With Multiple Crises Battering Developing Countries, Global Economic Governance Reform Key for Sustainable Development, Deputy Secretary-General Tells Bretton Woods Meeting
Following are UN Deputy Secretary-General Amina Mohammed’s keynote remarks, as prepared for delivery, at the “Forum on Reform – Building the Coalition from Bridgetown to Paris and Beyond”, as part of the joint International Monetary Fund (IMF)-World Bank spring meetings in Washington, D.C., today:
At the halfway mark of the 2030 Agenda for Sustainable Development, the Sustainable Development Goals (SDGs) are slipping from our grasp.
The succession of global crises over the past few years has battered developing countries. High energy and food prices have compounded challenges for some of the world’s poorest countries, with many still reeling from the COVID-19 pandemic.
For the first time in 32 years, the Human Development Index has declined for two years in a row, reaching its 2016 levels. Poverty and hunger are on the rise, while inequalities have widened. These crises come on top of a climate emergency that continues to batter vulnerable economies and populations, making our asks of them to lift themselves out of destitution not only unrealistic – but delusional.
This is evidenced by last month’s twin cyclones on Vanuatu – the world’s most climate-vulnerable country – which has cost an estimated half of the country’s gross domestic product (GDP), while leading to an increase of water-borne diseases among children. Across the world, we are asking too much, and offering too little.
These crises also come amid rapidly tightening global financial conditions and rising borrowing costs, which have increased the risk of debt distress in vulnerable countries and undermined their ability to invest in recovery – let alone climate action and long-term sustainable development.
Fifty-two developing countries, home to half of the world’s extreme poor, are suffering from severe debt problems. Twenty-five of them spend 20 per cent or more of their public revenue just to service their external public debt. These widespread challenges are indicative of a flawed global financial architecture — one that was designed for a world that no longer exists and is too short-sighted, crisis-prone and deeply unequal.
We need a course correction now to create a new Bretton Woods moment. This is why the Bridgetown Initiative has struck such a chord with its calls for action on debt and liquidity, and dramatically expanding official lending, including for vulnerable middle-income countries currently locked out of accessing relief.
The Secretary-General has lent his voice to calls for reform, in his proposal for a global SDG Stimulus of at least $500 billion a year to scale up affordable long-term financing for countries in need. The SDG Stimulus sets out the immediate actions required to turn things around. These include mobilizing official financing at scale, addressing debt overhangs and lowering the cost of borrowing, reallocating unused Special Drawing Rights (SDRs) and providing contingency financing in times of crisis.
These actions can be taken immediately, without any changes to the current architecture and using existing methodologies and instruments. There is no reason not to act. And yet, the international community is not finding common ground. The Group of Twenty (G20) in particular remains at an impasse. But failing to listen to these clear cries for change would be a mistake, one that would lead to the decoupling of our global financial system — and an unravelling of multilateralism at large.
The Bridgetown Initiative, the forthcoming Summit on a new “Global Financing Pact” organized by President Macron in June in France, and the United Nations SDG Summit and High-Level Dialogue on Financing in September are all opportunities to build a coalition of like-minded leaders to drive an ambitious financing package for the SDGs and climate action.
All the recommendations in the SDG Stimulus are achievable – they just require political will. Actions taken now, as proposed in the SDG Stimulus, would go a long way towards addressing the urgent challenges of the moment. But they need to go hand in hand with an effort to reform and address deep and long-standing flaws in the international financial architecture.
The Secretary-General recently spoke of the need for a Bretton Woods 2.0 system, underpinned by a meaningful reform of global governance. Realizing these reforms will require looking inwards at our institutions, as well as revamping the engagement between international financial institutions, the United Nations and other stakeholders.
Global economic governance reform should be at the core of our engagement on the Summit of the Future in 2024. Reforms should address challenges in five interrelated areas of the international financial architecture.
First, global economic governance must be reformed. With developing countries playing an ever more important role in the global economy, there is a need to broaden and strengthen their representation in the governance of international institutions. Capital increases at international financial institutions are an opportunity to increase the voting shares of developing countries.
Second, closing gaps in the sovereign debt architecture. The current international system does not have the tools to drive the deep and rapid debt restructurings required. Nor is it equipped to address a systemic debt crisis. And we must not continue to fool ourselves into thinking that the Common Framework alone is sufficient to address today’s needs.
There is an urgent need to create an improved multilateral debt relief initiative, which includes mechanisms to involve private creditors in official debt relief efforts and ensure fair treatment of all creditors, while offering sufficient relief to avoid repeat crises. For many vulnerable countries, such as small island developing States, integrating disaster clauses into lending can provide immediate relief following a climate-related shock.
Third, there is a need to reshape international public finance, including by massively scaling up affordable and long-term financing for investments in sustainable development. Public development banks are uniquely positioned to play a key role in accelerating such investments. The terms of lending of multilateral development banks can be improved with longer-term loans, lower interest rates, local currency lending, and state-contingent repayment clauses. Multilateral development banks must also explicitly incorporate the SDGs into all stages of the lending process.
To boost their lending capacity, the multilateral development banks need to use existing capital more efficiently, building on the G20’s work on capital adequacy reform. But even that won’t be sufficient. They will also need new capital infusions. Re-channelling SDRs through multilateral development banks can also support lending. The African Development Bank’s SDR recycling initiative is a welcome move in this direction.
We must also address another gap in the international public finance architecture. The system was not set up to finance global public goods, such as climate action, or to prepare for massive transitions in our economies — such as those brought about by the digital and green economies.
In this regard, we must find a lasting solution to financing global public goods, including climate action. One proposal is a resilience fund, which could be partially funded by SDRs. Climate action must also be embedded within a just transition framework. This means that social protection and decent job creation must go hand in hand with adaptation and mitigation efforts.
Fourth, the global financial safety net needs to be strengthened. Recent crises have highlighted the vulnerability of many developing countries to external shocks, constraining access to international liquidity when countries need it most. For the long term, the development of a mechanism for more automatic countercyclical state-contingent issuance of SDRs should be considered.
In the near term, SDRs must be urgently re-channelled to countries in need. Of the $650 billion in SDRs allocated last year, developed countries received about $420 billion, or 66 per cent; Africa received only 5.2 per cent, or $34 billion; while least developed countries received less than $17 billion, or just 2.5 per cent. The Sixteenth General Review of Quotas is an opportunity to recapitalize the International Monetary Fund (IMF), expand its lending capacity, and de-link capital contributions and resource allocations.
Finally, we must reset the rules of the banking and financial system. The recent banking failures in the United States and Switzerland have once again exposed gaps in financial regulatory and supervisory systems.
Regulators must ensure that financial regulation effectively reins in excessive leverage. More broadly, it is time to find solutions to reduce short-termism in markets and to better align private finance with sustainable development. This includes better impact reporting to reduce greenwashing, policies to better align incentives, and corporate governance reform.
Most of the reforms I’ve highlighted are already being discussed on multilateral platforms including the G20 and international financial institutions — as well as in nationally led processes, such as the Bridgetown Initiative and the Paris Summit, and at the United Nations.
The time has come to bring these disparate discussions together, and build the political will required to transform these ambitions into reality. The international community must act now to deliver on the promises of the 2030 Agenda while leaving no one behind. Let’s get it done. Let’s do it together.