New debt statistics show that the composition of long term debt inflows in 2011 follows pre-crisis patterns.
Debt statistics are central to understanding the impact of the financial crisis; the World Bank's International Debt Statistics provides a detailed picture of debt flows of 128 developing countries. Now that the 2013 edition has been released, and as a member of the team that put it together, I thought I would look back at what the data tell us actually happened to international debt flows to developing countries before and after the recent financial crisis.
The financial crisis reaffirmed the volatile life cycle of capital flows. In the early 2000s, as developing economies became more attractive for foreign investment, private capital debt flows surged rapidly into these economies, while official creditors maintained a slower pace. In 2007, private financial flows were dominant and represented 90 percent of long term debt inflows into the developing economies.
What changed during the 2009 crisis?
According to International Debt Statistics 2013 data, debt inflows from private creditors declined by 30 percent in 2009. This phenomenon was experienced throughout all regions and likely reflects the contraction in both the demand and the supply of capital. The demand for loans was depressed by the downturn, as private sector activity slowed down due to the unfavorable economic situation. On the supply side, lending activity from banks and others in the financial sector was constrained by uncertainty and other factors.
Since private creditors were reluctant to provide further liquidity to many economies, governments started to compete strongly with the private sector for resources. Official creditors increased lending to developing economies by 50 percent, with the multilateral lenders as the major source of financing - the data shows that financing of governments by multilateral creditors was twice as much in 2009 compared to 2008. About 86 percent of the disbursements (some $30 billion) were provided by the World Bank (IBRD and IDA) and the IMF. Overall, debt inflows from official creditors increased from around 10 percent in the pre-crisis period to around 24 percent afterward, while private capital flows declined.
..and the financial crisis aftermath
The latest data, from International Debt Statistics 2013, show that there are good signs of recovery in the private sector; the situation appears to have reversed again, with lending composition back to pre-crisis patterns. Private inflows showed signs of recovery in 2010, and then re-gained their pre-crisis share in 2011. And official creditors slowed their pace of lending to governments. The share of private inflows rose to 87 percent in 2011, compared to 76 in 2009.
Promising economic growth in many developing countries, especially in the East Asia and Pacific region, increased the willingness of international banks to invest in these economies. The data shows that in 2011 around 66 percent of the inflows into developing countries was commercial lending, mainly to private sector. In addition to commercial loans, the private sector created more liquidity by issuing bonds, which reached the highest inflows in the last decade.
For more detailed country by country data on the structure of debt and its development, access to the International Debt Statistics database is provided free of charge as part of the World Bank's Open Data Initiative. Prefer a paper copy? Download the full report in PDF format.