POLICY
POLICY
AIIB Working Paper (forthcoming)
with Arrad Tabandeh
Against the backdrop of growing water scarcity and an increasingly volatile water cycle, credit rating agencies have flagged the implications of water stress for credit ratings. In this paper, we quantify the link between water stress and sovereign credit ratings. We construct a cross-country panel of 92 countries running from 2000 to 2022 with water stress (freshwater withdrawal as a proportion of available freshwater resources), sovereign credit ratings and macroeconomic controls. Borrowing the econometric setup in Cevik and Jalles (2023), we find that lower-middle-income countries are more vulnerable to water stress: a 10-percentage-point increase in water stress reduces the credit rating by up to one notch. This link is weaker for upper-middle-income countries and statistically insignificant for high-income countries. These results point to the importance of expanding water supply infrastructure and removing structural impediments to effective resource management for developing countries.
AIIB Working Paper No. 18
with Soumya Bhadury
The current annual development financing gap of USD4.2 trillion underscores the importance of orchestrated efforts between governments, multilateral development banks (MDBs) and the private sector to raise the capital needed to achieve the United Nations Sustainable Development Goals. In this paper, we estimate the elasticity of private capital mobilization (PCM) with respect to official development assistance (ODA) between 2012 and 2021 in low- and middle-income countries. The baseline regressions reveal that a 1% increase in bilateral and multilateral ODA increases bilateral and multilateral PCM by 0.8-0.9% and 0.5-0.6%, respectively, with evidence pointing to cross-country heterogeneity in elasticities. Motivated by the recent uptick in debt across the developing world, induced by the coronavirus disease (COVID-19) pandemic, we study the explanatory power that debt may have over the PCM elasticities. We find that the elasticity of PCM with respect to ODA falls in both magnitude and statistical significance in high-debt countries vis-a-vis low- and medium-debt countries, particularly in the bilateral regressions. In contrast, the elasticity in the multilateral regressions maintains both economic and statistical significance in high-debt countries. The results highlight the importance of (i) fiscal discipline for development finance and (ii) the catalytic role that MDBs can have in narrowing the development finance gap.