Around the Halls: Readout from the July G20 Summit
On July 9-10, 2021, the Finance Ministers and Central Bank Governors (FMCBGs) of the G20 gathered in Venice, Italy for their third official meeting under the Italian G20 Presidency.
The communique, or readout, summarizes the discussions and agreements the FMCBGs came to during the meeting. While acknowledging that the overall global outlook has improved since their last meeting in April, the members agreed that recovery has been “uneven across and within countries.” The group also “reaffirmed their willingness to use all available policy tools” to support broad economic recovery “for as long as required… especially on the most impacted groups of the society.”
Having watched the meeting closely, experts from the Boston University Global Development Policy Center share their insights on the positive signals and missed opportunities for supporting a global green and inclusive recovery. From vaccine access and climate finance to debt relief and Special Drawing Rights, our experts sum up the state-of-play and point to possible policy prescriptions:
Recycling Special Drawing Rights – a Shot in the Arm, or a Dud Jab?
In March 2020, Kevin P. Gallagher and Jose Antonio Ocampo, former Finance Minister of Colombia, were among the first to a call for a new issuance of Special Drawing Rights (SDRs) at the International Monetary Fund (IMF). It is welcome news then that on July 9, 2021, the IMF Executive Board backed a $650 billion allocation of SDRs.
Considering though that the slice apportioned to lower-income countries (LICs) in this allocation is far less than their need, the G20 Communique called on the IMF to present options to “channel” SDRs towards LICs for more “resilient, inclusive and sustainable” recovery. The IMF announced they aim to present their options in time for the August 2021 allocation, but there are indications that a significant chunk will go to the Poverty Reduction and Growth Trust (PRGT) and a new fund called the Resilience and Sustainability Trust that will be available to middle-income countries.
While SDR recycling could be a shot in the arm for global recovery, there is a risk that it will become a vehicle for regressive conditionalities, further indebtedness, or reductions to Overseas Development Assistance (ODA) (as pursued by the UK). For example, recent analysis from credit rating agency Standard & Poor’s warned that “longer-term debt sustainability could be damaged if SDRs were onlent in the form of debt, for instance as part of the IMF’s PGRT.”
G20 countries could instead opt for recycling mechanisms that don’t come with these strings. As discussed by others in recent commentary, recycling should adhere to a basic framework of principles to: not lead to indebtedness, be conditionality-free, ensure transparency and accountability to citizens, be additional to existing ODA and climate finance commitments and be available to middle-income countries.
Statement on Debt Relief is a Missed Opportunity for Incorporating Meaningful Private Sector Participation
The G20 communique rightly calls for major investments in public health and climate change mitigation. This will be challenging for many countries though, as fiscal resources have been limited by the burgeoning sovereign debt crisis, created by the COVID-19 pandemic and ensuing volatility in international financial, currency and trade markets.
The communique thus emphasizes ongoing debt relief efforts and calls for private sector creditors to join such discussions. Unfortunately, the statement misses an opportunity to incorporate private creditors directly into the Common Framework for Debt Treatment beyond the Debt Service Suspension Initiative (DSSI).
To date, no major private creditors have participated in the DSSI, though they hold about one-fifth of low-income countries’ debt. By not participating, these private creditors will not accept the reduced payments that official creditors are accepting, but they will benefit from debtor countries’ increased repayment ability. Moreover, DSSI participant countries have been faced sovereign credit downgrades, making it harder for governments to approach private creditors. The current approach essentially benefits international financial corporations and private investors at the expense of creditor and debtor governments alike.
To address the debt crisis, the G20 must incorporate significant incentives for private creditors to participate. One such proposal, Debt Relief for a Green and Inclusive Recovery, envisions a combination of positive and negative incentives to secure private participation. Whether through this approach or another, it is incumbent on these G20 governments to use their regulatory power and public platforms to put pressure on these lenders – many of which are based in their countries – to participate in global debt relief efforts.
Positive Signs, but Developing Countries Still Waiting for Greater Vaccine Access
In a final communique following the meetings last week, G20 member states reiterated their commitment to bringing the pandemic “under control” through widespread immunization. This commitment is marked by support for the Access to COVID-19 Accelerator (ACT-A) effort, acknowledging a new task force focused on expanding healthcare access in developing countries, and “tak[ing] note” of recommendations in the report of the High-Level Independent Panel (HLIP) on financing for pandemic preparedness and response.
