GEMs Consortium Reports Highlight Strong Credit Performance in Emerging Markets, Encourage Investment

GEMs Consortium Reports Highlight Strong Credit Performance in Emerging Markets, Encourage Investment

(IN BRIEF) The GEMs Consortium, which includes 26 multilateral development banks and development finance institutions, has released two new reports offering in-depth insights into credit risks in emerging markets and developing economies (EMDEs). The reports reveal key data on default and recovery rates from over three decades of lending, showing that private-sector lending in EMDEs has a default rate of 3.56% and a recovery rate of 72.2%. For sovereign lending, the default rate is 1.06%, with a recovery rate of 94.9%. These findings provide valuable benchmarks for investors, helping to refine risk assessments and encourage investment in these regions.

(PRESS RELEASE) LUXEMBOURG, 15-Oct-2024 — /EuropaWire/ — The Global Emerging Markets Risk Database (GEMs) Consortium, comprised of 26 multilateral development banks (MDBs) and development finance institutions (DFIs), has released two significant publications offering deeper insights into the credit risk landscape of emerging markets and developing economies (EMDEs). These reports, based on over 30 years of lending data, provide a detailed examination of default and recovery rates, offering a clearer understanding of the factors influencing investment risk in these regions.

The first report analyzes the credit performance of both private and public borrowers. It reveals that private-sector lending in EMDEs has an average annual default rate of 3.56%, comparable to non-investment grade firms in developed markets. The recovery rate of 72.2% exceeds many global benchmarks, providing a reassuring perspective on the resilience of these markets. While these figures stem from the unique experience of MDBs and DFIs, they offer valuable insights into the often opaque credit risk in emerging markets.

The second publication marks the first time GEMs has provided default and recovery rates for sovereign and sovereign-guaranteed lending, with data spanning 40 years. Sovereign lending has shown an average annual default rate of 1.06%, while recovery rates stand at an impressive 94.9%. Combined with the private sector data, these figures present a comprehensive picture of credit risks in EMDEs.

These new GEMs publications are a response to the calls from the G20 and other key stakeholders for more transparent data on credit risk in emerging markets. By providing detailed statistics at both country and sector levels, GEMs aims to help investors make informed decisions and guide their asset allocations more effectively.

Román Escolano, Group Chief Risk Officer at the European Investment Bank, emphasized the importance of these publications: “Access to accurate credit statistics is vital for encouraging private investment in emerging markets. These reports give investors the tools they need to better assess the risk profile of EMDE investments, helping to mobilize more capital toward these crucial regions.”

Despite their need for significant investment, EMDEs often attract less capital than developed economies. This is particularly concerning given the estimated $4 trillion in annual investment required for Sustainable Development Goals by 2030, and the $2.8 trillion needed for clean energy investments to meet global climate targets.

Federico Galizia, Vice President of Risk and Finance at the International Finance Corporation, added: “The GEMs data challenge the common perception that emerging markets carry excessive risk. With 30 years of default and recovery rates, now further disaggregated, the statistics show that EMDE investments can fall well within the risk appetite of many investors.”

The reports are expected to serve as a key resource for investors and credit rating agencies, offering benchmarks to refine risk assessments and pricing models. Both publications are available on the GEMs website.

About GEMs

Global Emerging Markets Risk Database (GEMs) Consortium is one of the largest credit risk databases for the emerging markets operations of its member institutions – multilateral development banks and development finance institutions. It pools anonymized data on credit defaults on the loans extended by Consortium members the migrations of their clients’ credit rating and the recoveries on defaulted projects in emerging markets and developing economies, thus providing an insight into geographies that are otherwise relatively poorly served in terms of empirical credit information.

GEMs was established in 2009 as a bilateral initiative between the European Investment Bank and the International Finance Corporation (World Bank Group). Since then, the GEMs Consortium has grown to include 26 members: African Development Bank (AfDB), Agence Française de Développement (AFD), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Black Sea Trade and Development Bank (BSTDB), Banque Ouest Africaine de Développement (BOAD), British International Investment (BII), Council of Europe Development Bank (CEB), Central American Bank for Economic Integration (CABEI), European Bank for Reconstruction and Development (EBRD), European Investment Bank Group (EIB), GuarantCo, Inter-American Development Bank (IDB), Inter-American Investment Corporation (IDB Invest), International Finance Corporation (IFC), International Bank for Reconstruction and Development (IBRD), International Fund for Agricultural Development (IFAD), Islamic Development Bank (IsDB), Kreditanstalt für Wiederaufbau (KfW), Multilateral Investment Guarantee Agency (MIGA), Netherlands Development Finance Company (FMO), U.S. International Development Finance Corporation (DFC), New Development Bank (NDB), Proparco, Cassa Depositi e Prestiti (CDP), and Development Bank of Southern Africa (DBSA).

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SOURCE: European Investment Bank