In the aftermath of the Great Recession, donor countries continue to face years of protracted growth and budgetary constraints. Affinity MacroFinance and Results for Development have researched an alternative source of financing for development—emerging market pension funds. We estimate that the pension fund schemes of the 45 countries we surveyed control more than $1.1 trillion in assets. Of these assets, 60% percent are invested in fixed income securities, with, in many cases, significant overconcentration in central government bonds.
This under-reported financial resource should be recognized by the development community as an important and largely untapped potential source of aid for poorer countries. Just 5 percent of these assets prudently unlocked for development projects would represent more than the $58.8 billion of commitments granted by the entire World Bank Group in 2009. Investing a portion of these pension proceeds in national development allows for match-funding of longer-term infrastructure and other development projects which are best financed in local currency. With the help of guarantees and other credit enhancements, these investments can help develop the local physical and social infrastructure while providing a safe, healthy financial return for pensioners.
Latin America leads the four regions with $537 billion in assets. Asia is the second largest region with $337 billion worth of assets, while Africa and Central and Eastern Europe total $169 billion and $92 billion, respectively. While the bulk of the balances are found in middle-income nations, a surprising number of poorer nations are beginning to see substantial growth in their pension fund balances.
The growth of these pension funds enhances the case for greater developmental self-sufficiency among emerging nations and creates an important opportunity for increasing the pace of development in these nations despite the setbacks in the financial position of donor countries.