Perhaps most encouragingly, the G20 statement articulated support for “efforts to diversify global vaccine-manufacturing capacity and strengthen health systems.” Though the exact form this support will take is unclear, the statement seems to be aligned with the goals of the proposal by India and South Africa to waive certain provisions of the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement) on COVID-19 vaccines. Proponents of the waiver argue it will enable a rapid escalation of vaccine manufacturing (among other medical products) and facilitate a more equitable distribution of vaccines throughout the world and developing countries, in particular.
Unfortunately, the current and dominant approach to vaccine access, typified by funding mechanisms like the ACT-A and its vaccine pillar, COVAX, is widely considered to be underfunded and unable to achieve sufficient global immunity in the face of a rapidly mutating virus. As a result, it will be essential in the coming months for WTO members, especially those in the G20 who have been reluctant to embrace a waiver of intellectual property rights, to engage in good faith negotiations on the specific scope and text of a broad waiver of the TRIPS Agreement, and to use aggressive financing to support and broaden manufacturing efforts.
Support for Development Finance Institutions Will be Critical for Channeling Climate Finance
In the communique, the G20 stressed the need for integrated and coordinated action on climate finance by development finance institutions (DFIs) and multilateral development banks (MDBs), in particular. Indeed, Annex 1 of the communique called for a review of capital adequacy for MDBs, citing a Boston University Global Development Policy Center working paper showing MDBs are not currently lending to capacity.
Fulfilling the $100 billion global climate finance goal would be an important first step in addressing the climate crisis. A group of 48 highly vulnerable developing countries, the V-20, called on the developed world to devise a delivery plan that identifies how the $100 billion a year promise would be met. Meeting the climate finance pledge would also require an increase in efforts and resources by public and private financial agents. DFIs at the national, bilateral and multilateral level, will be strategic actors in this task.
According to the Climate Policy Initiative, DFIs account for most public climate finance and approximately 37 percent of the 2017-2018 global climate finance flow. They are public financiers and have the mandates, experience, resources and capacity to channel climate finance towards sustainable initiatives and projects. Under policy directives, they are also the executive agencies working on the design, structuring, financing and implementation of development finance projects. Given the proximity between policy formulation and execution, DFIs work on policy design, as well as the creation of risk management tools and integration at the project level. In this manner, DFIs are able to stretch balance sheets and mobilize public and private institutions and markets. Earlier work by the Boston University Global Development Policy Center has shown how multilateral development banks have the headroom to increase lending from current levels.
The climate crisis is already a reality, calling for ambitious and urgent action. The G20 must increase backing for DFIs and stimulate better cooperation between them. In this way, the international community can boost resource mobilization, help fill the existing climate finance gap and pivot the world towards a more sustainable and inclusive pathway.
Important Steps Taken, but Urgent Action Needed for Fossil Fuel Phase-Out
On July 11, the International Conference on Climate Change was held in Venice on the margins of the G20 FMCBG meeting. Both conferences emphasized the respective roles of the public and public sector in climate actions, and indicated specific areas of future global climate policy coordination, including carbon pricing and data disclosure – key areas that were also highlighted in a new policy brief released by the Boston University Global Development Policy Center last week.
The G20 agreed on the need for carbon pricing, among a range of tools, to promote decarbonization. Notably, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva proposed aiming for an International Carbon Price Floor agreement among major emitters. The IMF is also exploring the creation of a Resilience and Sustainability Trust in the context of the forthcoming allocation of $650 billion of Special Drawing Rights. The US Secretary of the Treasury Janet L. Yellen re-emphasized the US commitment to the developed countries’ collective goal of mobilizing $100 billion per year to support developing countries in climate actions. On climate finance disclosure, the International Financial Reporting Standards Foundation is developing a voluntary baseline global reporting standard that incorporates climate disclosure.
These are all critical incentives and mechanisms to redirect public and private investment and innovation to clean technologies and energy efficiency, and to align the COVID-19 recovery efforts with the sustainability agenda.
However, many of these policy initiatives will take time to reach agreement and implementation on a global scale, and the climate crisis calls for more urgent actions. While leading these important global policy reforms, the G20 has the opportunity to deepen the constructive policy engagement with key public and private actors on a more rapid fossil fuel phase-out and climate investment incentives and disclosure agenda, to lead as pioneers and accelerate the global transition.