Summit for a New Global Financing Pact: Understanding the impacts for infrastructure
Although last week’s Summit for a New Global Financing Pact didn’t finalise bold reforms or major agreements, it showed that engagement and expectations are higher than ever, and these are two of the most important preconditions for change. It also provided another touchpoint for leaders to connect.
Crucially, developing countries, in particular African countries, were central and vocal in the conversation. And, the private sector was also engaging more directly with the public sector, particularly through GFANZ(the Glasgow Financial Alliance for Net Zero) and SMI(the Sustainable Markets Initiative).
In my view, these un-mediated (or at least less mediated) conversations across the geopolitical and financial spectrums are another sign that there is now shared understanding that change must and will occur. The only questions are when?and how? For the infrastructure ecosystem, the summit sent some notable signals.
1. MDB reform still has significant momentum
The ability of MDBs to maintain their central role in sustainable development in developing countries hinges on the banks’ ability to increase investing capacity and meet the needs of those countries. The reforms recommended as part of the independent Capital Adequacy Framework (CAF) review were under discussion last week, and the roadmap produced following the summit called for G20 partners to ‘give an additional push’ to the CAF Review Agenda. As a reminder, the reforms proposed by the CAF review should help increase MDB lending capacity, enhance risk management, improve credit ratings, and attract more private capital. At the summit, US Treasury Secretary Janet Yellen stated the reforms could unlock USD200 billion in new lending capacity in the next decade. The upcoming G20 Finance Ministers and Central Bank Governors meeting that will take place in India in July will see the presentation of the second edition of the CAF review report, including an update on the various MDBs’ reform roadmap implementation.
2. Private capital mobilisation remains the imperative from governments, and has added support from MDBs
Comments made around the summit reiterated governments’ view that private capital needs to come to the table, linking this to reform of the MDBs. President Macron highlighted the need for private capital in an interview with CNN. The World Bank committed to having 1:1 leverage of public funds to private capital, and World Bank President Ajay Banga announced the launch of a Private Sector Investment Lab to ‘develop, and rapidly scale, solutions that address the barriers preventing private sector investment in emerging markets.’ The lab is co-chaired by Mark Carney, UN Special Envoy on Climate Action and Finance and co-chair of GFANZ, and Shriti Vadera, chair of Prudential plc. GFANZ has been central in helping create the conditions for the private sector to engage more directly with the public sector, and there is understandable excitement about how the lab will develop. Another interesting announcement in the area of private capital mobilisation was the launch of GAIA, a new blended finance platform, by MUFG, FinDev Canada, and other partners. This has been in process for some time, and its launch at the summit was a timely reminder of the ongoing need for innovative financing instruments and the opportunities of blended finance.
‘For years, the World Bank Group, governments, and other multilateral institutions have tried – and fallen short – to mobilize meaningful private investment in emerging markets. Given the urgency and scale of our intertwined challenges, we must try a new approach – and the World Bank Group has a central role to play in this effort by using its resources, convening power, and knowledge to catalyze private capital more effectively.’
- World Bank Group President Ajay Banga (Source)
3. Debt reform is still a high hurdle
It also remains a highly geopolitically tainted issue. Infrastructure usually sits at the core of debt sustainability issues, as we have seen in recent years in Sri Lanka for example. On a positive note, a deal was finally reached on restructuring Zambia’s USD6.3 million dollar debt. This type of restructuring should be far more common, and hopefully with Zambia’s deal being viewed as a ‘test case’ there will be progress for other countries that are continuing to wait. As I have mentioned before, the comparable terms of participation and fair treatment of creditors within the Common Framework for Debt Treatments beyond the DSSI will go a long way toward supporting debt sustainability and ultimately sustainable development, including essential infrastructure. G20 Finance Ministers have taken up the debt topic extensively, and the summit documents call for ongoing progress on this issue at the G20. At the summit, the World Bank also announced that developing countries will be able to pause debt repayments in the event they are hit by a climate disaster. Meanwhile, the IMF is continuing to address issues around debt sustainability by ensuring that all technical actors can continue interacting and identifying practical solutions to avoid further debt sustainability issues.
4. Emerging markets and developing economies are demanding and driving transformation
The equality and climate crises have mainstreamed the understanding that global financial institutions need to be reformed – or transformed, as Barbados’ Prime Minister Mottley said in Paris – to equally serve all people and remove the divide between the Global North and the Global South.
The summit kept a spotlight squarely on this issue. Developing countries and particularly African nations were central in the conversation. But still far more needs to be done to fully integrate all nations into the debate and solutions on sustainable development.
By serving as another major multilateral forum in this pivotal year, the summit likely helped direct some of the agendas for the major remaining multilateral meetings of 2023, including the G20 meetings in July and September, the IMF and World Bank Annual Meetings in October, and COP28 in November.
Although the summit’s chair summary reflects the recommendations of its host government rather than a negotiated view of priorities, its roadmap sets out suggested progress ahead of future multilateral meetings, touching on many topics already on the multilateral agenda this year, like MDB reform, debt restructuring and the Common Framework, and tools and instruments to manage risk assessment and financing costs in low-income countries.
It was good to see these agenda items represented again, and with signals of ongoing and building commitment. It is also true that, often, the challenge is not getting commitments but implementing them. Clearly this is time for even greater leverage of multilateral organisations like the MDBs and others (including of course the Global Infrastructure Hub) to support implementation and monitoring of these commitments.