New Publications by GEMs Consortium Offer Further Insights into Emerging Market Credit Risk – EQ
In Short : The GEMs Consortium has released new publications that provide deeper insights into credit risk in emerging markets. These publications analyze current trends, challenges, and methodologies for assessing credit risk, helping investors and stakeholders make informed decisions. By focusing on emerging markets, the reports aim to enhance understanding and management of credit risks, ultimately supporting more sustainable investment strategies in these regions.
In Detail : LUXEMBOURG — Two new publications released today by the GEMs Consortium—a group of 26 multilateral development banks (MDBs) and development finance institutions (DFIs)—provide further insights on the level of credit risk in emerging markets and developing economies (EMDEs) according to the investment experience of Consortium members.
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 MDBs and 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 show 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.
“The availability of credit statistics is critical to mobilizing more private investment into emerging markets and developing economies by helping investors better understand the risk profile of such investments,” said European Investment Bank Group Chief Risk Officer Román Escolano. “The updated publications, with greater disaggregation and analysis, address feedback from our key stakeholders, and GEMs plans to continue publishing such statistics in a timely manner.”
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 GEMs statistics challenge the conventional view that emerging markets are high-risk destinations for investment,” said International Finance Corporation Vice President for Risk and Finance Federico Galizia. “With 30 years of default frequencies and recovery rates, and now even further levels of disaggregation, GEMs shows that emerging market investments should be within the risk appetite of a broad range of investors.”
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.
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).
