, 15 countries have not been rated since 2004. Nearly 70 developing countries have never been rated. The results indicate that the unrated countries are not always at the bottom of the rating spectrum. Several unrated poor countries appear to have a"B"or higher rating, in a similar range as the emerging market economies with capital market access. Drawing on the literature, the analysis presents a stylized relationship between borrowing costs and the credit rating of sovereign bonds. The launch spread rises as the credit rating deteriorates, registering a sharp rise at the investment grade threshold. Based on these findings, a case can be made in favor of helping poor countries obtain credit ratings not only for sovereign borrowing, but for sub-sovereign entities'access to international debt and equity capital. The rating model, along with the stylized relationship between spreads and ratings can be useful for securitization and other financial structures, and for leveraging official aid for improving borrowing terms in poor countries.Economic Theory&Research,Country Strategy&Performance,Financial Intermediation,External Debt,Inequality

Capital Inflows and Capital Outflows: Measurement, Determinants, Consequences

This paper develops new estimates of capital outflows and is the first, to our knowledge, to analyze the determinants, consequences and inter-relationship between inflows and outflows. Given the dynamics and individual country effects, we use a panel-VAR and find that inflows and outflows are inter-related, that lower inflows/higher outflows lead to lower growth, and among other effects to a higher fiscal deficit, which feeds back to lower inflows/higher outflows. These results provide evidence of vicious and virtuous cycles. We find no strong evidence that official flows crowd-in private ones. We conclude it is particularly important for developing countries to maintain prudent policies, and especially adequate fiscal discipline, to avoid vicious and reinforce virtuous cycles.

Shadow Sovereign Ratings

Sovereign ratings are a necessary condition for countries to fully access international capital. Even if the sovereign government is not issuing bonds, the sovereign rating often acts as a ceiling for the private sector and can influence its international capital market access. However, 58 developing countries are still not rated by Standard and Poors, Moodys, and Fitch, the three international credit rating agencies. This premise presents an exercise to predict shadow sovereign ratings to estimate where unrated countries would lie on the credit spectrum if they were rated. Contrary to popular perception, unrated countries are not necessarily at the bottom of the rating spectrum.AAA, credit ratings, moody's, fitch, standard and poors, credit, credit ratings, World Bank, developing countries, soverign debt