Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
8
Although capital inflows to developing economies have been buoyant for much of the past
decade, the short-term outlook for capital flows globally is uncertain. One of the key drivers of
capital inflows in recent years – extraordinarily loose monetary policy in mature Western
economies that “pushed” money into emerging markets – is likely to be reined in, albeit very
gradually.6 Emerging economies such as Brazil, India and Russia are growing much more
slowly than expected and also face a number of specific policy challenges to achieve higher
sustained growth, underscoring a need to undertake structural reforms if they are to fulfil their
potential. This need to respond to policy challenges also applies to the COMCEC Member
Countries in political transition and the fragile states that form a significant proportion of the
COMCEC membership.
The combination of an uncertain global environment and the prospect of increased US bond
yields as monetary stimulus is reined in suggest that inflows from private creditors (including
banks) may suffer markedly. According to the IIF’s June 2013 note on capital flows to emerging
market economies,7 a number of global trends may emerge in the short term, including:
 Portfolio equity flows may fall sharply in the remainder of 2013 on the back of revised
growth expectations, possibly recovering in 2014;
 FDI inflows to emerging economies may continue falling in absolute terms, with 2014
inflows approximately 6% below the 2012 level, and Africa and the Middle East
experiencing more buoyant capital flows than emerging Asian countries.
1.1. CAPITAL INFLOWS TO THE COMCEC MEMBER COUNTRIES – AN
OVERVIEW
Table 1.1 provides a ranking of the 57 COMCEC Member Countries according to their 2010-12
capital inflows average, using proprietary data from the EIU. Total capital inflows comprise
inward direct investment, inward portfolio investment and medium and long-term debt
inflows and exclude IMF credit. Medium and long-term debt inflows are commercial bank
loans, international bond issuance and officially guaranteed loans, defined as loans from
official or private lenders to the public sector, or loans to the private sector guaranteed by the
public sector.
Table 1.2 provides a similar ranking of the COMCEC Countries, divided into the four country
income groups according to World Bank classifications based on 2012 gross national income
per capita data.8
6
Note previous cycles of US monetary tightening have contributed to emerging market crises, such as the Mexican tequila crisis of
1994
7 “Capital flows to emerging market economies”, Research Note, Institute of International Finance (IIF), June 2013
8 Economies are divided according to 2012 GNI per capita, calculated using the World Bank Atlas method. The groups are: low
income, US$1,035 or less; lower middle income, US$1,036 - US$4,085; upper middle income, US$4,086 - US$12,615; and high
income, US$12,616 or more. Source