the world bank group's support to capital market development

The World Bank Group’s Support to Capital Market Development

Anjali Kumar, IEG

February 2, 2017

An IEG evaluation

Motivation and Approach

Findings

What Worked? What Didn’t?

Recommendations

What’s Next? The World Bank Group’s Support to Capital Market Development| Anjali Kumar| 02.02.2017

3

Motivation, Scope and Approach

Why this evaluation and why now?

Addis Ababa Agenda: Mobilize domestic resources

Long history of WBG support - no previous evaluation

Coverage: 1,071 interventions; 64 countries, 5 case studies

Benchmarking: Against FSAP diagnostics; global standards

The World Bank Group’s Support to Capital Market Development| Anjali Kumar| 02.02.2017

4

Coverage: Issuers, Investors, Infrastructure – and Financing the Real Sector


5

Overarching Evaluation Question

Has the Bank Group been relevant, effective and efficient in supporting the development of its client countries’ domestic capital markets to: Deepen their financial systems, Realize real sector development, and Support the achievement of WBG twin goals


Findings

What worked? What didn’t?


7

Main Messages

Rich diagnostics

“Public goods” – government bonds, new products and markets, new asset classes

Shaped global market architecture

Right overall direction and positive contributions in many areas:

Constraints:

Diagnostics not adequately used

Limited integration across interventions

Uncertain and unstable funding commitments

Poor knowledge management

…But mixed support to the real sector


8

Rich Diagnostics - But Limited Follow-up

Financial Sector Assessment Programs (FSAPS) provided detailed diagnostics – but no blueprints for the way ahead.

Limited follow up of critical findings – only ¼ of interventions

Country Assistance Strategies:

But few specific references to capital markets work.

Little reflection of FSAP findings to country work program


9

Building Bond Markets – Innovative Advisory Strategies

Core to WBG Capital Market Development Sovereign Bonds: the GEMLOC Program

Innovative three pillar structure: GEMX index, PIMCO fund and advisory platform

Only partially successful – design and market factors

Non-government bonds and real sector Financing: ESMID SECO and SIDA “Deep Dives” yet to be evaluated

Independent country based work E.g., FIRST-support: Morocco, Vietnam- valuable

outcomes


10

Treasury Bond Issues in Many Local Currencies – but Limited links to Advisory Work

22%

16%

43%

11%13%

21%15%

5%

17% 17%

0%

10%

20%

30%

40%

50%

0

5,000

10,000

15,000

20,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

IFC Non-Core Currency Bond Issuance (FY05-14)

Total Bond Issuance (US$ million)Non-core Currencies Issuance (US$ million)% total IFC Bond Issuance

13.7%

9.1%

20.1%

23.2%

6.3%

16.5%15.0%

7.4%

15.9%

4.3%

0%

5%

10%

15%

20%

25%

0

10,000

20,000

30,000

40,000

50,000

60,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

IBRD Non-Core Currency Bond Issuance (FY05-14)

Total Bond Issuance (US$ million)Non-core Currencies Issuance (US$ million)% total IBRD Bond Issuance

IFC and IBRD Treasuries issue local currency bonds

Mostly offshore, largely for funding

But also for local investment finance, decoupling risk, and demonstration effects

Some onshore issues too

Findings:

Many one off issues – limited impact

Programmatic issuance, eg IFC’s rupee ‘Masala’ bonds helped offshore yield curve

Can increase impact through integration with advisory work.

Other MDBs provide examplesThe World Bank Group’s Support to Capital Market Development| Anjali Kumar| 02.02.2017

11

Few IPOs though private equity – and most clients not ready for secondary market mortgage instruments

Public equity interventions spun off or left to private sector

Private equity: countercyclical and frontier market role – but IPO exits rarely feasible.

Negligible impact on public securities markets

IFC was pivotal in helping develop mortgage-backed securities in Colombia and Russia

Markets often not ready for secondary market instruments.

0

5

10

15

20

25

30

35

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Total No. of IFC Funds No. of Private Equity Funds

IFC Private equity funds FY00-FY14


12

Limited Links of Investors to Issuers in Insurance and Pensions projects..

Insurance and pension funds can hold capital market instruments

As part of their portfolio of assets

But few WB operations in insurance and pensions looked at their investment strategies

Lost opportunity for capital market development

Most interventions in Insurance have a product or risk management focus

Pensions interventions focus understandably on issues of coverage and fiscal sustainability…

…reflecting the dominance of public pensions in many client countries and nascent multi-pillar pension systems.


13

WBG helped build market infrastructure in some areas

Legal and Regulatory frameworks – advice provided through FSAPs and FIRST-funded follow up

But relevance in a global context is unclear and outcomes are hard to assess – could use FSAPs to track progress

Securities Settlement Systems - Successfully integrated emerging markets in global standards

Most projects aimed at payment systems overall, or aimed to reduce settlement risk in government securities

Corporate Governance Reports (CG ROSCs) prepared

Most countries with CG ROSCs improved their governance standards – but attribution is difficult

But often not used to design WB interventions


14

WBG did not support the Real Sector through capital market instruments / project bonds

The Bank provided advisory support on project finance

But capital market instruments little used in WB projects – aftermath of crisis, limited appetite for project bonds

ESMID and the Deep Dive

PPP arrangements

Risk mitigation, credit enhancements and guarantees to crowd-in other investors are the way ahead.

Bank, IFC and MIGA are now harmonizing – New task force.


15

Support to the environment through Green Bonds has diminished relative to other players

WBG Treasuries directly supported priority sectors through ‘theme bonds’ that ‘ring fence’ areas of the portfolio: Green bonds are the most prominent

Integrated within overall funding but helped attract new investors

Today WBG Green bond issuance only 10% of global issuance

Catalytic development of Green Bond Principles and a new asset class

IFC’s ‘Banking on Women’ ‘Inclusive Business’ bonds: identical structure.

IBRD CAT (catastrophic risk) bonds: creative disaster insurance

IBRD ‘vaccine bonds’ for GAVI: Treasury Management services


16

Heavy external funding could affect sustainability

• Green Bonds, Theme Bonds and ‘CAT’ BondsFinance and Private Sector funding was sustained by a high and growing reliance on trust funds – especially for capital markets work

Especially, the FIRST Trust fund, SECO and SIDA

Indication of high donor approval

Other unusual funding: GEMLOC, RAS and EFOs

Possible influence on program design, and program sustainability is more difficult.


17

Program Quality – good with some caveats

Program Outcomes: evaluated outcomes better than average, although only partial coverage

Knowledge Management: Gaps in core documentation maintenance and partial financial market information

External engagement: Appreciative clients despite process issues

Internal coordination: Varied from best practice to mixed


Recommendations

What Next?


19

Four Main Recommendations

Integrate capital market development within the Bank Group across different areas of support.

Enhance the use of diagnostics and the FSAP instrument to underpin capital markets interventions.

Strengthen knowledge management and develop a frontier global knowledge program.

Review funding sources and impact on program design.


evaluations that matter

20

www.ieg.worldbank.org

Read the Report!http://ieg.worldbankgroup.org/evaluations/capitalmarket

Thank you!


http://www.ieg.worldbank.org/

http://ieg.worldbankgroup.org/

the world bank group's support to capital market development

Economy & Finance