Financial Transparency Coalition

Developing countries are losing twice as much money as they earn because of issues like tax evasion, profits taken out by foreign investors and interest repayments on debt.

A new report – The State of Development Finance for Developing Countries, 2014 – has found that for every dollar developing countries have earned since 2008, they have lost $2.07.

Furthermore they have lost, on average, more than 10 per cent of their Gross Domestic Product (GDP) through these financial losses. 

Report author Jesse Griffiths, Director of the European Network on Debt and Development (Eurodad), said: “The results of our research are shocking. We are not talking about all flows of money out of developing countries, just lost resources – money that should have been invested to support development, and was instead drained out. It is outrageous that the global financial system is skewed so much against developing countries.”

The report finds that:

• The biggest loss was through illicit financial flows – money that was illegally earned, transferred or used – which cost developing countries $634 billion (€509 billion) in 2011.
• The second biggest loss is the profits extracted from developing countries by foreign investors: totalling $486 billion in 2012. In fact, since 2008, foreign investors have been taking more profits out of developing countries than new investments have been coming in.
• The third biggest loss is the money that developing countries are lending rich countries by buying (mainly US) bonds. This totalled 1.2% of their GDP – $276 billion (€222 billion) in 2012.
• The fourth biggest loss for developing countries is interest repayments on foreign debt, totalling $188 billion (€151 billion) in 2012.

These losses far outweighed financial inflows through foreign direct investment, aid, portfolio equity (stocks and shares), charitable money and remittances from migrant workers.

Jesse Griffiths said: “What is clear is that the global economic system is failing developing countries. However, the solutions are on the table. For example, the UN has promised to create an international legal framework that would introduce a fair and rapid way of resolving debt crises by the end of 2015: it’s time to hold them to that promise.”

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To read the full report, click here.

For more information, or to request an interview, please contact Julia Ravenscroft, Communications Manager at Eurodad, on +32 2 893 0854.