International capital flows: What actually happened in 2010?
As another year comes to a close, it seems a good time to look at what actually happened to international capital flows to developing countries in 2010 and what that may tell us about how they are likely to have shaped up in 2011.
At a time when many developed economies saw the most severe slowdown since the end of WWII, capital flows to the developing world were on the rise. All expectations were that they would increase sharply in 2010 given the fact that, on average, GDP growth in developing countries was 8 percent in 2010 and their imports were up 27 percent in US dollar terms.
But, none of the prior estimates came close to the actual outcome. According to the just-published Global Development Finance 2012: External Debt of Developing Countries, which contains detailed data on the external debt of 129 developing countries, net capital flows soared to $1130 billion in 2010 putting them back at their 2007 pre-crisis peak and well on their way to double the $675 billion recorded in 2009.
Debt flows were the fastest growing component: they jumped threefold in 2010 to $495 billion compared to a moderate 25 percent increase in net equity flows. The private creditors are rebuilding trust in the private sector giving more access to providing further liquidity.
The capital flows in 2010 were driven by a rapid rise in short term debt inflows and a strong rebound in bonds. Year 2010 shows a decline in the capital flows from official creditors to developing countries. They fell 11 percent, driven down by the sharp fall in net new financing from the IMF which, at $14 billion was close to half its 2009 level. The pace of new lending by most other multilateral institutions also slowed but the World Bank bucked the trend with net inflows on loans from IBRD and IDA combined up a further 22 percent in 2010.
The short term debt inflows shot to an all-time high of $269 billion, a massive jump from $15 billion in 2009 and mirroring the upsurge in developing country imports, $6 trillion in 2010. Favorable pricing conditions, combined with investors’ search for yield, also saw a surge in international bond issuances by emerging markets in 2010.
The bond issuance reached $173 billion, from $106 billion in 2009, and 8 percent higher than their pre-crisis level. The corporate borrowers set the pace with a combined new issuance in 2010 of $86 billion close to two and a half times the 2009 level of $37 billion.
Brazilian corporate entities were especially active with total issuances of $32 billion of which around half were placed by the financial sector and the other half by large Brazilian companies, including Telemar Norte Leste and Vale, the world’s largest exporter of iron ore. And corporate entities in China, Mexico and Russia each raised around $12 billion.
The year 2010 saw a record number of first time entrants to the international bond markets – Albania, Belarus, Georgia, Jordan, Montenegro, and Vietnam – together they raised a total of $5 billion in debut sovereign issues. Russia returned to the market for the first time since 1998 with $6 billion in 5 and 10 year notes and several other countries including Morocco and Ukraine were back for the first time since the onset of the global financial crisis.
The Debtor Reporting System (DRS) now in its sixty first year of continuous operation is the World Bank’s oldest statistical system and the leading international source for comprehensive and detailed information on the external debt of developing countries. The DRS database is freely available on the Bank’s Open Data site. The GDF 2012 is a continuation of the World Bank’s publication, Global Development Finance, Volume II (1997 through 2009) and its precursor, World Debt Tables (1973 through 1996).
Source: World Bank