- Two new publications by the Global Emerging Markets Risk Database (GEMs) Consortium provide granular default and recovery patterns for over three decades of development finance and highlight key drivers of investment risk in emerging markets.
- The GEMs Consortium is comprised of 26 multilateral development banks (MDBs) and development finance institutions (DFIs).
The Inter-American Development Bank (IDB) and IDB Invest, members of the Global Emerging Markets Risk Database (GEMs) Consortium, announced the release of two publications that shed light on credit risk trends across emerging markets and developing economies (EMDEs). The publications, based on over 30 years of data from GEMs Consortium members, provide crucial insights into default and recovery rates, helping to enhance the understanding of investment risks in EMDEs.
The first publication covers the credit performance of lending to private and public counterparts. The average annual default rate of lending to private entities at 3.56% is broadly aligned with many non-investment grade firms in advanced economies, and the average recovery rate of 72.2% is higher than many global benchmarks. Although the GEMs statistics reflect the unique experience of Multilateral Development Banks (IDBs) and Development Finance Institutions (DFIs), these results provide valuable information on the investment risk in EMDEs, an area characterized by a lack of available credit risk data.
The second publication provides default rates and for the first time recovery rates for sovereign and sovereign-guaranteed lending based on an expanded range of 40 years of data. Results shows an average annual default rate of 1.06% and an average recovery rate of 94.9% and complement the GEMs statistics on private and public counterparts to provide a comprehensive view on EMDEs credit risks.
These increasingly granular statistical publications by the GEMs Consortium address the call by the G20 and other stakeholders to provide investors greater insights into credit risks in emerging markets, thereby allowing them to better guide their asset allocations. The new publications provide statistics at the country and sector level, as well as a range of newly introduced metrics.
“GEMs statistics reaffirm that emerging markets offer investment opportunities with manageable risk profiles,” said Søren Elbech, Chief Risk Officer of the Inter-American Development Bank. “By providing more detailed data on default and recovery rates, these publications help demystify the notion that EMDEs are excessively risky, encouraging a broader spectrum of investors to consider these regions as viable and sustainable investment destinations.”
EMDEs generally receive less investment than advanced economies. At the same time, developing countries need $4 trillion of annual investment to achieve the Sustainable Development Goals by 2030, and $2.8 trillion of annual clean energy investment by next decade to meet both rising energy demands and climate targets.
“The enhanced data provided by the GEMs Consortium empowers investors with a clearer view of the risk landscape in emerging markets,” said Rachel Robboy, Chief Risk Officer of IDB Invest. “These insights are vital for aligning investment strategies with the growing opportunities in EMDEs, and support our efforts to build the MDB asset class and partner with the private sector to scale sustainable development.”
The GEMs publications include default and recovery rates for over three decades of lending by Consortium members to private, public, and sovereign borrowers. The disclosed historic default and recovery rates can be used by investors and credit rating agencies to refine their risk assessment and asset allocation, and provide a useful benchmark for risk and pricing models. Both new publications are available on the GEMs website (www.gemsriskdatabase.org).
See GEMs Consortium press release: LINK
About IDB
The Inter-American Development Bank (IDB) is devoted to improving lives across Latin America and the Caribbean. Founded in 1959, the IDB works with the region’s public sector to design and enable impactful, innovative solutions for sustainable and inclusive development. Leveraging financing, technical expertise and knowledge, it promotes growth and well-being in 26 countries. Visit our website www.iadb.org/en.
About IDB Invest
IDB Invest, a member of the Inter-American Development Bank Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $21 billion in assets under management and 394 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.
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).