Around the Halls: A Year in Review and Look Ahead to 2025
The most notable milestone of 2024 was the 80th anniversary of the Bretton Woods institutions of the International Monetary Fund (IMF), World Bank and World Trade Organization. This anniversary came as calls for ambitious global economic governance reforms gain momentum in key fora, and developing country frustrations with the existing system continue to grow.
2024 also marked a revival of China-Africa relations, with the ninth Forum on China-Africa Cooperation (FOCAC) held in September, and a clear, continued commitment from China on pursuing green energy financing.
In many ways, 2024 was setting the scene for what promises to be a pivotal moment in 2025, where issues like debt, climate finance and climate ambition, governance reforms, and more are slated to take center stage.
In reflecting on the end of the year and the start of another, researchers from the Boston University Global Development Policy Center (GDP Center) highlight where policy movement has been made or stagnated, and what to keep an eye on in 2025.
Below, find the latest policy analysis spanning global economic governance and China’s overseas economic activity.
2025 is a Major Opportunity for Realigning Voice and Representation in the Global Governance System
This year had little by way of substantial governance reforms, sitting in a lull between the end of the IMF quota review in 2023 and three key moments for governance reform in 2025.
First, after last year’s quota review failed to produce any redistribution of quotas, the IMF Board set an accelerated deadline of June 2025 for making progress on possible approaches for quota realignment. Second, the Fourth UN Financing for Development Conference, which begins on June 30, is set to address issues of voice and representation for developing countries. And third, the World Bank will undergo a shareholding review for the International Bank for Reconstruction and Development and the International Finance Corporation.
These moments do not come around often—IMF quota reviews and World Bank shareholding reviews take place every five years, and the last Financing for Development Conference was 10 years ago—and they present an opportunity to subvert the typically glacial pace of governance reforms. (The IMF last agreed to changes in voting power in 2010, while the World Bank made minor changes in 2018). Failure to make progress in the current global context would cast a major blow to both institutions’ legitimacy.
While political circumstances will make immediate and ambitious reforms challenging, at a minimum, the decisions due for 2025 should set the groundwork to make the institutions both bigger and more representative.
A Roadmap for Climate Finance to COP30 in Belém
Countries are due to submit their new round of climate pledges, or Nationally Determined Contributions (NDCs), in early 2025 – a significant milestone considering that a recent global stocktake found that there is a major ambition and implementation gap in existing NDCs. Climate finance is vital to closing these gaps, and at the recently concluded 29th UN Climate Change Conference (COP29) in Baku, countries had the opportunity to agree on an ambitious goal to support climate action across developing countries. However, at the eleventh hour after contentious negotiations, the agreed upon goal – $300 billion by 2035 – is substantially lower than what developing countries and what is required for external sources.
The deal crafted in Baku, however, does include a roadmap to mobilizing $1.3 trillion and presents a key opportunity to sync three important developments happening elsewhere in the global financial architecture. First, provides additional momentum to the new G20 Roadmap on multilateral development banks (MDBs) that encourages MDBs to examine whether they have the firepower needed to support global policy challenges. Second, developing economies are struggling with unsustainable debt loads. The $1.3 trillion roadmap provides an opportunity for a grand bargain: the V20, for example, has called for debt write-offs in exchange for climate action support. Third, there is a growing set of countries calling for international taxes to generate the resources to support climate finance. At a time when purse strings in developed countries are particularly tight, additional sources of revenue, especially if it comes from taxing pollution, will be particularly welcome.
China’s Green Shift in Global Energy Finance
Key highlights from the China’s Global Energy Finance Database update released in 2024 reveal that China’s energy finance strategy is experiencing a pivotal transformation. From 2000-2023, China’s development finance institutions (DFIs) committed $209 billion across 367 loans globally, primarily funding oil and gas projects, but recent years mark a clear shift. Since 2021, no new fossil fuel projects have been financed by Chinese DFIs, signaling China’s commitment to a green transition.
