GEMs Consortium Issues More Granular Data; Critics Seek More Transparency

The Global Emerging Markets Risk Database (GEMs) Consortium Oct. 15 reported on country-by-country loan default and recovery rates for the first time, but the Consortium has still not met the key transparency demand: making the database accessible.

The new data was called insufficient by critics in the private and nonprofit sector who say that issuance of more detailed information is necessary to boost lending to Emerging Market and Developing Economies (EMDEs).

GEMs said it is issuing “increasingly granular statistical publications,” but its future plans remain unclear.

The latest information came in two reports, released by the European Investment Bank, which administers the GEMs database. (See press release.) The GEMs data comes from 26 multilateral development banks (MDBs) and development finance institutions (DFIs) that pool their data using a harmonized template. The GEMs database is used by the 26 institutions, whose representatives jointly make decisions about its transparency.

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Transparency Levels Debated

The lingering issue is how much data should be made available.

There is widespread agreement that more information would benefit EMDEs by providing investors “greater insights into credit risks in emerging markets, thereby allowing them to better guide their asset allocations,” as the GEMs press release puts it.

But the “piecemeal approach” was sharply criticized by Hubert Danso, Chief Executive Officer and Chairman of African Investor, an institutional investment holding platform based in South Africa.

“While today’s reports, conveniently timed to deflect criticism during the World Bank Annual Meetings, provide fragmented insights using GEMs data, they unfortunately miss the mark,” Danso told Eye on Global Transparency. The Bank and the IMF meetings will be held Oct. 21-26 in Washington.

Similarly, Karen Mathiasen, project director with the Center for Global Development, a Washington-based think tank, said that “for GEMS data to be of real use to the private it needs to include breakdowns by country and sector.”

The push from more detailed transparency has arisen from many quarters, but perhaps most significantly from the Group of 20 developed countries. Transforming GEMs into a free-standing entity “by 2024” was proposed. A 2022 report to the G20, called the Capital Adequacy Framework (CAF) review, said GEMs should “publish more granular statistics and analysis of the data showing credit performance for sovereign and private sectors by sector, countries or country groups, and regions.” The report further prescribed that GEMs should “share anonymized statistics with private investors and ratings agencies.” In addition, it said, GEMs should “provide risk analytics, charging fees as needed.” A new G20 action plan for the MDBs is being developed and could include more specific goals.

The Development Committee of the World Bank Group, in a wide-ranging statement issued April 19, 2024, stressed that. private capital mobilization “will be instrumental in meeting development financing needs.” Among other steps to this end, the Development Committee “applauded the publication of additional data from the Global Emerging Markets Risk (GEMs) database and statistics on the WBG’s default and recovery rates and look forward to further disaggregation, including by country and sector.”

The GEMs consortium, while providing reports with gradually increasing levels of granularity last year and this, has been circumspect about its long-term goals. In the Oct. 15 press release, Román Escolano, Group Chief Risk Officer, European Investment Bank, said, “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.”

Learning about future plans is complicated because the Consortium holds closed meetings and does not release any documents about them, including minutes.

The EIB denied EYE’s request for access to the minutes of the GEMs key decision-making body, the General Assembly. The EIB said disclosure of the minutes would “seriously undermine” its work and subject officials to “external pressure.” (See EYE article.) EYE appealed the denial but the EIB has yet to issue a decision. EYE also appealed the EIB’s decision to keep secret key parts of 2019 GEMs data-sharing agreement between the EIB and ILX Management, a Dutch investment company. This appeal is also pending. (See EYE update.)

Oct. 15 Report Provides More Data

The GEMs Consortium said that both of the new reports would benefit investors and that they show that “emerging market investments should be within the risk appetite of a broad range of investors,” in the words of Federico Galizia, Vice President, Risk and Finance, International Finance Corporation.

As summarized by the EIB:

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.

Danso Sees “Fiduciary Negligence’

Danso said, “This piecemeal approach distracts from the core issue: the urgent need for the full implementation of the GEMs2.0 directive, as mandated by the G20 for rollout in 2024.”

“Anything less,” he continued, “postpones the structural transparency required to properly price risks in emerging markets and developing countries (EMDCs), further hindering scaled efforts to crowd in private capital.”

According to Danso, “The absence of a fully operational GEMs2.0 database (which is a no cost reform for MDBs and the GEMs Secretariat), costs developing countries over $15.6 billion annually in avoidable cost of capital premiums and lost opportunities.”

Without this database, he said, “the current data landscape offers limited practical value for pricing risks and making informed investment decisions” and “EMDCs are likely to endure another year of inflated capital costs, just as official development assistance (ODA) declines and fiscal constraints deepen.”

Danso said, “The reluctance within MDBs to fully embrace their mandated responsibility to crowd-in private capital reflects not just a breach of mandate, but also erodes trust with their sovereign members and clients. Such fiduciary negligence by both the MDBs and the GEMs Secretariat compromises global financial stability and sustainable development—precisely when their most vulnerable and fiscally constrained clients need it most.”