Since 1981, a peculiar tradition has taken hold in France on June 21st, the summer solstice and the longest day of the year. It is the day of “La Fête de la Musique”, when musicians show up and perform, from amateurs on tiny street corners in a joyous cacophony to famous performers on stages set-up in all major public squares.
It was fitting that the “New Global Financing Pact”, the summit on climate and development finance organised by French President Macron, took place on the next two days, June 22nd and 23rd 2023. The Summit had all the features of experimental jazz: powerful soloist moments, interspersed sentiments of pointlessness and disorientation, brilliant improvisation, instants of disharmony. At the end of such a concert, the sentiment was that not much concrete has been accomplished, but that something happened, a dialogue, even if the participants did not always listen to each other, often sung past each other, and were mostly not playing in the same key.
1. Some harmony but dwarfed by dissonances
Before diving into the concrete outcomes, it is important to stress how different this Summit was, and this difference might be the most interesting and productive aspect. It was unique in that developing and emerging countries had a broad and diverse voice at the highest levels.
About 50 Heads of State were present, from countries of different sizes and levels of income. In that, it was unlike G20 Summits, which only gather large economies; or the Spring and Annual Meetings of the IMF and the World Bank, which bring Finance Ministers together to focus on more technocratic issues. At the same time, it was more structured and concrete than discussions which can be heard at UN General Assemblies. In Paris, the discussion was often technical, but also integrally political.
Interestingly, it was a space of unusual dialogues across diverse countries, and was taken seriously by large emerging countries, and this convening power is important, at a time where the G20 continues to have difficulties going over geopolitical tensions. The participation of China and Brazil at very high levels, and the importance and articulate voices of leaders from Africa, South Asia, and Latin America, have clearly shown that such discussions are useful.
While representation from the richest countries was disappointing, president Macron compensated by chairing a dynamic closing session on a first name basis, bringing into the discussion very outspoken leaders from the global South, in addition to the Prime Minister of China, and influential Northern leaders such as Janet Yellen, Wolfgang Schmidt, and of course Kristalina Georgieva and Ajay Banga.
The summit's main success was to consolidate the new narrative, with leaders from around the world agreeing that progress on poverty reduction and on the environment were inextricably related. Across speakers, there was a broad consensus that climate and poverty were converging problems, and that the South had a major role to play in solving this problem.
LISTEN TO THE VOICES OF THE GLOBAL SOUTH:
WATCH OUR SELECTION OF KEY MOMENTS, WITH:
Mia Mottley, William Ruto, Luiz I. Lula, Nana Akufo-Addo, Hakainde Hichilema, Shehbaz Sharif, Antonio Guterres, Cyril Ramaphosa, ABDEL Fattah el-sisi, Abiy Ahmed, Macky Sall, Kristalina Georgieva, Akinwumi Adesina, Ajay banga, Laurence Tubiana, Ranil Wickremesinghe, Ilan Goldfajn, Mohamed Bazoum and Emmanuel Macron
There was also a broad agreement that the current global institutions are not up to the task and need a major overhaul. While Secretary Yellen focused on the MDBs – the World Bank, and regional banks -- Southern leaders, as well as UN SG Gutierrez, called on the governance of the IMF and of the UN to become more democratic and representative of a diverse world.
There was finally an agreement that cooperation among all countries from the North, South, and East are needed to achieve these common aims.
But beyond those agreed principles, the most visible outcome of the Forum was to highlight the abundance and severity of disagreements, especially along the North/South divide. Advanced economies tend to take a long-term perspective: how can we be ready for 2050, and maybe make some progress by 2030? Developing countries are much more focused on the now: they feel that the house is burning, and that they need to find solutions now to urgent problems that cannot wait.
Whether about potential climate shocks, like Barbados, or the debt burden like Ethiopia, Kenya or Ghana, countries from the South have been rocketed by a long series of shocks, and they want relief now, which a global financial safety net dominated by advanced economies, is not providing.
President Ruto referred several times to the fact that the Bretton Woods system emerged in a few weeks, but that institutional reforms now take decades. The President of Ghana, as chair of the V20, highlighted the need to take into account climate prosperity. Mia Mottley said the role of bureaucrats – and think-tanks for that matter! – is to bring those perspectives closer. President Sisi reminded the audience that if the $100billion/year pledge on climate finance was met in 2015, the planet would be in much better shape today. All Southern leaders warned that if cooperation does not improve fast, then as emphasized by president Ramaphosa, it would not even be worth their time to keep coming to global summits, much less cooperate on climate.
