Do We Face a Global A severe global capital.pdfVIP

kA*ls I6v POLICY RESEARCH WORKING PAPER 1526 Do We Face a Global A severe global capital squeeze and a big increase in Capital Shortage? global real interest rates (which some fear) are unlikely if industrial countries continue Zia Qureshi fiscal consolidation - especially the reform of social security systems. Without such consolidation, global real interest rates could rise well above already high recent levels (about 4 percent), with adverse consequences for all countries. The World Bank International Economics Department International Economic Analysis and Prospects Division October 1995 [PLi (:y RFSFAR( H WORKIN(t PAIFR 1526 Summary findings Q ureshi assesses the mediumii- to long-term outlook for * Most low-income countries will continue to depend global demanid and supply of capital. He reaches the mainly on official capital for some time. But official following conclusions: capital will likely be increasingly scarce, so these * The demand for investnment funds in developing countries must intensify their domestic resource countries will remain strong, hut most increased demand mobilization and accelerate the policy reform needed to will likely be met by domestic savings. Investments share attract private investment. in GDP will probably rise in these countries, hut so will * The critical factor in alleviating pressure on global savings share, so their net claim on industrial countries interest rates will be progress on fiscal consolidation in savings is likely to remain small. Of course, savings will industrial countries, especially the reform of social not rise automatically. It is esseintial that policies, security systems. Net capital flows from industrial to institutions, and the economic enivironmilienit be conducive developing countries are much smaller than the budget to saving. deficits in industrial countries. In 1994, for example, * Financial liberalization and integration of lowering the industrial countries budget deficit by about international c