Funding Vital Emerging & Developing Market Projects: How GEMS and Private Markets can Help Achieve Scale

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Global challenges are best addressed globally. Many market participants estimate that Emerging Markets (EMs) require trillions of dollars in order to invest in infrastructure and transform their economies. This cannot be financed by Multilateral Development Banks (MDBs) and Development Financial Institutions (DFIs) alone. Private institutional capital is required to achieve the scale necessary to overcome global and local challenges.

Private Institutional Capital is constrained by factors such as the lack of reliable and consistent data, MDBs, with their rich experience in EMs, are in the position to alleviate certain data issues.

Granular historical default and recovery data across the countries and sectors, experienced and recorded by MDBs, is a key component for ARC Ratings and other market participants to produce robust assumption for risk assessment, preventing a more conservative approach in the absence of data. With high-quality and reliable data, ARC could supply the analysis, tools, and ratings to better assess the risk of complex transactions in various legal jurisdictions and assist in the analysis required for market participants to invest efficiently and at sufficient scale.

One such major initiative to alleviate issues associated with lack of available and reliable data is the Global Emerging Markets Risk Database Consortium (GEMs). This is a joint initiative between the European Investment Bank Group and the World Bank Group that has pooled credit default risk data from 25 MDBs that provides default and recovery rates data from Private, Sub-Sovereign, Sovereign, and Sovereign Guaranteed lending from 1994 to 2022. Although the granular dataset is yet to be published, finding a solution for market participants to use this data could be a game changer to achieve the necessary scale.

GEMs has stated its willingness to facilitate increased market transparency. However, this effort has been challenged by confidentiality aspects and agreements with the 25 MDBs and other DFIs on releasing this data to the wider market. There are potential solutions from which ARC and other market participate could benefit from: (i) for GEMs to release an “anonymised” dataset to the market; (ii) to focus disclosure efforts on how each MDB member maps each loan to GEMs internal scales; or (iii) to release the data to institutions that are equipped to handle confidential information daily, such as Credit Rating Agencies (CRAs).

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