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June 26, 2023
The summit for a New Global Financing Pact was held in Paris from June 22-23 under the leadership of French President Emmanuel Macron. Leaders convened to address rising demands for global financial system reform and to increase countries’ resilience in the face of the interconnected issues of climate change, rising inflation, the conflict in Ukraine, COVID-19 recovery, and increasing debt levels. There was wide enthusiasm when the summit was initially announced, especially from proponents of the Bridgetown Initiative, which is a call for the transformation of current financial structures to better support climate-vulnerable countries. This enthusiasm was dampened when it was revealed that the only G7 heads of state present at the summit would be Macron and the Chancellor of Germany Olaf Scholz, showing a general lack of support from the G7 in helping transform the global financial system.
Nevertheless, 40 heads of state, representatives of international organizations, civil society groups, and the private sector attended the summit. LMICs were strongly represented at the summit, with leaders such as the Prime Minister of Barbados Mia Mottley and the President of Kenya William Ruto spearheading calls for reform of the global financial architecture. Macron framed the event around several themes, among them the declaration that ‘no country should have to choose between fighting poverty and protecting the planet.’ World leaders were eager to build a new consensus around the international financial system in the run-up to other major milestones this year, including Africa Climate Week in Nairobi in September and COP28 this November in Dubai.
There were some major announcements made during the summit that respond to some of the calls of the Bridgetown Initiative and may create much-needed momentum ahead of upcoming international gatherings this year.
Leaders and activists called for MDB reform to more accurately reflect the current global order and to better support the world’s most vulnerable. While MDB reform was high on the summit’s agenda, a proposed vision statement on MDBs did not receive universal approval, with the Chair’s summary of discussions stating that it was endorsed by ‘’30 countries, in the presence of 8 Multilateral Development Banks.’’
Despite the lack of consensus on the MDB reform vision statement, the World Bank announced an additional US$200 billion would be unlocked for LMICs. In addition, the World Bank announced the implementation of a debt suspension clause in the case of extreme weather events, which had been advocated for in the Bridgetown Initiative. The new president of the World Bank, Ajay Banga, also announced the Private Sector Investment Lab, which aims to increase private sector investment flows into emerging markets.
One of the core demands of the Bridgetown Initiative, brought by Mottley to the summit, is the rechanneling of at least US$100 billion in SDRs to direct liquidity and investment financing for countries that need it most. Leaders have also been calling for the allocation of SDRs to other MDBs, including the AfDB, to ensure that SDRs are allocated based on development and climate action-related needs.
Kristalina Georgieva, the managing director of the IMF, announced that the development community achieved this goal of reallocating US$100 billion in SDRs for emerging economies in June 2023. While promising, this announcement did raise questions surrounding the US$21 billion reallocation that is pending from the US, with approval still needed by US Congress. With regards to broadening the reallocation capacity to include other MDBs, there was no real progress made at the summit.
Debt sustainability, and the need to restructure debt for LMICs, was a central theme during the summit. One of the biggest announcements was a long-awaited debt restructuring deal for Zambia, worth US$6.3 billion.
Related to climate, Kenya, Colombia, and France proposed the creation of a Global Expert Review on Debt, Nature and Climate to better understand the effects of debt on countries’ ability to address development and climate-related issues. Several leaders made proposals for the development of solutions including debt-for-nature swaps. These swaps involve the reduction or cancellation of debt owed by a creditor, with the debtor in turn committing to making financial contributions to climate action and conservation programs.
During the summit, several leaders also highlighted the importance of the private sector in attracting investment in climate finance for emerging economies, with the President of the EU Commission Ursula von der Leyen calling this a core subject of the summit.
However, other participants questioned how much countries can rely on the private sector to promote economic growth and climate action. Peter Sands, executive director of the Global Fund, stated in an interview last week that while countries need to work to resolve inequalities, ‘’the idea that this is going to be something that can be solved by private sector companies–if you take an evidence-based approach, history doesn’t exactly suggest that that is going to be true."
There is still some confusion as to whether the US$100 billion climate finance pledge will be achieved by COP28. Macron himself confirmed on the last day that the US$100 billion pledge had in fact already been met by the countries concerned. However, the validity of Macron’s statement was questioned by others present. The Chair’s summary of discussions stated that the commitment “should be further supported by confirmed figures provided by contributors and reported by the OECD.”
Nevertheless, there were additional commitments made that inspire optimism in global climate cooperation. For example, a new Just Energy Transition Partnership worth $2.5 billion was signed between Senegal and France, Germany, the UK, EU, and Canada, with Senegal following in the footsteps of South Africa, Indonesia, and Vietnam. Related to agricultural development, France supported IFAD’s goal to mobilize US$10 billion in support of smallholder farmers and food security, and Macron pledged to lead the organization’s current mobilization efforts. The implementation of polluter taxes, including levies on the shipping industry, also gained traction during the summit.
In his closing remarks William Ruto told the crowd that "we want to have a different conversation and we are happy that this conversation has started in Paris." In addition to the official roundtables and events, global leaders were able to have sideline discussions and gain a deeper understanding of issues to be addressed in the run up to COP28 in November 2023. Hopefully, this is the beginning of a more dynamic and meaningful conversation.
Looking ahead, advocates should focus on:
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