IDB and IDB Invest Highlight New GEMs Consortium Publications, Offering Insights into Emerging Market Credit Risk

• Two new publications by the Global Emerging Markets Risk Database (GEMs) Consortium provide granular default and recovery patterns for over three decades of development finance and highlight key drivers of investment risk in emerging markets.

• The GEMs Consortium is comprised of 26 multilateral development banks (MDBs) and development finance institutions (DFIs).

The Inter-American Development Bank (IDB) and IDB Invest, members of the Global Emerging Markets Risk Database (GEMs) Consortium, are announced the release of two publications that shed light on credit risk trends across emerging markets and developing economies (EMDEs). The publications, based on over 30 years of data from GEMs Consortium members, provide crucial insights into default and recovery rates, helping to enhance the understanding of investment risks in EMDEs.

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 Multilateral Development Banks (IDBs) and Development Finance Institutions (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 shows 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.

"GEMs statistics reaffirm that emerging markets offer investment opportunities with manageable risk profiles," said Søren Elbech, Chief Risk Officer of the Inter-American Development Bank. "By providing more detailed data on default and recovery rates, these publications help demystify the notion that EMDEs are excessively risky, encouraging a broader spectrum of investors to consider these regions as viable and sustainable investment destinations."

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 enhanced data provided by the GEMs Consortium empowers investors with a clearer view of the risk landscape in emerging markets," said Rachel Robboy, Chief Risk Officer of IDB Invest. "These insights are vital for aligning investment strategies with the growing opportunities in EMDEs, and support our efforts to build the MDB asset class and partner with the private sector to scale sustainable development."

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. Both new publications are available on the GEMs website (www.gemsriskdatabase.org).

See GEMs Consortium press release here

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