Global Emerging Markets

New publications by GEMs Consortium offer further insights into emerging market credit risk

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

Luxembourg, October [15], 2024 — Two new publications released today by the GEMs Consortium  – a group of 26 multilateral development banks (MDBs) and development finance institutions (DFIs) – provide further insights on the level of credit risk in EMDEs according to the investment experience of Consortium members.

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 MDBs and 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.

“The availability of credit statistics is critical to mobilizing more private investment into emerging markets and developing economies by helping investors better understand the risk profile of such investments,” said Román Escolano, Group Chief Risk Officer, European Investment Bank. “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.”

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 GEMs statistics challenge the conventional view that emerging markets are high-risk destinations for investment,” said Federico Galizia, Vice President, Risk and Finance, International Finance Corporation. “With 30 years of default frequencies and recovery rates, and now even further levels of disaggregation, GEMs shows that emerging market investments should be within the risk appetite of a broad range of investors.”

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).

About GEMs

Global Emerging Markets Risk Database (GEMs) Consortium is one of the largest credit risk databases for the emerging markets operations of its member institutions – multilateral development banks and development finance institutions. It pools anonymized data on credit defaults on the loans extended by Consortium members the migrations of their clients’ credit rating and the recoveries on defaulted projects in emerging markets and developing economies, thus providing an insight into geographies that are otherwise relatively poorly served in terms of empirical credit information.

GEMs was established in 2009 as a bilateral initiative between the European Investment Bank and the International Finance Corporation (World Bank Group). Since then, the GEMs Consortium has grown to include 26 members: African Development Bank (AfDB), Agence Française de Développement (AFD), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Black Sea Trade and Development Bank (BSTDB), Banque Ouest Africaine de Développement (BOAD), British International Investment (BII), Council of Europe Development Bank (CEB), Central American Bank for Economic Integration (CABEI), European Bank for Reconstruction and Development (EBRD), European Investment Bank Group (EIB), GuarantCo, Inter-American Development Bank (IDB), Inter-American Investment Corporation (IDB Invest), International Finance Corporation (IFC), International Bank for Reconstruction and Development (IBRD), International Fund for Agricultural Development (IFAD), Islamic Development Bank (IsDB), Kreditanstalt für Wiederaufbau (KfW), Multilateral Investment Guarantee Agency (MIGA), Netherlands Development Finance Company (FMO), U.S. International Development Finance Corporation (DFC), New Development Bank (NDB), Proparco, Cassa Depositi e Prestiti (CDP), and Development Bank of Southern Africa (DBSA).

GEMs, the Global Emerging Markets Risk Database, is one of the world’s largest credit risk databases for the emerging markets operations of its member institutions, that are Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs). It pools data on credit defaults on the loans extended by consortium members, the migrations of their clients’ credit rating and the recoveries on defaulted projects.

GEMs was established in 2009 as a joint initiative between the European Investment Bank (EIB) and the International Finance Corporation (IFC – World Bank Group). Since then, the GEMs consortium has grown to include all major MDBs and DFIs worldwide.

The Consortium members contribute anonymized data on their projects’ credit events notably in emerging markets and developing economies. In return, members gain access to aggregate GEMs statistics on observed default rates, rating migration matrixes and recovery rates by geography, sector, time-period and various other dimensions.

GEMs statistics thus provide members with an insight into geographies that are otherwise relatively poorly served in terms of empirical credit information.

For lower income countries, fragile and conflict states and frontier markets, GEMs in many cases contains the most exhaustive database of credit data, both in number of data points and length of coverage. The consortium members apply the GEMs statistics in their various internal risk management processes, such as benchmarking, provisioning estimates, probability of default (PD) and loss given default (LGD) models calibration, regulatory and economic capital calculations and the validation on PD & LGD assumptions.

Representatives of the member institutions of the consortium, meet twice a year: at the beginning of the year for a Working Group Annual Meeting and mid-year for a General Assembly Annual Meeting. The General Assembly consists of risk management professionals from the respective member institutions and is concerned with the technical developments around data collection and application of GEMs output statistics, methodology, reporting and other developments as guided by the GEMs Steering Committee. The member institutions of the consortium currently include: