Around the Halls: Readout from the Bali G20 Summit
In parallel to a chaotic 27th UN Climate Change Conference (COP27) in Sharm El-Sheikh, Egypt, leaders of Group of 20 (G20) countries met in Bali, Indonesia from November 15-16 for the G20 Leaders’ Summit against a backdrop of worsening climate impacts, an ongoing energy crisis, Russia’s war in Ukraine and skyrocketing inflation. Expectations for the Summit were limited, but unlike the G20 Finance Ministers’ meeting in July, a communiqué – or Leaders’ Declaration – did emerge out of the meetings.
Experts from the Boston University Global Development Policy (GDP) Center closely followed the summit and parsed the Leaders’ Declaration to pull key highlights and policy implications on multilateral development banks (MDBs) and the Capital Adequacy Framework, climate finance, debt, the multilateral trading system and what’s next as the G20 host moves from Indonesia to India.
All Eyes are on Multilateral Development Banks to Increase Finance
GDP Center research demonstrates that MDBs are not maximizing their lending headroom at a time when there this is an urgent and enormous need for public financing for climate and development goals. Based on this, as well as earlier, groundbreaking research by others, the G20 established a ‘G20 Independent Review of MDB’s Capital Adequacy Frameworks’ that confirmed these findings in a recent report and recommended, among other things, that the MDBs take steps to increase lending without jeopardizing their credit ratings.
As expected, the Leaders’ Declaration at Bali fell short of charging the MDBs to implement the recommendations of the G20 Independent Review. However, they call on the MDBs to report back on a roadmap for implementation in 2023. The Bali G20 meetings were a major step forward given that the G20 stood firm against Russia’s war in Ukraine and the US and China began a process that will hopefully ease tensions between the two countries. These are the important and essential first steps that must be taken if the G20 is to regain its effectiveness at this crucial time. Bali gave clear instructions on next steps for implementing the recommendations of the Independent Review, all eyes are on the MDBs and the next G20 Presidency—India.
A Just Energy Transition Partnership Offers a Way Forward for Mobilizing Climate Finance
The G20 Leaders’ Declaration injected some momentum into the climate talks by reiterating the resolve of the G20 to work towards limiting global temperature rise to 1.5C, upholding the commitments in the Glasgow Climate Pact such as phasing down coal power and calling for progress on loss and damage finance.
Particularly noteworthy was the launch of a Just Energy Transition Partnership (JETP) for Indonesia. This partnership aims to accelerate the shift of Indonesia’s power sector towards renewables. Carbon emissions from Indonesia’s power sector is expected to peak by 2030, ten years ahead of what the Indonesian government previously planned. With climate finance talks largely remaining fixed around the unmet $100 billion climate finance commitment, JETPs could potentially offer a way to make progress on mobilizing climate finance at the scale that countries really need.
In recent years, the G20 has become the venue for policy discussions on debt. The International Monetary Fund (IMF) itself has shown how very few low-income countries have the financial capacity to make the necessary investments to adapt to the impacts of climate change. At COP27, countries drew connections between climate change and debt sustainability. With rising interest rates and persistent concerns about food and energy prices, sovereign debt levels loom large in climate change discussions. The Indian G20 Presidency has the opportunity to bring these two discussions together to forge a lasting solution to both crises.
Are G20 Leaders Wishing Away the Debt Crisis?
In April 2022, the IMF and World Bank chiefs issued a stark warning on the growing number of countries that find themselves in or near debt distress. In their communiqué, G20 Leaders lament the “unparalleled multidimensional crises” jeopardizing progress on the UN 2030 Sustainable Development Goals (SDGs) and state the importance of using all available policy tools to address these challenges. A mention of “spillovers” hints at the role interest rate hikes in advanced economies played in pushing developing countries closer to the brink of default. However, the urgency to act to prevent a full-fledged debt crisis is downplayed.
The G20 Leaders’ communiqué reiterates their commitment to the Common Framework for Debt Treatment (CF), despite the widespread criticism it has drawn for its ineffectiveness. The CF only covers official bilateral creditors in low-income countries, does not suspend payments throughout the process and relies on the willingness of private creditors to cooperate.
There is some awareness within the G20 of the limitations of the CF. A footnote clarifies that at least one G20 member disagrees with the exclusion of multilateral creditors from debt relief efforts. G20 Leaders have also expressed their concern for middle-income countries at risk of distress. Nonetheless, no concrete action was taken to address these shortcomings or offer viable alternative solutions.
To demonstrate leadership and commitment to the SDGs and Paris agreement, the G20 must step up and revamp the CF along the lines of the proposal on Debt Relief for a Green and Inclusive Recovery that puts forward a comprehensive framework that covers all countries and creditor classes. This includes a clear “carrot and stick” approach to securing private creditor cooperation, while creating sufficient fiscal space to invest in a resilient and inclusive recovery.
A Fair, Rules-based International Trading System is Vital Amid a Polycrisis
In the communiqué, the G20 emphasized the need to have a strong, rules-based, equitable, sustainable and transparent multilateral trading system (MTS), with the World Trade Organization (WTO) at its core. At a time when Russia’s war in Ukraine, food security, energy security, climate pledges, the SDGs and digital transformation have found a dominant place in the discussions, G20 leaders have recognized that fair trade, investments and strong supply chains are needed to build resilient, long-term food and energy security systems; support the stability of global markets and circumvent the impact of geopolitical disruptions. They have also reiterated that trade policy and climate policy should be mutually supportive and have called for the MTS to promote the UN 2030 Agenda and the SDGs.
Amid a polycrisis, a stable MTS is crucial; however, the WTO is grappling with its own issues, including deadlocks that date back to the Doha Round. The leaders have felt that WTO reforms are key to restoring trust in the system. Focused and pragmatic discussions on improving WTO’s functions, including the reform of the dispute settlement mechanism can ensure a level playing field for all countries, quick resolution of trade disputes and fair competition to foster a favorable trade and investment environment.
The reform of the WTO has been on the G20 agenda for the last few years, without consensus or way forward. But in this communiqué, the leaders signal their commitment to seize momentum from the 12th WTO Ministerial Conference (MC12) to engage in discussions on restoring the dispute settlement mechanism. Reappointments of members of its Appellate Body must be prioritized to ensure a fully functioning dispute settlement mechanism by 2024, as several WTO member countries have urged. The 2023 G20 troika (Indonesia, India and Brazil) should work together to advance these discussions, restoring fairness and trust in the MTS.
India’s G20 Presidency: “One Earth, One Family, One Future”
Given the tensions resulting from Russia’s war in Ukraine, expectations were low for the G20 Summit – including the possibility of no communiqué, which happened both this April at the IMF/World Bank Spring Meetings and the G20 Finance Minister’s July meeting in Bali. Therefore, this communiqué is already seen as exceeding expectations, with Russia’s war in Ukraine as a focal point. Not only did it touch upon the war itself, but it also highlighted the far-reaching negative impacts it is having on the global economy. The communiqué emphasized the need for coordinated global action on high inflation and its transnational spillovers, financial instability, climate change, disrupted supply chains and global food and energy insecurity.
As India officially succeeds Indonesia as the G20 President on December 1, it inherits a presidency full of challenges, the most prominent being the ongoing war and its multifaceted, devastating ramifications. India must exhibit outstanding mediation and negotiating skills and retain the trust it still enjoys from the US, European Union and Russia if it is to ensure progress and an unanimous, meaningful communiqué at the next Summit in September 2023. India will also need to lead in maximizing the rare opportunity to forge a partial common three-year agenda between the G20 and the India, Brazil, South Africa (IBSA) Forum provided by the consecutive G20 Presidencies of these three countries during 2023-25, thus converting both COVID-19 and Russia’s war in Ukraine into opportunities, making both forums more relevant to the Global South’s current and future challenges.
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