The Global Emerging Markets Risk Database (GEMs) Consortium reported on country-by-country loan default and recovery rates for the first time on October 15, but critics say the Consortium has still not met the key transparency demand: making the database accessible. The new data was called insufficient by critics in the private and nonprofit sector who say that issuance of more detailed information is necessary to boost lending to Emerging Market and Developing Economies (EMDEs).
GEMs said it is issuing “increasingly granular statistical publications,” but its future plans remain unclear.
The latest information came in two reports, released by the European Investment Bank, which administers the GEMs database. The GEMs data comes from 26 multilateral development banks (MDBs) and development finance institutions (DFIs) that pool their data using a harmonized template. They use this data to inform their decisions.
The GEMs database is used by the 26 institutions, whose representatives jointly make decisions about its transparency. The issue is how much data should be made available. There is widespread agreement that more information would benefit EMDEs by providing investors “greater insights into credit risks in emerging markets, thereby allowing them to better guide their asset allocations,” as the GEMs press release puts it.
Hubert Danso, Chief Executive Officer and Chairman of African Investor, an institutional investment holding platform based in South Africa, sharply criticized the “piecemeal approach” of the GEMs Consortium. “While today’s reports provide fragmented insights using GEMs data, they unfortunately miss the mark,” Danso said.
Karen Mathiasen, project director with the Center for Global Development, a Washington-based think tank, also expressed concerns, saying that “for GEMS data to be of real use to the private sector it needs to include breakdowns by country and sector.” The push for more detailed transparency has arisen from many quarters, but perhaps most significantly from the Group of 20 developed countries.
Transforming GEMs into a free-standing entity “by 2024” was proposed. A 2022 report to the G20, called the Capital Adequacy Framework (CAF) review, said GEMs should “publish more granular statistics and analysis of the data showing credit performance for sovereign and private sectors by sector, countries or country groups, and regions.”
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Román Escolano, Group Chief Risk Officer, European Investment Bank, said, “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.” However, the Consortium holds closed meetings and does not release any documents about them, including minutes.
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.
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 view on EMDEs credit risks. According to the GEMs press release, the updated publications, with greater disaggregation and analysis, address feedback from key stakeholders.
One of the key challenges in emerging markets is the lack of available credit risk data. The GEMs database is an effort to address this issue, but critics argue that it needs to be more transparent and accessible. As the development finance setting continues to evolve, the need for more granular data and transparency will likely become even more pressing, which is why better trade infrastructure is essential.
The Development Committee of the World Bank Group stressed that private capital mobilization “will be instrumental in meeting development financing needs.” The Committee “applauded the publication of additional data from the Global Emerging Markets Risk (GEMs) database and statistics on the WBG’s default and recovery rates and look forward to further disaggregation, including by country and sector.”
In comparison to other initiatives, the GEMs database has the potential to provide valuable insights into credit risks in emerging markets. However, its effectiveness will depend on the level of transparency and accessibility it provides. As the international community continues to work towards achieving the Sustainable Development Goals, the importance of initiatives like the GEMs database will only continue to grow.
Danso said, “The reluctance within MDBs to fully meet their mandated responsibility to crowd-in private capital reflects not just a breach of mandate, but also erodes trust with their sovereign members and clients. Such negligence by both the MDBs and the GEMs Secretariat compromises global financial stability and sustainable development—precisely when their most vulnerable and fiscally constrained clients need it most.” The African Investor has launched an initiative to reform private capital in Africa to address these issues.
