This study provides information on official financing for developing countries with the focus on low and lower-middle-income countries. It updates the 1995 edition and reviews developments in direct financing by offical and multilateral sources. Topics of interest include external debt sustainability for heavily indebted poor countries; new official financing flows to developing countries; developments in export credits;financing from multilateral institutions; debt restructuring by official bilateral creditors; plus, numerous appendices.
Overall gross resource flows to developing countries have surged in the 1990s—from some $100 billion in 1990 to over $250 billion in 1996.1 Within the total, there has been a pronounced shift in the composition of net resource flows: the growth reflected almost entirely flows from private sources to emerging markets and other strong performers in Asia and Latin America and to reforming transition economies in Eastern Europe. Private flows consist largely of foreign direct investment (about half of the total), portfolio equity flows, bank credit, and bond lending, with considerable variability from year to year. While private lending in the second half of the 1980s went mainly to public entities or carried a guarantee from the debtor government, private sector entities in developing countries were able to attract some 40 percent of gross private lending in 1996 without requiring government guarantees. Indications are that, as in the past, private flows in 1996 continued to be concentrated in a relatively small number of developing countries. In real terms, private flows are estimated to be higher now than at their previous peak in 1981. In contrast, official flows (for a definition, see Box 1) have changed relatively little in nominal terms in the 1990s. Sources in the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) estimate annual net flows of official development finance (ODF) at some $70 billion over the period, not including trade-promoting export credits. However, in real terms, official flows have declined by nearly 17 percent since the second half of the 1980s.
Non-fuel primary commodity prices fell in the second half of 1989, breaking the upward trend that had prevailed in the preceding two years. The decline in the Fund’s index of non-fuel commodity prices from the first half of 1989 to the second half of the year was 7 percent in terms of SDRs and 8 percent in terms of U.S. dollars.1 By contrast, petroleum prices increased during 1989, reversing the downward trend of the previous two years. The Fund’s indicative petroleum price—an average of prices for U.K. Brent light crude, Dubai medium crude, and Alaska north slope heavy crude—rose on a year-to-year basis by 38 percent in SDR terms and 33 percent in terms of dollars during the second half of 1989.
Prices of food commodities, which began to recover in 1987, peaked during the first half of 1989. Since then food prices have weakened and are expected to weaken further in 1990. The aggregate index of food prices, after increasing by 23 percent in 1988, averaged a modest 8 percent rise in 1989 (Table 5). As a result, the index stood at its highest level since 1984, just prior to the long downward trend that bottomed out in the first half of 1987.
Official bilateral financing remains an important source of finance for developing countries, particularly countries with limited access to international capital markets. Analysis of the flows must take into account systematic differences in the statistics derived from debtor and creditor sources and in their coverage of the various instruments (see Box 1). What follows is based primarily on creditor data from the OECD Development Assistance Committee (DAC). Figure 1 illustrates both the providers and the recipients of official flows.
In contrast to the overall index of non-fuel commodity prices, which rose by 4 percent, the index of beverage prices fell by nearly 13 percent in 1989 (Table 6). The decline, which was the third in as many years, is largely attributable to supply factors. Increased production of coffee and cocoa in lagged response to the high prices of the late 1970s was the main factor contributing to the increase in the overall supply of beverages. After the sharp increase by nearly 11 percent in 1987, which reflected to a considerable degree the recovery of Brazilian coffee production from the severe 1985 drought, the index of world supply of beverages rose by a further 5 percent in 1988 and by 3 percent in 1989. World consumption of beverages is estimated to have increased by 2 percent per annum during these three years. As a result of the widening disparity between world supplies and consumption, the overall level of world stocks of beverages has increased during this period; the index of closing stocks rose by 37 percent in 1987, by over 8 percent in 1988, and by more than 5 percent in 1989.
Officially supported export credits6 represent a large share of the external debt of developing countries and economies in transition. In 1996, they accounted for more than 24 percent of total indebtedness of these countries and for 56 percent of their indebtedness to official creditors. In addition, exports covered by Berne Union members—largely through new export credit insurance and guarantees, but also through direct lending—account for about 13 percent of all exports from the countries of Berne Union members, which in turn account for about 80 percent of world exports. Since export credits are regarded as primarily trade promoting rather than development oriented, they are not included in OECD data on official financing flows to developing countries (discussed in Section II).
After a rapid recovery in 1987, the overall price index for agricultural raw materials fluctuated around a fairly flat trend in 1988 and 1989 (Table 7 and Chart 6), indicating a movement toward broad balance in the markets for these commodities. World consumption of agricultural raw materials, which grew at an average annual rate of 5 percent in the years 1985–86, rose by an average 2 percent a year thereafter, while the index of production decelerated from 3 percent in 1988 to 1 percent in 1989. The overall price index for agricultural raw materials is expected to register virtually no change in 1990. This forecast is premised on continued moderate growth in world consumption of these commodities, the absence of significant supply disruptions, and the continued long-term impact of productivity increases and the development of synthetic substitutes.
Total multilateral lending15 to all developing countries16 fell in 1996 (gross $42 billion; net $15 billion) after the record high level of 1995 (gross $60 billion; net $28 billion) that reflected exceptionally large IMF lending in support of Mexico and Russia (Table 4)17. After growing steadily over the last decade, multilateral lending to all developing countries has reached in gross terms nearly double the size of official bilateral lending. For low-income countries, and heavily indebted poor countries (HIPCs) in particular, multilateral lending has become the largest source of public borrowing in net terms, while middle-income countries have been increasingly relying on borrowing from private sources18. Concurrently, middle-income countries continued to receive the bulk (65 percent) of multilateral lending, amounting to $27 billion (gross), in 1996. However, reflecting the higher share of concessional lending, which is generally of longer maturity and therefore involves smaller repayments, low-income countries received about half of net disbursements from multilateral institutions.