New statistics from GEMs consortium show risk of investing in emerging markets is lower than commonly perceived

 

New default and recovery statistics released today by the Global Emerging Markets Risk Database (GEMs) Consortium shed light on investment risks in emerging markets and developing economies (EMDEs) and provide new views on potential opportunities for investment and diversification through increased transparency.

EMDEs face challenges financing their development needs, including a potential cumulative shortfall of more than $10 trillion by 2050, according to the Organisation for Economic Co-operation and Development (OECD). The GEMs statistics, released in three new publications, share insights from multilateral development banks (MDBs) and development finance institutions (DFIs) into the credit risk performance of their lending to public, private, and sovereign and sovereign-guaranteed entities in EMDEs. The findings indicate the possibility of mobilizing increased capital to help address EMDEs’ finance shortfall.

The publications, Default and Recovery Statistics: Private Lending 1994-2024; Default and Recovery Statistics: Public Lending 1994-2024; and Default and Recovery Statistics: Sovereign and Sovereign-guaranteed Lending 1984-2024, include new, more granular statistics than were shared in previous publications, providing investors and other GEMs users with greater insights and more information.

Main Findings:

  • Private Lending

    Between 1994 and 2024, loans from MDBs and DFIs to more than 10,000 private entities, including financial institutions and companies in 169 countries, had an average default rate of 3.54 percent, similar to default rates of private firms in advanced economies. Loans to private entities also showed strong recovery performance, with an average annual recovery rate surpassing global benchmarks at 72.9 percent. By sector, defaults were lowest in financials at 2.26 percent. The financial sector also showed the highest recovery rate at 79.1 percent. By region, while default rates were highest in Sub-Saharan Africa (6.05%), the recovery rate in Sub-Saharan Africa was also the highest across regions at more than 78%.
  • Public Lending

    Statistics on MDB and DFI lending to public entities—municipalities and companies that are at least 50 percent state-owned—showed a decline in the percentage of defaults over decades. Between 1994 and 2024, public entities had an average default rate of 2.61 percent, with a lower average default rate between 2004 and 2013 compared to the previous decade and the downward trend continuing between 2014 and 2024. Recovery rates for more than 1,000 public entities averaged 85.8 percent, the high success rate owing in part to the benefit of state guarantees. Latin America and the Caribbean recorded the highest average recovery rates while East Asia and the Pacific recorded the lowest.

  • Sovereign and Sovereign-guaranteed Lending

    Direct lending by MDBs to 167 sovereign EMDE countries and their states, institutions, or agencies with an explicit sovereign guarantee also showed strong performance. Over a 41-year period, 39 countries defaulted, with 15 countries having ongoing defaults at the end of 2024. The annual default rate averaged 0.77 percent, in part reflecting a change in GEMs reporting methodology for sovereign and sovereign-guaranteed lending. Default rates captured by MDBs on their lending to sovereign entities were significantly lower than those observed by international credit rating agencies for sovereign lending from non-MDB lenders. Recovery rates on loans to sovereign and sovereign-guaranteed entities averaged 95.1 percent.

  • New Metrics in This Year’s Publications

    The three new GEMs publications include new metrics for default rates, including by country and sector, by income group and region, and by project type. For recovery rates, these include by continent, by sector groupings, by World Bank region and Global Industry Classification Standard (GICS), by seniority, and by project type.

“By providing more granular statistics that risk and investment professionals can use in their pricing and risk models, GEMs enables investors, credit rating agencies and policy institutions to better understand and manage investment risks in regions that have historically been underserved by empirical credit risk information,” said Gregor Cigüt, Head of the GEMs Secretariat based in Luxembourg.

 

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