Net private capital flows to developing countries reached a record 647 billion dollars in 2006,although the rate of growth of these flows slowed from 34 percent in 2005 to 17 percent in 2006, according to a report released by the World Bank on Tuesday.

Emerging Europe attracted an increasing share of the overall flows and equity financing grew much faster than debt, said Global Development Finance 2007.

However, the annual World Bank report said despite commitments made by donors, aid flows were disappointing, and the shift from official to private sources of finance continued.

The report predicts that higher interest rates and emerging capacity constraints will slow the very fast growth of developing countries in the past few years, with global growth falling from 4percent in 2006 to around 3.5 percent in 2009.

This realignment could also temper some of the positive global financial conditions that have prevailed in many developing countries over the past four years.

According to the report, equity flows exceeded 400 billion dollars in 2006, accounting for almost three-quarters of capital flows, up from two-thirds in 2004, said Global Development Finance2007.

The report said strong gains were recorded in both portfolio equity and foreign direct investment (FDI) in emerging markets and other developing countries.

A wave of cross-border mergers and acquisitions boosted FDI flows to developing countries in 2006 to a new high of 325 billion dollars, roughly one-fourth of worldwide flows of 1.2 trillion dollars.

In 2006, private and state-owned corporations in developing countries raised 333 billion dollars through syndicated bank loans and international bond issuance-up sharply from 88 billion dollars in 2002.

Regionally, firms from emerging Europe and Central Asia stand out, with debt expanding by 135 billion dollars in 2006. Financial corporations, particularly banks from India, Kazakhstan, the Russian Federation and Turkey are at the forefront of this apparent foreign credit boom.

This new landscape for development finance -- particularly the shift from sovereign to private borrowers -- alters the conventional assessment of risks, and is likely to have important implications for growth and financial stability, said the report.

"While the rapid growth of capital inflows to developing countries reflects improved fundamentals, cyclical factors have also been at work, and as growth slows even resilient countries could face strong headwinds," said Uri Dadush, Director of the World Bank's Development Prospects Group. "We foresee a soft landing, but this cannot be taken for granted."

In addition to benefiting from another year of strong growth and high commodity prices, low-income countries' ability to access private debt markets has been boosted by recent major international debt-relief initiatives that have cut their debt burdens and improved their creditworthiness.

As capital markets have integrated rapidly over the past few years and as developing-country corporations have been raising funds overseas, the need for a more coherent global approach to regulating cross-border public offerings and listings of securities has become more urgent, warned the report.

It also called for regulators and governments to pay more attention to the transparency and quality of accounting standards. It stresses the importance of reliable information in helping investors to make informed decisions and calls for measures to improve the integrity of corporate governance.

Global aid, meanwhile, has stalled. After reaching 106.8 billion dollars in 2005, official development assistance (ODA) from Development Assistance Committee members fell in 2006 to about 103.9 billion dollars, raising uncertainty about the G8 Gleneagles commitments to scale up development assistance to Africa by 2010.

"The expansion in private capital flows in 2006 speaks well for developing countries' resiliency, but what is worrying is that it has coincided with a decline in net official lending and a delay in delivering on aid commitments," said Francois Bourguignon, World Bank Chief Economist and Senior Vice President for Development Economics.

"Many of the poorest countries continue to operate on the periphery of the global financial system -- for them private capital alone is not enough to finance basic needs," he added.