Net capital flows to developing countries fell to US$780 billion in 2008, reversing an upward trend that began in 2003 and peaked at US$1,222 billion in 2007, according to a new report from the World Bank. Particularly hard hit were private capital flows, which fell by almost 40 percent. All developing regions were affected, with emerging market economies in Europe and Central Asia experiencing the sharpest downturn.

Global Development Finance 2010: External Debt of Developing Countries, released Wednesday, provides comprehensive data from 128 developing countries showing the impact of the financial crisis on their access to international capital flows. Some trends and developments from the report are as follows:

• Official creditors stepped in to offset the decline in private capital flows, increasing their support to low- and middle-income countries. The net inflow of medium- and long-term financing from official creditors, including grants, rose by 54 percent in 2008 to US$114 billion. Almost 75 percent of these funds took the form of grants.

• Foreign direct investment (FDI) rose moderately in 2008 to US$594 billion. But it remained concentrated: the top ten recipient countries received 70 percent of FDI inflows, with China alone commanding one quarter of the total.

• Increased concessional financing in 2008, including US$6.7 billion from the International Development Association (IDA), helped support low-income countries with limited or no access to market-based financing. Official grants (excluding technical cooperation grants) from bilateral and multilateral sources rose by 13 percent. In addition, bilateral creditors restructured claims of US$3.1 billion with six low-income countries, canceling more than half of them.

• External debt indicators improved. Since 2000 the rate of growth in developing countries outpaced the accumulation of new external obligations. Developing countries registered a ratio of outstanding external debt to export earnings of 57.8 percent in 2008, down from 122.2 percent in 2000. The ratio of debt to gross national income (GNI) fell to 22.1 percent, compared to 37.2 percent at the start of the decade. The debt service to exports ratio was 9.5 percent in 2008, half the 2000 level.

(China Development Gateway February 4, 2010)