Last week, during the Annual Spring Meetings of the International Monetary Fund (IMF) and the Boards of Governors of the World Bank Group, we convened a group of more than 60 development and private finance leaders at The Rockefeller Foundation’s Washington, DC, offices to explore credible opportunities for scaling development finance in a capital-constrained world. This note provides our summary of the conclusions.
Today, the world is facing a multiplicity of crises, and the current development finance system is inadequate to meet these challenges. Now, more than ever, the development finance system, both public and private, needs to rise to meet the needs of the developing world, especially in the face of the destructive consequences of a warming planet.
It is vital that the G7 and G20 implement achievable development finance solutions to pool the public and private capital required to meet today’s global crises. The compounding challenges of the war in Ukraine, Covid-19, cascading debt burdens, accelerating food and fuel crises, and extreme weather events are reversing more than 80 years of growing prosperity and global convergence, pushing 250 million people back into extreme poverty. The war in Ukraine has created a global food emergency by driving up the prices of wheat, corn, soybeans, fertilizers and sunflower oil. Before the war, an estimated 811 million people already did not have enough to eat; now that number will grow dramatically. The escalating divergence between developed and developing economies threatens international security and global prosperity. Amidst geopolitical instability, darkening economic prospects, climate change, and the continued battle against Covid-19, public finance is increasingly scarce, inequitable, and private finance increasingly risk-averse. Hundreds of extreme weather events – droughts, storms, and floods – are already compounding the Covid-19 pandemic response and food shortages from the war in Ukraine.
The standard models are not enough. Donor governments and the private sector must mobilize development finance at the pace and scale needed to respond to these compounding crises. That is the only way we can put the world on track to achieve the Sustainable Development Goals (SDGs) and the Paris Climate Agreement.
Comprehensive reform to the development finance system is urgently needed. Three financing interventions can, in the near term, deliver meaningful resources to the most vulnerable countries, as a first installment of that comprehensive reform. The G7 and G20 should immediately embrace these measures:
- Accelerate public and private financing for the energy transition, including through country-led platforms;
- Adopt the use of guarantees and other innovative instruments, e.g. the International Finance Facility (IFF), to leverage limited public and funding; and,
- Reallocate as many Special Drawing Rights (SDRs) as possible to support developing countries.
In 2022, the international community must deliver on commitments to fund planned just energy transitions.
International donors must fulfill their pledged support of $8.5 billion for South Africa’s Just Energy Transition Partnership. As a part of this approach, the South African government must continue its domestic policy leadership, in partnership with key constituencies, to enable public and private support for the transition.
At the same time, the international community and the Republic of Indonesia should reach a deal on an energy transition partnership, and other coal-dependent countries should follow. As in South Africa, ambitions and clear policy targets need to be identified and embraced. Multilateral development banks (MDBs), philanthropies, the private sector and other funders must work together to ensure optimal leverage.
In 2022, international donors, MDBs and philanthropies must establish the proposed International Financing Facilities for Education and Climate.
MDB finance needs to increase sharply, especially in areas where needs are urgent and vast (such as climate and the energy transition), and sectors that are currently being badly neglected (such as education or food security). The IFF mechanism offers the best opportunity for leveraging grants from official donors and philanthropies by placing them alongside official guarantees, and creating large volumes of new lending at subsidized rates from MDBs to countries in urgent need of finance.
The IFF is already being developed for education and climate investments. The UN Secretary-General has called for the operationalization of IFFEd by the time of the Transforming Education Summit in September 2022 – thus helping to transform education for 700 million children and youth in lower middle-income countries. The Asian Development Bank (ADB) plans to move forward a similar financing approach for climate. Donors, MDB shareholders, and philanthropies need to work to deliver these in 2022. Other possibilities should be considered: an IFF focused on global nutrition could blunt the worst of the impending food crises by dramatically scaling MDB financing for food security.
The international community should move quickly to consider and implement the IFA Working Group recommendations coming out of the MDB capital adequacy review in order to expand the financing available to low-income countries and emerging markets via MDBs as soon as they are released.
In 2022, donor countries must reallocate as many Special Drawing Rights (SDRs) as possible and explore every practical avenue to direct them to the developing world.
Developed governments must channel, or “recycle,” $100 billion in Special Drawing Rights to low- and middle-income countries to help them recover faster from the Covid-19 pandemic and the related economic challenges. The announcement of the Resilience and Sustainability Trust (RST), and early donor support, is a welcome development from last week and continued support must be provided via the Poverty Reduction and Growth Trust (PRGT). The RST’s design must be fit-for-purpose given the challenges being faced by low- and middle-income countries and be rapidly made operational. The IMF and its shareholders must embrace every opportunity to channel recycled SDRs effectively, including through the MDBs.
We are at a moment when the multilateral finance system must transcend its limits and transform into an even more powerful force for good. Collectively, we must surge capacity quickly to meet these crises and fulfill the SDGs and Paris Climate Agreement.
Chairs (sgd):
The Rt. Hon. Gordon Brown
UN Special Envoy for Global Education and WHO Ambassador for Global Health Financing
Dr. Rajiv J. Shah
President of The Rockefeller Foundation
Dr. Vera Songwe
UN Under-Secretary General and Executive Secretary of ECA
Dr. Andrew Steer
President and CEO of the Bezos Earth Fund
Woochong Um
Managing Director General at the Asian Development Bank
Opening Presenters (speakers order):
Prime Minister Mia Mottley (Barbados)
Deputy Secretary-General Amina Mohammed (United Nations)
The Rt. Hon. Gordon Brown (UN Special Envoy for Global Education and WHO Ambassador for Global Health Financing)