Statistical Yearbook for Asia and the Pacific 2011
 
Economy
International financing
Data source: United Nations Conference on Trade and Development (UNCTAD). IMF, Balance of Payments Statistics. MDG Indicators Database. OECD, Development Database on Aid from DAC Members. The World Bank, World Development Indicators.

The global financial crisis significantly impacted two important sources of development financing for Asian and Pacific countries – foreign direct investment (FDI), which dropped by 30% between 2008 and 2009; and official development assistance (ODA), which plummeted by 70%. External debt played a limited role in cushioning this drop – for half of the countries that suffered reductions in FDI, ODA and remittances combined, the flows of external debt also dropped, although the drop was small for most of them.

Foreign direct investment

The global financial crisis sent foreign direct investment (FDI) tumbling sharply in Asia and the Pacific, by some 30%, from US$469 billion in 2008 to US$330 billion in 2009. In most other regions of the world, the drop was more drastic: from 33% in Europe to 36% in Latin America and the Caribbean, and 61% in North America – the drop in FDI was lowest in Africa at 19%. Within the Asia-Pacific region, the fall was less dramatic in East and North-East Asia (at 20%), South-East Asia (22%) and South and South-West Asia (28%); but more so in North and Central Asia (at 42%) and the Pacific (54%).

As a proportion of the total Asia-Pacific GDP, the net inflows of FDI dropped 0.8 percentage points, from 2.7% in 2008 to 1.9% in 2009. The drop in FDI as a percent of GDP in China and India was smaller than the regional average at 0.5 percentage points in both, but higher than average in the Russian Federation (1.4), Pakistan (2.2), Malaysia (2.6) and Viet Nam (4.1). FDI as a proportion of GDP increased in just a few countries, including the Philippines (by 0.2 percentage points) and Singapore (by 3.7 percentage points).

Figure III.21 – Changes in foreign direct investment, world regions and Asia-Pacific subregions, between 2008 and 2009

Figure III.21 – Changes in foreign direct investment, world regions and Asia-Pacific subregions, between 2008 and 2009

While most FDI to developing countries comes from high income countries, middle income countries have also increased their FDI contribution substantially in recent years – between 2001-2005 and 2006-2009 the FDI outflow as a percent of GDP increased from 1.2% to 2.6% in high income countries; 1.0% to 2.2% in upper middle income countries; and 0.3% to 1.0% in lower middle income countries. The trend is consistent with the so-called investment development path theory, whereby enterprises in developing countries may eventually acquire ownership advantages that permit them to compete successfully outside their home markets – either to access a larger market or to relocate production to a lower cost area. The global share of China and the Russian Federation in the world’s total outward FDI (OFDI) has increased substantially in the last decade. Although the volume of their OFDI dropped from US$108 billion in 2008 to US$94 in 2009, such 13% drop was lower than the 43% drop in the global OFDI flows. As a result, their combined world share jumped to 8.5% in 2009. Although China and the Russian Federation have had substantial growth in FDI outflow over the last two decades, Japan and Hong Kong, China have remained the major sources of FDI in the Asia-Pacific region for the last decade with a combined world share of 12% in 2009.

Figure III.22 – Foreign direct investment outflow from selected Asia and the Pacific countries, 1993 to 2009

Figure III.22 – Foreign direct investment outflow from selected Asia and the Pacific countries, 1993 to 2009

The emerging trend of increasing outward FDI from middle income countries can have important implications for development financing because transnational corporations from middle income countries tend to invest in neighbouring countries with similar economic conditions and institutions.

The inflow of FDI can result in transnational corporations channelling technology and expertise to enhance the productive capabilities of the recipients. In this ideal situation, the recipients of FDI will reap long-term benefits from the investment as opposed to only a transient increase in income.

Official development assistance

The component of development financing most affected by the global crisis was official development assistance (ODA). Total ODA flows to Asian and Pacific countries dropped by 70% between 2008 and 2009, from US$28 billion to US$8.5 billion – proportionally greater than the drop in FDI. The median ODA received as a percent of GDP dropped from 3.8% in 2008 to 0.8% in 2009, which represents a drop of 80%. No countries, in the region, experienced an increase in ODA between 2008 and 2009.

