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Need To Assist Poor Nations In Addressing Their Development And Climate Issues

By Outlook Planet Desk April 19, 2023

The leaders gathered at the recently concluded spring meeting of the World Bank and IMF in Washington, DC, discussed ways to work the financial system so that it serves countries that are in debt trouble and are vulnerable to climate change

Need To Assist Poor Nations In Addressing Their Development And Climate Issues
It was suggested that the World Bank leverage its balance sheets more effectively to increase loans to countries..
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An ActionAid analysis found that 60% of the most climate-vulnerable countries are likely to cut spending on public services, including investing in climate action, in order to continue paying their debts, while 93% of the countries most vulnerable to the climate crisis are at significant risk or already in debt distress.

At the recently concluded World Bank and IMF meetings in Washington, DC, the G20 was urged to follow through on its pledge to recycle $100 billion in Special Drawing Rights (SDRs) through Multilateral Development Banks by the Group of 24, which helps coordinate the positions of poor nations on international monetary and development finance problems. 

Indian Finance Minister Nirmala Sitharaman was there too. She attened the second G20 Finance Ministers and Central Bank Governors (FMCBG) meeting which was hosted by India as part of its yearlong G20 presidency. International taxation, sustainable finance, and the global economy and international financial architecture were key issues taken up during the meeting.

The group also recommended that the World Bank better leverage its balance sheets in order to expand lending to nations, but they urged them to do so while maintaining their AAA rating and preferred creditor position. The G24 encouraged the IMF (International Monetary Fund) to add a third seat for Sub-Saharan Africa to the IMF Executive Board in order to boost the voting share and representation of that region. 

According to a recent analysis from Boston University's Global Policy Centre, debt levels in emerging markets developing economies (EDMEs) have increased by more than double, from $1.4 trillion to $3.9 trillion, since the 2008 global financial crisis. For 61 nations identified as being in or at high risk of debt distress, the analysis indicated that more than $812 billion in debt needed to be restructured across all creditor classes in order to ensure debt sustainability.

“Old taboos have been broken and calls for full transformation of the financial architecture are now centre stage. Our current international financial architecture is not fit for purpose and not delivering for climate vulnerable, and debt distressed countries. Correcting the fundamental inequities of the current system starts with the debt crisis. It is paramount not to waste the momentum - the Summit for a New Financing Pact in Paris in June must deliver concrete outcomes when it comes to debt relief, new concessional financing and grants, as well as private sector mobilization,” says Laurence Tubiana, CEO of the European Climate Foundation (ECF).

The World Bank approves an increase in lending capacity

The World Bank said that it would reduce its equity-to-loan ratio from 20% to 19%, a decrease of one percentage point. A further $4 billion would be made available for financing to poor nations at a concessional rate as a result. Experts, however, said that this was too low and that the bank needed to raise its aspirations. 

The Bank also stated that it intended to lend an additional $50 billion over the following ten years to assist poor nations in addressing their development and climate issues. During the spring meetings, the member states approved these plans.

To attract investment from the private sector, a hybrid capital pilot scheme was announced. The bank estimates that $1 billion in hybrid capital will enable the mobilisation of $6 billion in lending. Hybrid capital, according to the World Bank, may increase the cost of borrowing for low-income nations.

Developing nations want more rapid adjustments

The G20 was urged to follow through on its pledge to recycle $100 billion in Special Drawing Rights (SDRs) through Multilateral Development Banks by the Group of 24, which helps coordinate the positions of poor nations on international monetary and development finance problems. 

The V20 also made fresh demands in a new statement, including changing the international and development finance system and making debt work for the most vulnerable. Prior to the Global Pact summit in Paris, the WB/IMF annual meetings in Marrakesh, and COP28 in Abu Dhabi, the V20 has also called for progress towards a fit-for-climate global financial architecture capable of delivering development-positive climate action for the most vulnerable, as well as strategies to scale up and speed up financing.

Japan doubles its SDRs reallocation pledge 

Japan has doubled its Special Drawing Rights (SDR) rechannelling pledge from 20% to 40% to help increase poorer countries’ access to the IMF’s special currency, France rechannelled 30% of its SDRs to developing countries and is now asking others to do the same. It is one of the first countries to do so. 

High interest rates and banks in crisis create turbulence for economic growth, especially in lower income countries

High interest rates and banks in crisis create turbulence for economic growth, especially in lower income countries The IMF has warned that the economic outlook for growth over the next five years is the weakest in decades. The IMF predicts slower growth in 2023 amid turbulence in the financial sector, following the collapse of Silicon Valley Bank and the bailout of Credit Suisse.

According to Kristalina Georgieva, managing director of the IMF, lower income nations are anticipated to be particularly hard hit by increased borrowing costs (resulting from higher interest rates) and a drop in export demand, which might exacerbate poverty and hunger.

 G7 pledges support for MDB reforms, debt restructuring

The G7 has pledged its support for MDB reforms, SDR channelling, more funding for the IMF's Poverty Reduction and Growth Facility (PRGT) and Resilience and Sustainability Trust (RST), addressing debt vulnerabilities, bolstering the global health architecture, and combating climate change in a statement released by the G7 Finance Ministers and Central Bank Governors.

 

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