Capital flows emerging Asia should be high on the ‘watch list’ for policymakers in the region. But, perhaps, not in the way we had previously anticipated. Twelve months ago we were keenly attuned to the risks posed by the foreign capital that flooded into Asia from mid-2009 onwards. Now, what we’re seeing is not really all that “exceptional.” With the recent surge, net overall capital flows to emerging have not surpassed the peaks reached in past episodes of large inflows to the region. Of course, that’s not to say it's all blue skies. The nature of inflows is different this time—dominated by portfolio flows—and that poses new challenges and risks for policymakers.
Sub-Saharan Africa’s “frontier markets”—the likes of Ghana, Kenya, Mauritius, and Zambia—were seemingly the destination of choice for an increasing amount of capital flows before the global financial crisis. Improving economic prospects in these countries was a big factor, but frankly, so too was a global economy awash with liquidity. Then the crisis hit. And capital—particularly in the form of portfolio flows—was quick to flee these countries as was the case for so many other economies. Fast forward to 2011. Capital flows are coming back to the frontier, but in dribs and drabs. In our recent Regional Economic Outlook we examined the experience of sub-Saharan Africa’s frontier markets, with a view to understanding how they can best make use of these inflow to meet their own development and growth objectives.