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World Bank seeks to attract foreign capital to development countries

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World Bank Group President Ajay Banga. Photo by Reuters/Amr Alfiky

The World Bank is set to enhance its data transparency by releasing more proprietary information, including details on debt defaults, as part of its efforts to stimulate greater private sector investment in developing nations, announced World Bank President Ajay Banga. Speaking at the China Development Forum, Banga highlighted the World Bank Group’s significant achievements in mobilizing private capital for emerging markets, with US$41 billion last year alone, and facilitating an additional US$42 billion through private sector bond issuances.

Despite these accomplishments, Banga emphasized the need for further advancements to remove the impediments deterring private investment in the developing world. He pointed out the decline in economic growth rates in these countries from 6% to just around 4% over the past two decades, a reduction that risks plunging 100 million people into poverty while debt burdens continue to rise. Moreover, Banga underscored the critical employment challenge facing developing nations, with an anticipated 1.1 billion young people entering the job market over the next decade, against a backdrop of only 325 million expected job opportunities.

In response to these challenges, the World Bank engaged with a focus group of chief executives from the asset management, banking, and operational sectors. The discussions revealed key investment concerns including regulatory stability, political risk insurance, and foreign exchange volatility. As a proactive measure, the World Bank announced last month initiatives aimed at consolidating its loan and investment guarantee framework, with an ambitious target to triple its annual guarantees to US$20 billion by 2030.

Commencing next week, the World Bank, in collaboration with a consortium of development institutions, will begin publishing data on private sector recovery by country income level. This initiative is designed to boost investor confidence. Additionally, the Bank plans to release information on private sector default rates by credit rating, along with statistics on sovereign defaults and recovery rates dating back to 1985.

Banga articulated that these measures all share the common objective of drawing more private sector capital into developing economies to generate impact and create employment opportunities. The former Mastercard CEO also revealed ongoing efforts to establish a securitization platform intended to simplify investment processes for pension funds and other institutional investors. This platform aims to amalgamate standardized investments into consolidated packages, thereby facilitating significant investments at scale and addressing the current fragmentation of small, bespoke loans.

Highlighting China’s “remarkable journey” over the past five decades, Banga acknowledged the country’s success in generating jobs, drastically reducing poverty, and decreasing emissions. Notably, China has transitioned from being a major beneficiary of World Bank loans to becoming one of its most significant contributors. This transformation serves as a powerful testament to the potential achievements possible through focused investment and development efforts.

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