This commitment is already materializing. In 2023, after a one-year pause from energy finance, China has returned with caution. The Export-Import Bank of China financed three low-carbon energy projects in Africa in 2023, totaling $502 million, emphasizing hydropower and solar energy. This shift aligns with China’s pledge in 2021 to halt overseas coal financing and support a green transition under initiatives such as the Belt and Road Initiative.
China’s energy finance is also expected to embrace a “small is beautiful” approach, favoring smaller, sustainable projects. During FOCAC, China made a $50 billion commitment to Africa, including plans for 30 clean energy projects in the next three years. This reflects a broader strategy of fostering energy access in underserved regions while strengthening China’s role in international climate governance.
Looking into 2025, questions remain about whether China will restore its investment levels to those seen in around 2016. As China solidifies its green ambitions, its ability to amplify the green momentum will be pivotal in shaping global energy transitions.
Enduring Scars: The Silent Debt Crisis Lives On
A debt crisis continues to weigh heavily on developing countries. While it may not be a systemic debt crisis comparable to the 1990s, many developing nations are struggling to meet the demands of expensive debt servicing, borrowing at unaffordable rates or are locked out of markets entirely. The absence of widespread defaults renders the current crisis “silent,” as described by the World Bank. What is more, as estimated climate and development needs top $3 trillion per year, developing countries would risk default in making these investments without a combination of debt relief and fresh affordable capital.
From a policy perspective, 2024 has fallen short of expectations. Despite the World Bank and IMF identifying 37 countries as being in debt distress or at high risk, no new nations have applied to restructure their debt under the Group of 20 (G20) Common Framework. The policy focus in 2024 was centered on addressing the so-called “liquidity” crisis — an approach championed by the IMF — rather than undertaking reforms to the international debt architecture that would enable a smoother debt restructuring process.
However, as World Bank Chief Economist Indermit Gill aptly noted, there is a “metastasizing solvency crisis” that is often misdiagnosed as a liquidity issue in many of the poorest countries. Providing additional liquidity without pursuing debt restructuring risks prolonging these nations’ economic “purgatory.”
Looking ahead to 2025, the anticipated strengthening of the dollar could further strain countries’ ability to service their debts. However, both the South African G20 Presidency and the UN Financing for Development Conference present critical opportunities to advance discussions on meaningful sovereign debt architecture reforms.
Climate Policies and Remaining Risks: The Future of Trade, Investment and Climate Action
2024 marked an important turning of the tide for global public views on trade, investment and climate change. The European Union officially withdrew, together with the United Kingdom, from the Energy Charter Treaty (ECT) – an energy sector-specific investment treaty with significant implications for the energy transition. Moreover, there seems to be a consolidated global consensus that industrial policy, once the forbidden fruit of economic policies, is once more in vogue.
Despite the movement of the EU and UK away from the ECT, however, remaining members of the treaty continue to face on-going legal and financial risk through the protections afforded to fossil fuel investors. And the ECT is not the only risk. Other free trade and investment agreements play a major role in protecting investments responsible for large greenhouse gas (GHG) emissions through investor-state dispute settlement (ISDS). ISDS allows foreign investors to bring claims against states for measures that interfere with the value of their investment. In the past year, 22 new climate-related ISDS claims have been brought before the International Centre for Settlement of Investment Disputes (ICSID).
There are developments, however, which suggest that 2025 may improve the trade and investment treaty landscape. The Organisation for Economic Co-operation and Development, UN Conference on Trade and Development and UN Commission on International Trade Law are each pursuing on-going investment treaty reform efforts, and the presidents of both the G20 (South Africa) and the upcoming 30th UN Climate Change Conference in Brazil (COP30) have already voiced concern over ISDS. In late 2023, the Coalition of Trade Ministers on Climate launched their work toward strengthening international cooperation to align both trade rules and trade policies with the need to pursue widespread climate policies. Despite the likely trajectory of the US’s new administration, most of the world’s countries recognize the link between trade, investment and climate change, and are taking action toward long-term sustainability.
