On 29 June, G20 Ministers responsible for development policy convened for the first time under the Italian Presidency. The meeting saw the adoption of a detailed and ambitious policy communique that in addition to prompting international action is also expected to further inform the deliberations of other G20 ‘tracks’ that may affect developing countries. It seems particularly strategic to us that the meeting of Finance Ministers at the end of this week in Venice picks up and further develops on these commitments.
Pandemic risks widening the budget and the policy gap
While drawing the attention to the many important G20 initiatives and the strong global development policy basis underpinning these, the Communiqué prominently expressed the ministers’ deep concern over the considerable development setbacks that have been caused by the global pandemic. The reversal of progress made under key SDGs, with education being highlighted, lead to a challenge as to how best lay the basis for not only recovery but long term sustainable development choices. In order to get back on track to achieve the SDGs, vulnerable countries need financial support. In this sense, it is commendable that since the beginning of the Italian Presidency G20 Development Ministers and their colleagues from the finance track have been working together on a common agenda for advancing G20 efforts on the 2030 Agenda for Sustainable Development.
To informally explore such a cooperation, on the 4th of June the IAI, IDDRI and DIE organised an informal webinar that brought together both direct G20 participants, including from the Italian Presidency, as well as key stakeholders from several continents that included government, international organisations and research. The discussions acknowledged that the highly differing fiscal space and means of investment into national recovery among countries has aggravated inequality, both within and between countries. Poor and vulnerable countries, especially in Sub-Saharan African states, show worrying trends of increasing inequality. Most of these countries were already under strain before the pandemic and lockdowns measures and restrictions have further exacerbated an already fragile situation. The widening global inequality also affects countries’ investments in markets and technologies of the future. Strategic talks on green recovery pathways are mostly reserved to rich countries so far, which may in turn also widen the policy gap between high-income and low-income countries and their ability to attract future investment.
G20 should play a strong part in a virtuous multilateral support cycle
Against this backdrop, there is a dire need for multilateral solutions to make additional financing available. According to IMF estimates, up to USD 285 billion would be needed during the next five years to support African countries step up their spending response to the pandemic. The economic impact of the pandemic has been disproportionate on LICs, who lack the fiscal space to respond. The G20’s decision to extend until the end of 2021 the Debt Service Suspension Initiative (DSSi) was a first step and allowed for freeing up over 5 billion USD in resources, though it is widely acknowledged that this will not be enough.
The G20 and Paris Club Common Framework for Debt Treatments represents another opportunity, yet it is facing several challenges in terms of incentivising the private sector and reaching agreements efficiently. Those present at the seminar thus expressed concern over the slow progress made in reaching such collective debt relief agreements as currently pursued in several African states. Participants at the seminar also considered the potential for reaching agreement with the IMF to allocate 650 billion USD in Special Drawing Rights (SDRs) to provide additional support. However, for these new liquidities to benefit the most vulnerable, voluntary post-allocations between countries are needed. So far, only USD 33.6 billion of the new liquidities in the form of SDRs are foreseen to go to Africa, whereas around USD 230 billion are expected to be allocated to G7 countries and China.
We need both short term and long term responses
Technical questions remain as how to channel this re-allocation of SDRs. One channel could be the IMF Poverty Reduction and Growth Trust (PRGT) that currently provides interest-free concessional support to low-income countries. But how can we ensure that in the long run these new liquidities flow into green and socially inclusive development pathways versus carbon and inequality intensive trajectories? Potentially, the PRGT could focus on specific support for green and digital transformations and strengthening of health and social protection systems. More broadly, the alignment of short term responses with long term sustainability objectives necessitates the development of an integrated long term strategy for the country and of corresponding policies: closing the policy gap thus needs to be addressed by all forms of policy support, capacity building and technical assistance at the same time as financial solutions are decided and deployed.
As a start, the Communiqué of the development track calls for three strategic measures that the finance track could support and develop further: 1) Promote sustainability-linked long term financial instruments, encompassing bonds, funds and other investment vehicles aimed at advancing sustainable development objectives, including referring to environmental protection, gender equality, social development, sustainable infrastructure and cities in developing countries; 2) Build on the progress made by over 70 countries to develop Integrated National Financing Frameworks (INFFs) to finance nationally owned sustainable development strategies; 3) Encourage voluntary reporting on the use of COVID-19 recovery and fiscal space support packages and their link to the longer-term 2030 Agenda, making substantial contribution to achieve the SDGs and doing no harm to the others.
A more short term key challenge to address to ensure an equitable and steady recovery for all is solving the current uneven distribution of vaccines. In this sense, the Communiqué lacked of ambition and solidarity as it generally indicates a willingness to share jabs “when domestic situations permit”. Vaccine nationalism risks hampering the efforts to strengthen multilateral cooperation in a post pandemic world. Hence more political and financial commitments are needed to tackle both immediate health needs, such as vaccine supply and management of endemic diseases, and to prepare for future threats, for instance, by supporting countries in the global South (particularly African ones) to build-up national bio-manufacturing capabilities.
In view of the scale of the challenges faced, and the degree of urgency expressed by the G20 Development Ministers, it is hoped that their finance colleagues will build further on their commitments. Ensuring that the Matera Communiqué is fully in line with the one to be released by Finance Ministers in Venice on 9-10 July is crucial to make the development and finance souls of the G20 countries speaking with one single voice. Nine years remain till the end of the timeline for achieving the targets set in the 2030 Agenda for Sustainable Development, and it is to be hoped that the G20 makes a significant contribution to the decade of action launched by the last SDG Summit.
The views are those of the authors and not necessarily those of ETTG.