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The global housing deficit in both developed and developing countries is increasing - driven by demographic and other mega-trends including urbanization and income inequality. Global pension fund assets, on the other hand, are both growing and increasingly looking for long-term, productive investments. There are multiple avenues through which pension funds can invest in the housing sector.
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Forests have been receiving increased attention over the past few years, particularly through international climate change negotiations and efforts to develop a mechanism for reducing emissions from deforestation and forest degradation. In many forest-rich countries, the implementation of the recently declared COP21 INDC1 targets builds significantly on greenhouse gas (GHG) emission reductions and emission avoidance related to forests. Most of these countries will require considerable new investments in forestry that can be realized only through an increased level of financing over the next few years. Given the scale of the financing requirements, prevailing macroeconomic conditions, and fiscal constraints, it is unlikely that these countries will be able to fund these programs alone.
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World Bank Group President David Malpass spoke about the Coronavirus (COVID-19) pandemic and economic shutdowns that are causing the world's deepest recession since World War II and the first major recession in ASEAN countries since the 1997 Asian devaluation crisis. He mentioned that women are faring worse in the crisis than men across most countries and across several dimensions including loss of jobs, decline in remittances, food insecurity, and the heavy burden of caregiving responsibilities. He explained that the World Bank Group has moved rapidly to deploy its full financial capacity with much of it going to the poorest countries and to private sectors for trade finance and working capital. He highlighted that the World Bank made available up to twelve billion US dollars of fast-track financing to client countries for them to choose, purchase and deploy Coronavirus (COVID-19) vaccine. He spoke about the DSSI debt service suspension initiative, which he called a good first step, but the relief so far has been less than anticipated because not all creditors participated. The World Bank Group is working on effective approaches for debt reduction and debt resolution to address low income countries' unsustainable debt burdens. Countries will need to prepare for a different economy post-COVID, by allowing capital, labor, skills and innovation to move into new businesses and sectors. The World Bank strongly supports trade facilitation measures to encourage greater flows across borders.
Capital Markets and Capital Flows --- Coronavirus --- COVID-19 --- Finance and Development --- Finance and Financial Sector Development --- Poverty --- Trade Facilitation
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Robert S. McNamara, President of the World Bank Group, emphasizes that the Bank is a development investment institution, not a philanthropic or social welfare organization. He says the Bank's lending policy is founded on two basic principles: sound projects and creditworthy borrowers. Loans are not made unless both criteria are met. He discussed hard-loan operations of the IBRD. In the Bank's 23-year history, there have been no losses on its loans. No government has failed to honor its obligations. The Bank has not been a target for debt repudiation as have bilateral aid agencies and private credit corporations. He says the reason is obvious. Developing nations are convinced that it is in their own best interest to keep impeccable relations with the Bank. He further states that because the Bank's loans, made out of borrowed funds, are disbursed and repaid in the same currencies, the Bank faces no devaluation risks on its borrowed funds. Its obligations to its creditors are matched by the repayments due from the borrowers. He concludes by saying that the World Bank is unique in its security and strength, and in its purpose and program. In the business of development, hardheaded realism must be the guide. Neither naive optimism, nor despondent pessimism will do. The simple fact is that in the last third of the twentieth century the underdeveloped world will either develop, or it will be caught up in catastrophe. The one thing it will not do is stand still and wait.