From COP16 to COP30: Bringing Nature and Climate Policy Together
For global sustainability policy observers, the most notable event of 2024 was the 16th meeting of the Conference of the Parties to the Convention on Biological Diversity (COP16) in Cali, Colombia. While delegates missed their two largest goals – finalizing a financing model and monitoring mechanism for the Kunming-Montreal Global Biodiversity Framework – significant progress began in other areas crucial to protecting nature and communities amid the global energy transition.
COP16 host Colombia proposed a global minerals traceability mechanism to allow for sustainability certification and prevent unregulated illegal mining activity. Colombia offered to head a working group to develop a proposal, slated to be brought for a binding vote at COP30 in Brazil.
This initiative builds on the April 2024 United Nations Secretary-General’s Panel on Critical Energy Transition Minerals, which put forth seven guiding principles and actionable recommendations. Highlighted in the Panel’s findings is the need for a global traceability, transparency and accountability framework along the entire mineral value chain.
Particularly as global investment in energy transition minerals soars, traceability is key to ensure that these supply chains do not harm critical ecosystems or fuel conflict. China represents the vast majority of global trade demand for energy transition minerals, particularly from Latin America and Africa. Traceability is a crucial part of a policy agenda to ensure green supply chains for the “Green Belt and Road Initiative.”
China’s Evolving Engagement in Africa: Trade, Investment and Lending
In September 2024, the ninth FOCAC sent a clear message to the world that China is dedicated to supporting Africa’s development. China pledged $51.3 billion in financing, including RMB 80 billion ($11.8 billion) in assistance, RMB 210 billion ($29.6 billion) in credit lines and RMB 70 billion ($9.9 billion) in investments, plus a $50 million contribution to the China-World Bank fund. China-Africa relations were upgraded to an “all-weather community with a shared future.” On trade, a Chinese zero-tariff import measure on goods coming from 33 of Africa’s least developed countries also came into action in December. China’s renewed economic commitments point to increasing Chinese involvement in Africa, offering its own economic development model as an example.
Given China’s domestic economic woes and the African continent’s challenging debt situation, however, this financial engagement is being more strategically designed. The Chinese Loans to Africa Database update released in August 2024 shows that 2023 was the first year that annual loan commitments from China to Africa increased since 2016. However, China has opted for a more risk-averse approach, preferring to channel funding to financial intermediaries like regional African banks, thereby reducing their direct exposure to African countries. Equally, the FOCAC 2024 Beijing Action Plan signaled Beijing’s intention to address countries’ infrastructure needs by adapting capital structuring, pointing to a more cautious approach to Chinese financing and a clear departure from the debt-funded large infrastructure projects that were so prevalent during the early years of the Belt and Road Initiative.
The ninth FOCAC has the potential to be a turning point in China-Africa relations, with promises to boost trade, investment and lending. The coming years will determine to what extent both actors can capitalize on this momentum, while emphasizing risk mitigation, to deliver concrete development outcomes for African countries and their people.
The Spatial Spillover Effects of Infrastructure Projects Need to be Incorporated in the Debt Sustainability Analysis
Amid a weak and uneven economic recovery in the Global South, regional development and infrastructure investment seem to hold the key to sustainable development. Over the past two decades, China has grown to be the largest financier of infrastructure in the sub-Saharan Africa (SSA) region, but these large infrastructure projects can impact local economic activities in neighboring regions in these countries.
A recent working paper co-authored with Yinyin Xu uses nighttime luminosity as a proxy for economic activity and shows that Chinese infrastructure projects increase economic activities in the second sub-national level regions (counties) in SSA through both direct impacts and spatial spillovers. We also find these effects to be positive and statistically significant. World Bank projects do not have such direct impacts and spatial spillover effects.
Looking forward, these spatial spillover effects must be incorporated into the revision of the Debt Sustainability Analysis, which has been criticized by many from the Global South to be looking only narrowly on the liability side of the government’s balance sheets. As Joseph Stiglitz famously said, “Not to make essential public investment is to leave a country impoverished.”
In 2025, countries in the Global South need to scale up investment through the Beijing Action Plan, with the spatial spillover effect in mind, as the opposite action of constraining investment for fear of debt will leave these countries lagging further behind, and remaining vulnerable for climate change.
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