• Participants agreed that capital flows to developing countries are generally beneficial—particularly in the current context of a much leaner environment—by providing an important source of financing for investments and by helping to maintain foreign exchange reserves.
• Participants agreed that (i) the composition of capital flows matters for financial stability and growth, and (ii) that effectively managing the inflow phase of the capital flow cycle is the best protection against challenges that arise when capital flows reverse.

On May 5, 2017, the International Monetary Fund (IMF) hosted a conference on “Managing Capital Flows: Challenges for Developing Countries” in Livingstone, Zambia. The Hon. Felix Mutati, Minister of Finance of Zambia, and David Lipton, First Deputy Managing Director of the IMF, opened the conference. Paul Krugman, Nobel laureate and Distinguished Professor of Economics at the City University of New York, delivered a keynote address.

Capital flows to many developing countries have recently declined because of low commodity prices and weak growth. The conference provided a forum for policy makers to share experiences on how best to reap the benefits from capital flows, while managing the risks.

Participants agreed that capital flows to developing countries are generally beneficial—particularly in the current context of a much leaner environment—by providing an important source of financing for investments and by helping to maintain foreign exchange reserves. Sound policies and macroeconomic stability were considered key to help reignite high-quality capital flows. Some lessons drawn from the shared experience of participants are that (i) the composition of capital flows matters for financial stability and growth, and (ii) that effectively managing the inflow phase of the capital flow cycle is the best protection against challenges that arise when capital flows reverse.

Speakers on the program included policy makers and senior officials from Cameroon, Chile, India, Kenya, Mozambique, South Africa, and Zambia, as well as distinguished academics, economic analysts, and market participants. Also in attendance were senior officials from other developing and emerging market countries. 

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