The World Bank has published for the first time credit risk statistics covering loans spanning more than 30 years, with the aim of promoting private sector investment in emerging and developing countries.
Newly released statistics published by Two organizations within the World Bank Group include default rates for private sector borrowers and default and recovery rates for sovereign borrowers, categorized by credit rating.
The International Bank for Reconstruction and Development will share sovereign default and recovery rate statistics dating back to 1985 to help credit rating agencies and private investors better understand the bank’s credit risk profile.
These statistics are unique to IBRD due to its global portfolio and long historical record. In addition, the International Finance Corporation will provide private sector default statistics collected over approximately 40 years, broken down by internal credit ratings.
“The release of this data is aimed at one goal: to bring more private sector capital into developing economies, increasing their impact and creating jobs,” World Bank President Ajay Banga said in a statement. said.
An IFC spokesperson told The Banker that directing even a small portion of the $422 trillion managed by major investors to emerging markets will help create jobs and meet the Sustainable Development Goals. He said it will have a significant impact in providing the $4 trillion in annual investment needed.
“Of course, taking action on climate change is one of the SDGs supported by this capital,” the spokesperson said.
However, it is important to note that investors need more than just encouraging statistics, the spokesperson added. “They are looking for regulatory certainty, political risk insurance, currency risk mitigation, and other factors related to the investment environment. All of this adds up to a risk-reward premium when deciding to invest in emerging markets. It will help you evaluate.”
Last month, British International Investment released its latest Emerging Markets Climate Report, with 98 per cent of businesses, financial service providers and investors in Africa, Asia and the Caribbean saying they believe emerging economies will move to net zero. , revealed that they believe better investments are needed to reduce net income to zero. More climate resistant.
But at a time when emerging economies need more investment, Michael Jacobs, a visiting senior fellow at think tank ODI, warned that rising interest rates were forcing capital out of developing countries and back into the Global North.
However, credit risk statistics released by the World Bank suggest that private investors may not be investing in emerging economies due to perceived higher risks.
The World Bank said in a statement that from 1986 to 2023, IFC’s private sector portfolio had a “low default rate” of 4.1%, reflecting the untapped potential and resilience of private sector investments in emerging markets. He said that it highlights the
The highest default rates in history were in 1986 and 2003, when they reached 11.5% and 10.3%, respectively, according to IFC data. Africa showed an increase of 6.7%, mainly due to investments in the first half of the observation period, while all other regions ranged from 3.2% to 4.5%. Low-income countries had the highest default rate, at 8.6%.
The default rate for investments rated “weak” by IFC’s internal rating system was 2.6% from 2017 to 2023, showing that even investments considered risky can “outperform expectations.” said the World Bank. .
Defaults are “rare” for sovereign borrowers, averaging just 0.7% per year, according to the World Bank. Given its “priority creditor status,” the World Bank typically recovers more than 90 percent of the outstanding amount, including principal and interest.
According to World Bank data, sovereign default losses ranged from 0.01% to 58.5%, reflecting the impact of interest rates and the length of the default period.
The World Bank Group has published a recently published Global Emerging Markets Risk Database report on recovery statistics to encourage more investors to put money into emerging markets, either on their own or co-investing with banks. As a complement, credit risk statistics were published.
