Innovative financing series: Reforming the international financial architecture

Introduction

AU Commission Chairperson Mahmoud Ali Youssouf, in his speech at this month’s Africa Climate Summit, highlighted the need to address structural inequalities in the international financial architecture IFA in order to achieve true climate justice and sustainable development.

Similar calls for reform of the IFA have echoed globally for many years. Proponents of reform argue that improving existing systems and frameworks, which were often established at the end of WWII in Europe, is key to unlocking the full potential of both public and private capital mobilization for development and climate action worldwide. Reform options encompass various aspects of the international financial system, which refers to the institutions, policies, and practices that oversee our global financial system, including reform of major MDB’s SDR, an overhaul of existing debt frameworks and associated risk rating systems, and more equitable global representation in key fora. These reforms are critical to increasing countries’ fiscal room to maneuver, improving their ability to deal with economic shocks such as the COVID-19 pandemic, and promoting more inclusive and climate resilient development.

This publication is part of the Donor Tracker's series on innovative financing and explores the major reform options proposed by those seeking to unlock the full potential of public and private finance, and to foster a more equitable international financial architecture.

Options for reform

Reform of Special Drawing Rights

MDBs are vital to financing development and working towards the achievement of the SDGs. In 2024, the G20 finance ministers and central bank governors called for “better, bolder, bigger banks” that are better suited to address both regional and global challenges.

One tangible reform option, which was included in the G20 roadmap for MDB reform, is the reallocation of the IMF’s SDR, which are reserve assets provided by the IMF to its 190 member states based on IMF quota shares. While these reserve assets provide crucial liquidity to countries, the quota shares do not reflect global needs. For example, during the COVID-19 pandemic, the IMF reallocated US$650 billion SDR globally to support governments struggling to manage the impacts of the pandemic. The global distribution was however unequal, with Germany receiving US$36 billion, and the African continent receiving a total US$33 billion, or 5% of the global share.

Proponents of reform suggest this quota system be adjusted to reflect current global needs, and SDR channeled through regional banks, such as the AfDB, to allow these institutions to more quickly and easily finance projects on the ground. This call for rechanneling SDR aligns with the ambition of the new president of the AfDB group, Sidi Ould Tah, who is determined to position the bank as a financial powerhouse on the continent, mobilizing over US$400 billion annually through blended finance, green bonds, and AAA-backed risk guarantees.

Reform of existing debt architecture

The African continent has the fastest growing population globally, and by 2050 one in four people on the planet will be African, providing a major opportunity to invest in development. However, the opportunities to invest in these economies are often constrained by the existing debt architecture. As of September 2025, 32 African countries are in debt distress, or at high risk of debt distress.

High levels of debt or debt distress restrict governments’ fiscal space to borrow to invest in development, and also create a risk perception for international investors, with specific investments in turn seen as too ‘risky’ or not ‘bankable’. The G20 Common framework, which was established during the COVID-19 pandemic by the G20 and the Paris Club of Creditors to better support debt restructuring for countries with unsustainable levels of debt, has since been criticized as too creditor-centric and not fast enough in supporting countries.

In May 2025, at the first ever African Union Debt Conference, policymakers called for reform of the G20 framework, and released the Lome Declaration on Debt, which suggests reform of the G20 Framework to provide better coordinated creditor negotiations, suspension of debt servicing during restructuring and debt forgiveness, reform of the IMF’s SDR system, expanded eligibility to MICs, and the development of a supranational enforcement mechanism.

Reform of credit rating systems

The Lome Debt Conference also highlighted the importance of credit rating reform, as integral to overall reform of the global debt architecture. Credit rating agencies CRAs provide assessments of a country’s ability to repay debts, with higher ratings (with AAA the highest) indicating lower credit risks.

Ratings are mainly provided by the “Big Three,” or Fitch, Moody’s and S&P Global, and impact country borrowing costs, affect access to international capital markets, and inform foreign investors on the relative level of risk profile of potential investments. These organizations have been criticized as lacking transparency in their processes, too subjective in their ratings, and informed by outdated and biased assumptions surrounding emerging economies.

For example, Fitch’s recent downgrade of AfriExim bank to a BBB rating, citing high credit risks and weak risk management policies, received significant pushback from stakeholders on the continent. The APRM, housed by the AU, argued that the downgrade did not consider the bank’s strong regional backing as well as the key role it plays in promoting economic development on the continent.

To create a better credit rating system, there have been calls for more regionally based credit rating agencies, with organizations such as Africatalyst calling for the establishment of an Africa Credit Rating Agency. The AfCRA could provide more contextually relevant assessments and offer ratings that better reflect the unique economic realities and strengths of African countries and institutions.

Conclusion

Reform of global representation Enforcing reform of the international financial architecture also requires more equitable representation of all actors within this architecture. The membership of the AU in the G20, as well as South Africa’s presidency of the group this year, marks a stepping stone to a more equitable and inclusive system.

However, representation needs to occur at all echelons of the international financial architecture, from the governance structures of major MDBs to representation of borrowing countries and a stronger role for them throughout the entire debt negotiation and resolution process. Linked to representation within the international financial architecture is equitable geopolitical representation in fora such as the UNSC, and in any standard-setting body whose decisions impact global development.

These structural reform options aim to reshape the existing system, setting the necessary foundations for public and private capital to flow more quickly and more freely to areas where it is most needed. None of these reform options are new, and while public support for IFA reform is strong, reform remains challenging and takes alignment amongst a wide range of stakeholders and momentum to take place.

For example, at the FF4D in Seville this summer, the UK and the EU blocked a key paragraph in the UN financing for Development process, which aims to create a UN Framework Convention in Debt, a framework which many stakeholders, including the Africa Group of negotiators, Brazil, and Pakistan have long campaigned for. There are however existing pathways and options for countries to follow, with stakeholders in Africa calling for an architecture that positions African countries as contributors to the system and not just beneficiaries, and highlighting concrete solutions to systemic barriers countries continue to face.

With new leaders like Sidi Ould Tah stepping into influential roles, there is renewed potential to energize and advance concrete reforms of the international financial system.