Figure III.23 – Changes in official development assistance, Asia and the Pacific, between 2008 and 2009

Figure III.23 – Changes in official development assistance, Asia and the Pacific, between 2008 and 2009

Workers’ remittances

Contrary to trends in FDI and ODA, workers’ remittances in Asia and the Pacific increased from US$114 billion in 2008 to US$117 billion in 2009, or by 1.8%. In 2009 remittances were most significant, as a proportion of GDP, for Tajikistan (at 35%); Samoa (at 23%); Kyrgyzstan and Nepal (22%); Bangladesh (12%), and the Philippines (9.4%). In the past decade remittances constituted a relatively stable source of foreign exchange for many countries in the region, which increased as a share of GDP in all but 4 countries with available data.

Figure III.24 – Remittances and foreign direct investment as proportions of GDP, Asian and Pacific countries or areas, 2009

External debt

The external debt-to-GDP ratio peaked in South- East Asia in 1998 and in North and Central Asia in 1999 as a result of the Asian financial crisis and the Russian financial crisis, but decreased markedly in later years. In the last decade, the debt-to-GDP ratio has also decreased in South and South-West Asia and for the East and North- East Asia and Pacific countries with available data (with the exception of Fiji).

Figure III.25 – Index of external debt as a proportion of GDP, Asia-Pacific subregions, 1991 to 2009

Figure III.25 – Index of external debt as a proportion of GDP, Asia-Pacific subregions, 1991 to 2009

Figure III.26 – Changes in foreign direct investment, remittances, official development assistance and external debt as a proportion of GDP, Asia and the Pacific, 2009

Figure III.26 – Changes in foreign direct investment, remittances, official development assistance and external debt as a proportion of GDP, Asia and the Pacific, 2009

External debt was however not consistently used in compensating for decreases of financial flows during the global financial crisis. Net external debt flows increased in only 10 of the 19 countries whose combined inflows of FDI, remittances and ODA declined in 2009.

General trends in external debt services paid by Asian and Pacific countries show a decline in debt servicing over the last two decades. In 2008, the ratio of debt services to exports of goods, services and regional income received from abroad, was only 2.6%, in striking contrast to 7.8% in 2000 and 17% in 1990. In 2008, the debt service ratio varied somewhat across subregions, from 2.8% in South-East Asia to 4.2% in North and Central Asia and 6.3% in South and South-West Asia.

Figure III.27 – Debt service ratio, country groupings of Asia and the Pacific, 1991 to 2008

Figure III.27 – Debt service ratio, country groupings of Asia and the Pacific, 1991 to 2008

Portfolio investment1

Portfolio investment represents the foreign purchase of financial instruments which does not result in foreign management or ownership. Net portfolio investment inflows are smaller and more volatile than FDI inflows as percentage of the GDP. From 1993 to 2009 the annual FDI flows ranged from 2.1% to 3.3% of GDP; while the annual flows of portfolio investment over the same period ranged from -1.1% to 1.5%. Another difference is that while the FDI-to-GDP ratio reflected a general increasing trend from 1993 to 2008, the portfolio-investment-to- GDP ratio showed less of a discernible trend.

Portfolio investment is highly sensitive to economic downturns and thus dropped much more dramatically than FDI during 2008. Portfolio investment fell from 0.6% in 2007 to -0.9% in 2008. However, portfolio investment flows recovered quickly, bouncing back to 0.4% of the GDP in 2009. Such a speedy recovery contrasts sharply with the Asian financial crisis of 1997 and 1998. In the earlier crisis, portfolio investment dropped even more sharply, from 1.5% of the GDP in 1997 to 0.5% of GDP in 1998, and remained negative for five years, until 2003.

