Berlin, 21 June 2023 – In the lead-up to the summit for a “New Global Financing Pact” on 22 and 23 June in Paris, the German Council for Sustainable Development (RNE) is recommending that the federal government should advocate for a reform of the World Bank and the other international development banks into transformation banks, with more capital than before being funnelled towards climate action and sustainability. The banks’ reformed business models would lead to investments that ultimately benefit global public goods and the world’s population. Plus, countries in the Global South should be given an active role in the decision-making processes moving forward.
In its latest statement, “Financing the Transition and Sustainable Development”, the RNE recommends that the German government be seen to argue for reforming the international financial architecture at the forthcoming Paris summit, but also at the UN General Assembly in September 2023 and at the reform talks of the World Bank. Essentially, Germany should lead the way at this year’s SDG Summit in the autumn by announcing ambitious measures for actioning the SDGs.
“The financing gap for sustainable development is widening across the globe, while the multiple crises from climate change to the Covid-19 pandemic to the Russian war of aggression on Ukraine are only causing poorer nations in particular to fall further into debt. According to the latest calculations, some one trillion US dollars a year are needed to implement the Paris Agreement and the 2030 Agenda for Sustainable Development in the developing and emerging economies. Debt relief, in our view, is essential to ensure that heavily indebted countries, too, can get in the right lane towards sustainability and climate action”, says Reiner Hoffmann, Chair of the RNE.
RNE member Heidemarie Wieczorek-Zeul adds: “Given the drastic debt situation of countries in the Global South, it is imperative that we set up debt relief, something China must commit to as well. Besides that, we need a comprehensive reform of the special drawing rights (SDRs) of the International Monetary Fund (IMF) in order to provide liquidity where it is most needed.” The allocation of SDRs is a system of reserve holdings introduced by the IMF in 1969. It offers countries in crisis situations the opportunity to receive reserve currency, but so far has been based on the share of IMF quotas each country holds – which effectively means the poorer countries get little benefit. As such, the richer nations should redesignate these funds in support of the developing countries.
Moreover, the instrument of debt swaps should be expanded. This enables indebted nations to invest repayment sums falling due in agreed projects, for instance for climate change mitigation and healthcare, instead of paying the amount back to the creditors. The RNE also supports the idea of a trust fund for the multilateral development banks as an efficient and targeted means to open up the prospect of sustainable development in heavily indebted countries in times of multiple crises.
Among other suggestions, the RNE paper supports the proposals of the Bridgetown Initiative, launched by the Prime Minister of Barbados, Mia Mottley, in mid-2022. The plan calls for reform of the World Bank and the IMF, with more capital than before going towards climate action and sustainability. In parallel, Germany too has drawn up proposals with the likes of the USA aimed at boosting the mobilisation of funds for climate protection and sustainability endeavours. These proposals should form part of a comprehensive reform agenda for the international financial institutions by autumn 2023.
In the meantime, French President Emmanuel Macron along with Indian Prime Minister and current G20 president Narendra Modi has invited numerous heads of state to a summit on the “New Global Financing Pact” in Paris on 22 and 23 June 2023. The goal is to agree the cornerstones for a reform of the international financial system to support a just social and ecological transition.
Financing the Transformation and Sustainable Development
Reform of the international financial architecture - Statement by the German Council for Sustainable Development; Berlin, 21.06.2023