How should we measure and assess financial development around the globe? Why has financial development progressed so quickly in some regions and countries while seriously lagging in other parts of the world? At what point does the financial sector become too large or too complex? What mix of banks, other financial institutions, and financial markets is the best from the broader development perspective? How to ensure healthy competition in the provision of financial services? Which policies help in supporting robust financial development, and which ones do not? And which ones help in providing people and firms with better access to finance?
These are just some examples of questions to be addressed by a new annual publication, the Global Financial Development Report (GFDR), a flagship report of the World Bank Group. As highlighted by its title, the report will have global coverage with a focus on finance and an explicit developmental angle. The GFDR will provide an overview and assessment of financial sector development around the world, with a particular attention on medium- and low-income countries. The preliminary target release date for the inaugural issue, GFDR 2013, is September 2012.
Why a global flagship on financial development? The launch of the GFDR reflects an understanding that finance plays a crucial role in development. Well-developed financial systems provide an independent contribution to long-run economic growth. Countries with better-developed financial systems tend to grow faster over long periods of time, and a large body of evidence suggests that this effect is causal: financial development is not simply an outcome of economic growth; it contributes to this growth. The importance of finance becomes even more apparent when it malfunctions: poor policies, unsound financial markets, and imprudent behavior by financial institutions lay the foundations for financial crises. The recent global financial crisis has put the frequently disastrous consequences of weak financial sector policies to the forefront of policy debate once again. It has also led to a critical re-thinking of some basic issues, such as the relative importance of financial markets and institutions, and the role of the government in the financial sector.
The GFDR will fill an important gap. There is scope for a report with global coverage that addresses financial sector development issues of World Bank Group clients. No such publication currently exists. Existing financial sector publications tend to focus on specific aspects of the financial sector, such as international capital flows or financial stability, mainly in developed countries with sophisticated financial sectors. The GFDR will be complementary to the other major reports, in particular the IMF’s Global Financial Stability Report (which focuses on financial stability issues, while the GFDR will emphasize development issues and developing countries). It will also complement the World Bank Group’s Doing Business report (which focuses on measuring the ease of doing business in the non-financial private sector), broader flagship publications on development such as the World Development Report (which has focused on topics other than finance in recent years), and financial sector reports on individual countries and regions (produced within the World Bank as well as by others). The GFDR team will reach out to the authors of these other publications to ensure coordination and limit potential overlaps. The work on the GFDR will be coordinated by the Office of the Chief Economist within the Financial and Private Sector Development Vice Presidency, with inputs from a wide range of financial sector experts across the World Bank as well as outside experts.
The GFDR will be an accessibly written report with practical policy recommendations based on a combination of rigorous analysis, case studies, and lessons from operational work. It will be aimed at a wide audience, including in particular policy makers, officials, and regulators in World Bank Group countries, staff of international organizations, non-governmental organizations, market participants, think tanks, and the development community more generally. It will be backed up by underlying research, and summaries of recent analytical and operational work. Specific illustrations with country cases will be used to increase the report’s usefulness and to highlight interesting country examples and lessons relating to the overall theme of the GFDR. Underlying the main GFDR report will be a collection of more in-depth analytical papers, which will be posted on the GFDR website as background for the main report.
Each year, the GFDR will highlight, in several analytical chapters, a “featured topic” relating to financial development. The chapters will provide an in-depth examination of a set of interesting questions linked by this featured topic, and they will provide some practical, policy-relevant answers to those questions. Each GFDR will also be accompanied by a comprehensive set of indicators on financial sector development. Based on the indicators, it will present an assessment of financial sector developments and trends around the world, combining a global perspective with regional and country perspectives. The GFDR will “slice and dice” the available data on financial structure and developments and benchmark countries and regions. Each GFDR will focus in more detail on indicators relevant to the “featured topic” of that year.
The GFDR will be more than just an annual report. Recognizing that the ”traditional flagship model” has become somewhat obsolete, and that there is a need for more interactive approaches, the GFDR project will go beyond the annual flagship report itself. It will be a broader effort that will include several elements. Related to the GFDR, consultations with a range of stakeholders and other outreach activities are envisaged. Among other things, there will be GFDR-related blog entries, online forums and video interviews, and an online GFDR application that will allow users to easily interact with the financial sector data. These tools will be used to move beyond the traditional flagship model and make the GFDR more of a two-way, interactive, peer-to-peer experience.
The targeted launch date for the first GFDR, September 2012, may seem very far away right now in May 2011. But it is closer than it may appear. Much of the underlying work for GFDR 2013 will have to be completed before September 2012, and some of the relevant material will be posted online before the GFDR 2013 launch.
So, watch this space. More on the Global Financial Development Report, and in particular on GFDR 2013, is coming your way soon. In the meantime, please feel free to submit your comments, suggestions, and inputs.