Unlocking Private Capital to Emerging Markets & Developing Countries in a time of crisis:

The executive summary paper, “Unlocking Private Capital to Emerging Markets & Developing Countries in a time of crisis”, explores a number of instruments and measures available to support the flows of capital to investments into emerging markets that can accelerate growth and transition to a sustainable future. This paper includes an overview of:

• More effective policy measures to support capital flows, including supportive policies by the G20, International Monetary Fund (IMF), and Multilateral Development Banks (MDBs) during crisis periods
• Prudential measures to support Emerging Markets (EM) cross border investments
• Governance strengthening through improvements in Credit Rating Agencies’ (CRA) methodologies
• Mobilising resources though development of EMDE capital markets and addressing market access barriers

The paper “Unlocking Private Capital to Emerging Markets & Developing Countries in a time of crisis”, explores a number of instruments and measures available to support the flows of capital to investments into emerging markets that can accelerate growth and transition to a sustainable future. These include:

1. Policies by Central Banks, the G20, IMF and MDBs including anticipatory monetary policy by EMDE central banks;

2. Prudential regulations to support EM cross border investments through proportionality, consultation and addressing how capital ratios, and climate risk is treated in prudential regulations; ‍

3. Improvements in Credit Rating Agencies’ methodologies to bring more accountability, transparency, better treatment of climate risks, and strengthened governance processes; and

4. Developing and improving EMDE capital markets so they offer and have access to the same menu of instruments available to AE (Advanced Economies) markets in a timely and cost-effective manner.

Laying out the context of each, the paper establishes a set of ‘no regret’ policy recommendations which policy makers can implement to support the stability and growth of EMDEs through the current geo-political, ecological and economic uncertainty they face.

For over a century, a small group of sovereign credit rating agencies (CRAs) have played an outsized role in shaping global sovereign debt markets. These agencies' decisions can have profound repercussions for the economic, political, and social stability in the countries they rate. This is especially true for small and low-income states reliant on external borrowing, and often already facing debt distress.

Despite growing calls for transparency and accountability since the 2007-2008 Global Financial Crisis (GFC), much of the CRAs' decision-making has remained hidden from public view. The "Big Three" CRAs—Moody's, S&P Global, and Fitch Ratings— have long dominated the market, raising concerns about market power and their influence over sovereigns from emerging markets and developing economies (EMDEs).

This report sheds light on credit rating agencies and the market for sovereign ratings, and highlights critical issues and challenges with the prevailing regime, while also seeking to dispel some of the existing misconceptions around sovereign ratings.

Overall, the report argues that getting sovereign ratings right is critical to unlocking capital flows and achieving the sustainable development goals, and concretely calls for seven key changes to the status quo.