2. Outcomes: vague and vaguer
Beyond this ambitious forum of Heads of States, what were the outcomes? We can read them through the four documents published on the official website: a “Paris Agenda for People and the Planet” endorsed by 17 countries, coherent but somewhat misleading, a “Chair’s summary of dicussions”, a hodge-podge of significant advances, ambitious principles, already adopted measures, and promising ideas, a “Roadmap” which materializes those principles into the series of meetings over 2023-24, and a “Vision Statement” for MDBs.
This has been said over and over again, so no need to belabour this point: the numbers on most of the outcomes do not add up. While the summit was not about fundraising, there were some expectations that key processes would be unlocked by the flurry of conversations before and at the Summit. It was not the case, and the numbers announced all require a little bit of window dressing. In qualitative terms, the objectives do match the ones that were discussed half-a-year before in our seminar with major experts in development finance, but we would have hoped that the preparation would have made those commitments more specific.
- The G20 pledged in October 2021 that it would reallocate $100 billion in SDRs. While Paris announced that the mission was accomplished, this is disingenuous for several reasons: first, because this include $20 billion from the US which require Congressional approval; and second because even with an enlarged RST, only $80 billion can be channelled through the IMF, leaving $20 billion still hanging. While the call for using the African Development Bank’s hybrid capital proposal resonated several times, no country has yet confirmed it could participate. The SDR bond could emerge as a possibility for countries which are limited by technical or legal constraints but this was not mentioned either.
- MDB’s expansion remains work in progress. Secretary Yellen proposed an objective of an increase of $200 billion over 10 years. This is a useful target, which includes the $55 billion proposed by World Bank in its roadmap. It is also .. not ambitious at all! Total lending by MDBs has increased by the same absolute amount between 2015 and 2020, from $500 to $700 billion. The new goal for 2030 would amount to a 28% total increase over 2020… when global inflation in 2022-23 adds up to 16% already.
- The ambition of a leverage ratio of $1 of private capital mobilized by $1 of MDB investment seems strangely off. As noted by Charles Kenny, this would mark a renunciation of the “billions to trillions” strategy. Moreover, such an aggregate goal would not just happen by itself, but it requires instead the development of specific tools that can mobilise the private sector without undue cost in terms of MDB capital. The performance so far with blended finance has however been quite disappointing, in spite of overambitious promises made in Glasgow at the COP26. So at best work in progress, but with so far, little progress to show for.
- Pause clauses for vulnerable countries announced by the World Bank will help in their automaticity, especially for those mostly dependent on official lending. The specificities of the pilot will be important, but this will be a useful test of those instruments at a greater scale than before. This is one of the few tangible progress announced in Paris, but at the end, these are gains at the margin, as opposed to fundamental advances in improving poor countries’ ability to attract capital.
- Country-specific outcomes, which negotiations were accelerated by the Summit were at the end the main source of progress: the successful conclusion of the official creditors debt restructuring deal with Zambia is a major advance for the G20’s Common Framework, after three years of difficult negotiations that saw Zambia stuck in default; and the JETP signed with Senegal is an important sign that after encountering difficulties in South Africa, there is life to this potentially crucial instrument for climate finance mobilisation.
That said, while those agreed outcomes can be disappointing, the summit also led several leaders to state their intention, which will become important in the agenda. For some of these, priorities of leaders in developing countries have been heard, and will be highlighted in the months to come.
The urgent need to replenish IDA was forcefully demanded by Ethiopia's PM Abiy Ahmed and several other African leaders, and it was explicitly mentioned by Ajay Banga and supported by Emmanuel Macron. This has been a longstanding priority of African finance ministers and will be the first big test on fundraising for Banga. We have suggested that the new Crisis Facility could help do some fundraising for post-restructuring countries even pre-replenishment.
Similarly, the depletion of the PRGT’s subsidy account under rising interest rates and large commitments should be tackled, and this was repeatedly stated at the highest level.
Any ambitious action plan for the World Bank will have to combine recapitalization and balance sheet optimisation measures, as we noted last year, a principle adopted by Emmanuel Macron in his concluding account as well.
With a roadmap
Perhaps the most important outcome document is the roadmap, clearly showing where this ad-hoc summit could see some of its ambitions realized. 2023 and 2024 have important milestones where decisions can formally be adopted, which was not the case in Paris.
The objectives inscribed in the Chair’s summary might not all translate into reality, but they open a space for ambition that could influence the next two years, crucial as ever, for environment and poverty.