The New Global Financing Pact summit, which French President Emmanuel Macron convened in Paris last month, was certainly ambitious.
‘We are clear about our goal: a world where poverty is eliminated and the planet preserved,’ the 30-plus heads of state and government or their representatives concluded. They also agreed broadly on how to get there: ‘Leverage all sources of finance, including official development assistance, domestic resources, and private investment.’
Easier said than done, and much of the commentary has dismissed the summit as long on rhetoric and short on concrete achievements.
Macron and other participants called it a ‘historic summit on international solidarity,’ reflecting Macron’s efforts to bring North and South together on common solutions for major global challenges such as climate change, poverty, unaffordable debt and biodiversity loss.
The group was quite representative, with Africa represented by over a dozen presidents or prime ministers. Only two G7 leaders were present, Macron and German Chancellor Olaf Scholz. Brazilian President Luiz Inácio Lula da Silva and Chinese Prime Minister Li Qiang were there. So were UN Secretary-General António Guterres and the heads of the European Union and all major international development banks. Many philanthropies and corporations attended.
Yet some commentators concluded that the summit failed to bridge the large North-South divide on how to achieve the gathering’s significant aims. Still, there was some praise for trying – and the gap was narrowed, if not completely closed.
South African President Cyril Ramaphosa, prominent at the summit mainly in calling out the North for not keeping its past development financing promises to the South, welcomed Macron’s closing remark. ‘More than ever,’ Macron said, ‘international solidarity and transfers from the richest countries to the most vulnerable ones are essential to shape a fairer world.’
Barbados Prime Minister Mia Mottley, who co-chaired the summit with Macron, also applauded the summit outcome. ‘Nine months ago, nobody was speaking about natural disaster clauses … [or] multilateral development bank reform at scale … [and] we were not prepared to discuss issues of debt.’
There were some symbolic achievements, notably the clinching of a Just Energy Transition Partnership – modelled on South Africa’s – between Senegal and G7 partners. The partners agreed to provide US$2.5-billion to help the West African country achieve its target of 40% renewables in its energy mix by 2020. And after two years of hard bargaining, Zambia’s creditors finally put a deal on the table to restructure its irredeemable debt.
But these weren’t really accomplishments of the summit – where no big dollar deals were concluded. Instead, the buzzword was ‘momentum.’ The meeting gave momentum to potentially wider-, deeper- and further-reaching efforts to tackle the big issues. As the summit title implied, the focus was on international financial institutions and multilateral development banks, and how they could contribute better towards fighting climate change, eradicating poverty and relieving debt.
Among the summit agreements was an issue referred to by Mottley – that multilateral development banks should include climate vulnerability in their assessments of whether countries’ debts should be relieved.
More broadly, the summit agreed that a strong financial stimulus was needed to finance the measures agreed or advanced at the conference. Nicholas Stern, Centre for Climate Change Economics and Policy Chair, calculated that meeting both the Paris climate goals and the Sustainable Development Goals would take an extra 2%-3% of global GDP on average, and 4%-5% in developing countries and emerging markets.
The leaders noted that the richer countries had just reached the target of agreeing to transfer 100-billion of their International Monetary Fund special drawing rights to poorer countries especially in Africa, and called for additional pledges. The summit also noted that ‘there is now a good likelihood’ that developed countries would finally this year reach their hitherto-elusive target to provide US$100-billion of climate finance annually to developing countries.
The summit also agreed on several measures to boost private investment in the developing world, including the need to review credit risk agency assessment. They decided that each dollar of lending by multilateral development banks should be complemented by at least one dollar of private finance – thus leveraging at least US$100-billion annually of private money in developing and emerging economies.
Summit participants expected an overall increase of US$200-billion in multilateral development bank lending over the next decade by those banks ‘taking more risks.’ This would probably require more capital to be injected into these banks.
The summit agreed to ‘cooperate to boost the investment for a list of major infrastructure projects in Africa.’ Debt suspension and treatments should be accelerated when needed, ‘including to increase the fiscal space of countries in debt distress.’
The gathering committed to extending the G20 Common Framework for debt restructuring from Chad and Zambia to other highly indebted countries. And participants agreed that climate-related natural disasters should be considered when deciding to relieve debt.
Economist Jeffrey Sachs complained that the summit had not agreed on new money for multilateral development banks to use for development. That was mainly because of opposition from the United States government, controlled, he said, by big business. Instead it decided only on the need for more efficient use of such money as was already available.
Although there was more leverage than loot on the table, one could see where the implications of the agreements would require more dollars to be delivered. Macron and Co. would doubtless argue that an ad hoc summit couldn’t make binding decisions – and could really only provide momentum.
The test of how much momentum was created will be in what happens at several forthcoming meetings where binding decisions can be made – and to which the summit’s proposals have been referred. These include G20 meetings, Bretton Woods annual meetings, the climate COP28, etc.
Clearly also, the Paris summit occurred not only in a global economic and developmental context of poverty and indebtedness aggravated by Covid-19 and war, but also a geopolitical one. Russia’s war against Ukraine and the West’s support for Ukraine have created something of a new Cold War. It has prompted competition among the protagonists to win the allegiance of the rest, many of which are reluctant to take sides.
Next month BRICS (the Brazil-Russia-India-China-SA bloc) will hold a summit in South Africa where the five leaders will consider, among others, whether to take on new members. Many countries are apparently keen to join, precisely as they seek security of numbers in a destabilising world.
South Africa insists BRICS isn’t a rival to the West but a complement. Brazil and India would probably agree. But Russia and China doubtless see things rather differently. So it made sense at this moment for Macron and other Western leaders to overhaul institutions critical to the developing world, like the multilateral development banks, to ensure they are fit for purpose.
Written by Peter Fabricius, Consultant, ISS Pretoria