Are multilateral financial institutions doing enough to ensure climate justice?
The Spring Meetings of the International Monetary Fund (IMF) and the World Bank convened during the 3rd week of April, 2024. This is the first time the meeting failed to have an agreed communique, because of dissensus among member states on a number of geopolitical issues. A stock take was done about the reform evolution of the World Bank's mission to better respond to global challenges. The series of meetings focused on issues like the capital expansion of the multilateral financial institutions (MFIs) for addressing global challenges like climate change and the soaring debt burdens, both of which are related to the functioning of the Bretton Woods system.
First about enhanced financing for global development by the World Bank: a pledge to increase funding by more than $5 billion a year, so this could potentially generate up to $50[1] billion of investment for tackling global challenges over the next decade. Besides, the 10 heads of multilateral development banks (MDBs) also agreed to generate an additional $300-400 billion over the next decade to finance global development including climate change and SDGs. Besides, The MDB heads pledged to boost climate actions that include designing the first common approach to measuring outcomes and aligning their operations to the Paris Agreement goals. Also, they agreed to jointly report on climate financing and their engagement in achieving the new collective goal on climate finance. Another initiative was taken where 11 rich countries committed to a new Livable Planet Fund totalling $11 billion to support the SDGs, which is expected to leverage six to seven times more money over the coming decade. Besides, pressure has been mounting for reforms of the MFIs in the hopes of boosting climate finance through measures such as grants and low-cost loans, special drawing rights, and co-investment with the private sector.
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The IMF and the World Bank are taking an increasing interest in climate financing, where spending by the World Bank reached almost $32 billion in 2022. Now the IMF has its Resilience and Sustainability Trust (RST), created last year to provide long-term concessional financing for adaptation and energy transition, under which a number of countries, including Bangladesh, reached an agreement. However, these steps are extremely short of the growing needs for addressing the increasing impacts of climate change. There are estimates of $2.4 trillion a year needed by 2030 to shift on to a decarbonisation track, that is compatible with limiting average temperature increases to 1.5 degrees Celsius.
But the supply continues to witness a shortfall. Still, the Global South does not agree that the long-pledged climate finance of $100 billion goal has been met. Against this, in 2024, debt repayment that developing countries are likely to pay will be over $400 billion, which is $50 billion more than they are expected to get as new grants and loans. So, there is a net outflow of direly needed resources from the Global South, particularly from the LICs. Today, about 60 percent of low-income countries are either in debt distress or at high risk of it. A new UN report on SDG financing shows how prioritising debt over basic services like food, health care and education plagues the developing world, and that for the least-developed countries, debt service will amount to $40 billion annually between 2023 and 2025, up more than 50 percent from $26 billion in 2022. More frequent and destructive climate disasters account for more than half of the debt in these vulnerable countries. Against this, the UN Chief warns of growing inequalities, and trust in institutions and solidarity between developing and developed countries as "low and falling." So, Guterres is calling for mobilising $500 billion a year of additional investments in sustainable development and climate action.
While attending the meetings, President-designate Mukhtar Babayev of COP29 emphasised that climate finance remained the top priority for the Baku Summit, expecting the flow of climate finance to increase by "several multiples." In a similar vein, the UNFCCC (United Nations Framework Convention on Climate Change) Executive Secretary talks of the need for a "quantum leap" in climate finance. So, a small group of nations led by Barbados, France and Kenya met on the side lines to push for more taxes on fossil fuel burning that developing nations could use to deal with climate shocks. Besides, discussions are ongoing about some levies on air travel and maritime transport for mobilising extrabudgetary resources.
The meeting also reviewed the Global Sovereign Debt Roundtable (GSDR) initiated last year to accelerate negotiations on debt restructuring through negotiations among major creditors including China and the diverse group of private investors. At the end, the reforms must include the provision of grants for adaptation in the most impacted countries, debt cancellation for the most debt distressed ones, long term concessional loans and changes in the lending practices of MDBs that allow capital flowing back to developing countries. The reform also has to include putting climate-resilient debt clauses in loan agreements, with suspension of debt repayments during the time a country recovers.
But frustrations from the leaders of low-and middle-income countries keep mounting. Mia Mottley, the Barbados Prime Minister who is most vocal about MFI reforms with the Bridgetown Initiative, accuses developed countries of double-speak—manifest in them telling lower income countries to refrain from doing things like not printing money, yet during the Covid-19 pandemic, they did not shy away from it themselves. sermonising of doing not what they do, but doing what they tell the developing countries to do. She also alleges that the development paradigm still reflects the colonial framework of power relationships. In a similar vein, Amina Mohammed, the deputy UN secretary general, asked whether the responses of the MFIs reflect "one humanity", or if there is a deviation of our "moral compass".
This deviation is evident in the acute dearth of political will, not money. We may recall the lesson that Adam Smith, the father of Classical Economics taught us, that interests either at individual or national levels are bounded with one another. To realise our interests, we need to respect the interests of others in a free market system, upon which our climate regime is founded. Are we doing it? So, the billion-dollar question today before humanity is—how can the moral compass be directed to reverse the dysfunctional world order, as the UN Chief calls it.
Mizan R Khan is independent consultant and technical lead, LDC Universities' Consortium on Climate Change (LUCCC).
Views expressed in this article are the author's own.
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