Financial system risk is elevated and global standards are essential in managing cross-border infrastructure investment

OECD logo 2018_

(OECD, 2018)

This article is brought to you in association with OECD.

A new OECD report, the 2018 Business and Finance Outlook, highlights a number of major risks having the potential to disrupt global economic growth. It notes that the gradual normalisation of monetary policy in an environment of growing debt will be a major test of whether the Basel III regulatory reforms have achieved their goal of ensuring safety and soundness in the financial system.

Although capital rules have been strengthened, the business models of systemically important banks have changed little since before the crisis of 2008, says the report. One gauge of interdependence, the notional value of over-the-counter derivatives, was USD 532 trillion in the second half of 2017, only slightly below its pre-crisis peak of USD 586 trillion in late 2007.

The report says the financial outlook will also be shaped by China’s ability to manage risks relating to high indebtedness and leverage in its banking, shadow banking and wealth management industries. The extent of non-performing loans in China is obscured by the lack of information about which assets are sitting in off-balance sheet vehicles. These could disrupt growth beyond China if further changes to the structure of financial markets and institutions are not considered in major advanced and emerging economies, according to the report.

The risks to financial stability in China arising from elevated corporate indebtedness make it all the more important to ensure that China’s Belt and Road Initiative (BRI) results in economically viable projects. The Outlook recognises the important contribution that the BRI can make to filling the global infrastructure gap, but emphasises that all international infrastructure efforts should be mutually reinforcing and respect global standards. The report highlights that cross-border investment projects must be viable, cost effective and appropriately selected, regardless of the source of funding.

The Outlook argues that the BRI will need to engage with other investing economies and institutions given its largely debt-funded nature and coverage of many countries with challenging business environments, and it says that significant contributions from OECD countries will be critical in the BRI’s success. This will require an increasing role for markets in resource allocation decisions. Property rights, competition, level playing fields and sound governance will need to be strengthened to make this possible.

Five areas that could benefit cross-border infrastructure investments from greater alignment with international standards stand out:

  • The growing role of state-owned enterprises (SOEs) in the global economy calls for ways to ensure a level playing field that discourages subsidies and non-transparent processes and allows recipient countries to benefit from investments based on widely accepted practices of corporate governance.
  • Open and transparent arrangements for procurement, especially for large infrastructure investments, are needed.
  • The heavy costs that bribery and corruption can impose must be avoided, both in the case of large infrastructure projects and elsewhere. Social and environmental costs need to be taken into account by ensuring responsible business conduct that minimises disruption to local communities.
  • Governments need to conduct environmental impact assessments prior to implementing proposed projects for facilities and infrastructure.
  • Open and transparent regimes for cross-border investment are needed to reduce costs and increase options regarding technology.

In all five areas, OECD provides essential guidance for both the economies where the new infrastructure projects would be located, as well as for those countries where the financing, equipment and expertise may originate, notes the report.

The OECD Business and Finance Outlook 2018 is available at http://www.oecd.org/investment/oecd-business-and-finance-outlook-26172577.htm.

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

Scientists in Sweden are studying the climate-cooling effects of spruce forests

Future Forces Forum: Prague will be hosting the most important project in the field of Defence and Security

Ercom, cutting-edge Telco solutions from Europe

Why medicine is relevant to the battle against climate change

EU Budget 2019 deal: EP boosts support for researchers and the young

This is what you need to know about the Iran nuclear deal

Politics is failing to protect the Amazon. It’s time for finance to step up instead

China is building 8 new airports a year

States with power and influence to end suffering of Yemenis must take action ‘immediately’ – UN rights chief

Assembly of European Regions @ European Business Summit 2014: Made in Europe – Made of Regions

Macron plans for Europe, Brexit and banks but vague on France

“We always honor our words, and in that respect we expect our partners to honor their words as well”, China’s State Councillor and Foreign Minister Wang Yi highlights live from Brussels

Every bite of burger boosts harmful greenhouse gases: UN Environment Agency

At Ministerial session, UN regional office in Beirut to focus on technology for sustainable development

On the euro but out of it?

Women’s rights in Asia – how far have we come?

UN condemns ‘cowardly’ attack on Libya’s national oil corporation headquarters

Unanswered questions for Europe’s youth in President Juncker’s State of Union

Europe’s dirty air kills 400,000 people every year

Pro-EU forces won a 70% triumph in the European elections

European Union: From financial consolidation to deeper political division

Cape Town’s crisis shows us the real cost of water

A record one million Syrians displaced over six months, during six key battles: UN investigators

Extra mild ECB tapering of QE and zero interest rates keep euro low

South Sudan’s foreseen genocide: from “Never Again” to “Again and Again and Again”?

Are the G20 leaders ready to curb corporate tax-avoidance?

Parliament ready to fight for a different EU budget

UN emergency relief fund has ‘never been more critical’: Guterres

COP21 Breaking News_09 December: List of Recent Climate Funding Announcements

UN gender agency hails record-breaking number of women in new US Congress as ‘historic victory’

Employment and Social Developments in Europe: 2018 review confirms positive trends but highlights challenges, in particular linked to automation and digitalisation

Palm Oil: With Malaysia cracking down on production, what’s the alternative?

There is a forgotten solution to climate change that we must invest in – nature

Yemen: Major UN aid boost for ‘up to 14 million’ as country risks becoming a land of ‘living ghosts’

‘More support’ vital to put Afghanistan back on a ‘positive trajectory’ – top UN officials

Bank resolutions and recapitalisations by the ESM may end up politically swayed

UN human rights chief denounces grave ‘assaults’ on fundamental rights of Palestinian people

How can we regulate disruptive technologies?

Eurozone hasn’t escaped the deflation danger

IFMSA and IPSF on the Health of Migrants and Refugees

Does the West play the Syrian game in Egypt?

EU steps up its strategy for connecting Europe and Asia

“A global threat lies ahead worsened after the EU’s green light to the Bayer-Monsanto merger”, a Sting Exclusive by the President of Slow Food

Public health through universal health coverage can help to attain many SDGs

Will ECB win against low inflation by not following Quantitave Easing?

A Sting Exclusive: “Youth voice must be heard in climate change negotiations!”, Bérénice Jond Board Member of European Youth Forum demands from Brussels

Global Citizen-Volunteer Internships

How storytelling can be a force for social change

Here are 3 lessons Europe can learn from China’s flourishing start-ups

COP21 Business update: Companies urge now for carbon pricing as coal is still a big issue

Can technology save life on Earth?

No hard drivers in sight to remodel the stagnating affairs of the EU

EU and India re-open talks over strategic partnership while prepare for a Free Trade Agreement

A Sting Exclusive: “Global Climate: Our Common Responsibility”, S&P MEP Miriam Dalli underlines from Brussels

250 days until the European Parliament elections

EU approves disbursement of €500 million in Macro-Financial Assistance to Ukraine

GREXIT final wrap-up: nobody believed Aesop’s boy who cried wolf so many times

Everyone has ‘a moral imperative’ to uphold the rights of persons with disabilities, says UN chief

Dangerous Trumpism in the Middle East with an anti-European edge

EU budget agreement rejected by the European Parliament

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s