Discussions on how to reform Multilateral Development Banks (MDB) to better serve the needs of the Global South will be in spotlight
Photo: Avantika Goswami / CSE French President Emmanuel Macron will be hosting the Summit for a New Global Financing Pact (Pact Summit for short) in Paris, France from June 22-23, 2023. The Summit was announced at the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC), with Macron stating that “we need a new financial pact with the most vulnerable countries”.
It has been seen as a wake-up call to reform the global financial architecture, which is currently preventing financing of climate and development needs of the Global South at scale. This, while the losses and damages due to climate change are piling up and further hindering the ability of poor and vulnerable countries to become resilient and grow.
Select Heads of States are gathering in Paris this week, including Prime Minister Mia Mottley of Barbados, European Commission President Ursula von der Leyen, German Chancellor Olaf Scholz, President Cyril Ramaphosa of South Africa and Gustavo Petro of Colombia.
Contrary to earlier belief, India is not co-hosting the summit, and Prime Minister Narendra Modi will be on an official visit to the US this week.
Indian Finance Minister Nirmala Sitharaman will be in attendance. The Indian delegation will advance its agenda items being discussed under the G20 finance track at the summit.
The summit was precipitated as a follow-up to the Bridgetown Initiative — a package of proposals to get more money flowing from developed to developing countries for climate and development – tabled by Barbados. PM Mottley has led a rallying call for this year to be an opportunity for world leaders to reform development finance and help poor countries address the climate crisis.
While early rumours suggested that Barbados would co-host the Summit with France, this is not the case this week. However, PM Mottley will be in attendance along with her Special Envoy Avinash Persaud, an economist who has shot to fame over the past year as a key architect of the Bridgetown Initiative.
One of the issues that will be in the spotlight is the vast and politically complex topic of how to reform Multilateral Development Banks (MDB) to better serve the needs of the Global South. Two recent catalysts elevating the discussion were the issuance of $650 billion worth of Special Drawing Rights by the IMF in 2021 and the G20 Independent Review of capital adequacy of MDBs in 2022. The COP27 cover decision also made a reference to MDB reform as well.
The Pact Summit will also feature discussions on how to tackle the debt crisis in the South, and how to ‘unlock’ more capital to flow towards decarbonisation in low and middle-income countries.
In the months leading up to June, the Summit convened four Working Groups featuring government representatives and subject matter experts on the following topics:
The Working Groups furthered discussions largely behind closed doors, and complaints from civil society emerged that there was limited transparency and civil society participation in the process.
The general air prior to the Summit has been one of uncertainty and apprehension. While many have agreed that the Summit is asking the right questions and bridging the gap between previously siloed conversations on development finance and climate finance, there is fear among observers that the process is spearheaded by the French government, ie, the Global North, and the voices of developing country leaders and civil society will not be adequately captured.
This may lead to a pre-judged outcome where the French organisers unveil the outcome document of the Summit and declare it a success, but without robust processes for other countries to provide feedback and have their views represented.
Other apprehensions include the peddling of what many consider “false solutions” — an overwhelming focus on private sector-focused instruments such as blended finance and de-risking to address the financing needs of the South, when the need of the hour is for more official government and multilateral financing.
The latter has been a running thread in discussions on finance at various fora, including the UNFCCC, where the failure to meet the $100 billion climate finance goal has been accompanied by developed country governments pushing for private sector finance because allegedly, they do not have enough money to fund the climate transition in developing countries.
But this is untrue, as a letter from 150+ economists emphasised this week. It read:
The reality is that public finance is not scarce, especially for Global North governments. We saw them make trillions of dollars in fiscal space available for bank bailouts in 2008, for COVID-19 responses since 2020, and for militaries and police forces year after year. They have no shortage of levers to pay their fair share for the public interest climate and cost-of-living solutions that are desperately needed — both within their borders and abroad.
The Pact Summit currently does not have mandated ties to discussions ongoing at other fora such as UNFCCC and G20. It is also not governed by a consensus or voting-based input process for countries to officially put their views on record.
Already reports have emerged of significant disagreements on issues such as MDB reform, where for example many emerging economies are in favour of a capital increase, but developed countries are resistant. How these discussions will be captured and progressed as concrete action items following the Summit, is still unclear.
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