Nick Shaxson ■ Eurodad: financial outflows from developing countries more than double the inflows

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EurodadFrom Eurodad:

The State of Finance for Developing Countries, 2014

This report provides the most comprehensive review of the quantity of different financing sources available to developing countries, and how they have changed over the past decade. 

We have analysed the best available data produced by international institutions, both from the point of view of developing countries as a whole, and for low-income (LICs), lower-middle-income (LMICs) and upper-middle-income countries (UMICs) separately. We provide figures in absolute terms in US dollars, and also as percentages of Gross Domestic Product (GDP) – a much better indicator of how important they are to the developing country in question.

Unlike other recent analyses, we have not just examined the resources flowing into developing countries, but have also analysed the resources flowing out, identifying the lost resources. We define losses as resources that have either been directly lost by developing countries, such as illicit financial outflows, or resources that represent a lost opportunity, such as lending by developing countries to rich countries. This has allowed us to examine four very different categories of resources:

  • Domestic resources, including domestic investment and government revenue;
  • Lost resources, including illicit financial flows, profits taken out by foreign investors, interest payments on foreign debt and lending by developing countries to rich countries;
  • Inflows of external resources, including international public resources (aid and other official flows), for-profit private flows (foreign direct investment and portfolio investments in stocks and shares) and not-for-profit private flows (including charitable flows and remittances from migrant workers);
  • Debt-creating flows: both public and private borrowing by developing countries.

One key finding of the report is that losses of financial resources by developing countries have been more than double the inflows of new financial resources since the financial crisis.

Lost resources have been close to or above 10% of GDP for developing countries as a whole since 2008 – meaning that for every $100 the country makes, $10 were lost, flowing out of the country. The main drivers of this are illicit financial flows, profits taken out by foreign investors and lending by developing countries to rich countries.

Read the full Eurodad report here.

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