FDI and portfolio investment flows to selected Asian and Pacific countries as a proportion of GDP, 1993 to 2009

FDI and portfolio investment flows to selected Asian and Pacific countries as a proportion of GDP, 1993 to 2009

Innovative financing for development2

In implementing the recommendations of the Monterrey Consensus from 2002, various groups of countries have explored new ways of raising financing for development. One of them, the Leading Group on Innovative Financing for Development, was launched in March 2006 to promote the introduction of a small levy on airplane tickets to fund access to treatment of HIV/AIDS, tuberculosis and malaria and to lower the prices of drugs and tests in low-income countries. The levies, which were imposed in about 30 countries, contributed almost US$2 billion between 2006 and 2010 to UNITAID3 (an international facility for the purchase of drugs against HIV/AIDS, malaria and tuberculosis). The sustainability and predictability of funding coming from the air-tickets levy has allowed UNITAID to commit itself to purchasing high volumes of medicines and diagnostics over a long period, thereby creating economies of scale that drive prices down.

The Leading Group on Innovative Financing for Development has also mobilized resources in other innovative ways. Among them is the International Finance Facility for Immunization, which front-loads long-term aid flows by issuing bonds based on legally binding, 10-to-20-year donor commitments. The first such bond issue in November 2006 raised US$1 billion. Subsequent placements by Daiwa Securities with Japanese retail investors raised another US$1 billion between 2008 and 2010. This funding is managed by the Global Alliance for Vaccines and Immunization (GAVI), which allocates it to immunization projects with a proven track record. The funding raised through the International Finance Facility for Immunization has doubled GAVI’s capacity to deliver vaccines. Between 2011 and 2015 it expects to immunize 240 million children in poor countries, vis-à-vis 230 million between 2001 and 2010.

A complementary scheme is Advance Market Commitments (AMC), which seeks to address shortcomings of pharmaceutical markets in the poorest countries. AMC establishes contractual partnerships between donors and pharmaceutical companies to focus research into neglected diseases and distribute drugs at affordable prices. Through this scheme donor Governments commit money to guarantee the price of vaccines once they have been developed, thus generating a viable future market and providing incentives for the development of suitable vaccines for poor countries. AMC actions have led to a 90% drop in the price of some vaccines.

Other initiatives to raise funding for development discussed by the Leading Group include (a) helping developing countries strengthen their capabilities in collecting taxes and implementing effective information-sharing agreements across countries to curb tax evasion from illegal flows; (b) implementing a currency transactions tax (CTT); and (c) innovative mechanisms to finance education and the mitigation and adaptation to climate change. The willingness of the group to think “outside the box”, to find solutions to global problems through the joint participation of developed and developing countries, to engage the private sector and to pilot initiatives rather than just discussing them, is in itself innovative and worthy of attention in areas of development beyond financing.


1 Data in this section are sourced from: International Monetary Fund, Balance of Payments Statistics Yearbook; the figures represent aggregate values comprising the following countries: Armenia, Azerbaijan, Bangladesh, Brunei Darussalam, Cambodia, China, Fiji, French Polynesia, Georgia, India, Indonesia, Kazakhstan, Lao People’s Democratic Republic, Malaysia, Maldives, Mongolia, Nepal, New Caledonia, New Zealand, Pakistan, Papua New Guinea, Philippines, Russian Federation, Samoa, Singapore, Solomon Islands, Sri Lanka, Tajikistan, Thailand, Turkey and Vanuatu.

2 Text box based on information in: United Nations, “Progress report on innovative sources of development finance: Report of the Secretary General”, Sixty-fourth Session of the General Assembly, 29 July 2009, A/64/189; and United Nations, “Monterrey Consensus of the International Conference on Financing for Development,” Report of the International Conference on Financing for Development, Monterrey, Mexico, 18-22 March 2002 (A/CONF.198/11, chapter 1, resolution 1, annex; also, United Nations publication, Sales No. E.02.II.A.7).

3 UNITAID, Report on Key Performance Indicators 2010. Available from http://www.unitaid.eu/

 
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Table III.22 Inward foreign investment
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Table III.23 Outward foreign investment
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Table III.24 Official development assistance
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Table III.25 Workers’ remittances

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Table III.26 Debt
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