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Mexico's challenges in infrastructure finance can be framed along similar lines as other Advanced Economies (AEs) and large Emerging Market Economies (EMEs). Mexico is particularly well placed to make capital markets a reliable financing source complementing bank financing. Its capital markets are relatively mature, there is sufficient critical mass of long-term domestic institutional investors, and there is a relevant track record of innovative solutions for infrastructure financing from which to build. Section B of this Technical Note assesses the degree of maturity of the Mexican capital markets in those aspects that are most relevant for infrastructure financing. Section C discusses the different elements of the infrastructure financing ecosystem taking stock of the PPP framework and financial innovations that have been developed, with emphasis on impact, expected developments and potential improvements. Section D, discusses the role of development financial institutions in mobilizing private sector financing with emphasis on Banobras and Fonadin. Finally, section E concludes and provides a set of recommendations
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The authorities' vision of ensuring that the capital markets support China's transformation towards a more market-oriented economy has driven capital markets development and, as the authorities recognize, the regulation and supervision of the markets. Looking forward, many of the challenges ahead will continue to require a careful balancing of the developmental and stability mandates, which in turn would have an impact on regulation and supervision. In the case of China, many of the challenges ahead stem from the authorities' vision to further develop the markets and the potential approaches to do so in a manner that delivers more market-based solutions, while ensuring investors' protection and financial stability. For example, to further strengthen the role of disclosure in the public markets and the private exercise of rights work would be required on several fronts, including initiatives to (i) strengthen corporate governance of issuers as a key step to improve the quality of their financial disclosure, (ii) ensure that different gatekeepers comply with their responsibilities, (iii) enhance investors' ability to exercise their rights and (iv) foster greater participation of institutional investors in the markets, some of which are not covered by the IOSCO Principles. Further, from a broader perspective a key challenge for the CSRC and the Chinese authorities is to ensure that the multi-tiered market is implemented in a way that it does not adversely affect investors' confidence in the capital markets as a whole. To this end, the CSRC should keep the National Equities Exchange and Quotation Corporation (NEEQ) and the securities companies that operate in it under close monitoring. In addition, as planned by the authorities, standards should be implemented to facilitate the regional trading platforms to develop safely and operate as an effective way to bring local financing to local businesses. In the long run, the authorities should consider the development of a common framework that encompasses all non-exchange trading platforms, while allowing for differences in the role that the CSRC would play in their oversight. Similarly, further development of the futures markets would require consideration of the potential need for a more sophisticated business model for futures intermediaries and how best to foster the confident participation in the market by endusers. This will require the CSRC to assess whether changes are needed in the regulatory framework as well as education programs and continued close monitoring of market activity and risk management practices. Finally, because of the importance of the audit process for the reliability of financial information across the financial sector, it is critical that the authorities unite their efforts to ensure high quality audits and a well-regulated profession. The creation of a single, independent oversight body might be an option to achieve this objective.
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Since the global financial crisis and the end of the commodity super-cycle, weak growth and countercyclical fiscal policy have contributed to deteriorating public finances in many countries across the globe. As public debt burdens rose, credit ratings deteriorated and a number of countries have been downgraded from investment to sub-investment ('junk') grade. Rating downgrades continue to haunt countries in a world of low growth. This paper examines the effect of such downgrades on short-term government borrowing costs, using a sample of 20 countries between 1998 and 2015. The analysis suggests that a downgrade to sub-investment grade by one major rating agency increased Treasury bill yields by 138 basis points on average. Should a second rater follow suit, Treasury bill rates increase by another 56 basis points (although this effect is not statistically significant). The analysis does not detect any equivalent impacts for local currency ratings, even though T-bills tend to be issued in domestic currency, although this may be due to sample limitations and is therefore not conclusive.
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This policy note was prepared in parallel to the report Pakistan at 100, Shaping the Future. The report Pakistan at 100 discusses options to accelerate and sustain growth in Pakistan so that the country becomes an upper middle-income country when it turns 100 years old in 2047. This policy note discusses Pakistan achieving an advantageous environment for public and private investment by strengthening its business climate and reforming the financial sector.
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There is growing interest in impact investing, the idea of deploying capital to obtain both financial and social or environmental returns. Examination of every equity investment made by one of the largest and longest-operating impact investors across 130 emerging market and developing economies shows this portfolio has outperformed the S and P 500 by 15 percent. Investments in larger economies have higher returns, and returns decline as banking systems deepen and countries relax capital controls. These results are consistent with imperfect integration of international capital markets and the thesis of impact investing that some eligible markets do not receive sufficient investment capital.
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Earmarked credit was about half of total credit in Brazil at end-2015, after declining to one third of total credit in 2007, it is back to the levels in late 1990s. During 2008-15, earmarked credit increased from 12 to close to 30 percent of GDP. Initially, the objective was to counteract the retrenchment in lending by private lenders. However, earmarked credit expansion continued during the subsequent commodity boom period. This paper provides a taxonomy of the complex earmarked credit system and a preliminary analysis of the potential implications. The interventions include a complex web of price and quantity regulations, reserve requirements, tax exemptions and forced savings schemes that are used for earmarked lending to specific sectors. The objective of the taxonomy is to understand who funds the system, who benefits from it and how is it intermediated.
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