green money

Summit for a New Global Financing Pact: Five key questions

By Yara Rizk

Posted on June 22, 2023 11:31

New Global Financial Pact Summit in Paris
French President Emmanuel Macron and South Africa’s President Matamela Cyril Ramaphosa pose for a photograph at the Palais Brogniart for the New Global Financial Pact Summit in Paris, France June 22, 2023. LUDOVIC MARIN/Pool via REUTERS

How to address the financial challenges encountered by the Global South in the fight against climate change? This thorny question lies at the heart of the discussions to be held in Paris on June 22 and 23.

Africa is at the frontline of climate change. According to the Loss and Damage Collaboration – a group working to ensure vulnerable developing countries receive the support they need in relation to climate change losses and damages – some 97% of people affected by extreme events live in developing countries, even though these countries contribute the least to CO2 emissions.

At the same time, most countries on the continent are facing financial difficulties. It is in this context, and to attempt to address these challenges, that the Summit for a new global financial pact is being organized in Paris on June 22 and 23.

  • 1) What is the purpose of this new summit?

“There should be no choice between the fight against poverty and the fight for the climate.” This statement by Emmanuel Macron on May 21 sums up the goal of the summit, an idea launched by the French president in November 2022 at COP27 in Egypt.

“We are going to push for a reform agenda of the International Monetary Fund [IMF] and the World Bank [WB] to provide more funding to countries that need it the most,” he said, branding this project as a “financial shock” that would lay the foundations of a new global architecture combining several major themes: climate, development, and debt. At the Élysée, the event is even presented as a continuation of the summit on financing African economies of May 2021.

Judging the responses given by the international community as “fragmented, partial, and insufficient,” the Prime Minister of Barbados, Mia Mottley, a champion of the economic emergence of the “Greater South,” also pushed for the creation of this summit co-organized with India, which holds the G20 presidency until 2025.

  • 2) Which African leaders are attending?

Macky Sall, the President of Senegal, is personally committed to the success of the summit, along with several of his compatriots. Among them are Oulimata Sarr, Minister of Economy, Makhtar Diop, Managing Director of the International Finance Corporation (IFC, a World Bank Group), Papa Amadou Sarr, Executive Director of Partnerships at the French Development Agency (AFD), Amadou Hott, Special Envoy of the African Development Bank (ADB) for the Alliance for Green Infrastructure in Africa, and Hassatou Diop N’Sele, Vice President in charge of finance at the ADB.

Numerous heads of state are also announced, including Mohamed Bazoum, Nana Akufo-Addo, Patrice Talon, Mohamed Ould Cheikh El Ghazouani, Denis Sassou Nguesso, Kaïs Saïed, and Mahamat Idriss Déby Itno.

Serge Ekué, President of the West African Development Bank (BOAD), Romuald Wadagni, Minister of Finance of Benin, and Lionel Zinsou, co-founder of the investment bank Southbridge, will also be in attendance.

  • 3) Why are the countries of the South at the forefront?

The pandemic and the war in Ukraine have had a snowball effect. Increasing debts and shrinking fiscal and budgetary space in already fragile countries have significantly affected their ability to finance their populations’ access to basic services. “More and more Southern countries feel they are asked to make climate efforts while they have not been sufficiently helped to fight poverty in an increasingly difficult context,” Emmanuel Macron lamented at the G7 summit in November 2022.

According to Paris, this meeting aims to “build a new contract between the North and the South” with the goal of giving fiscal space back to the most indebted countries; promote the development of the private sector in low-income countries; encourage investment in the “green” infrastructures of emerging and developing countries and, finally, mobilize innovative funding for countries vulnerable to climate change.

  • 4) What are the potential reform tracks?

According to Oxfam, by 2030, $3.9 trillion per year will be needed by low and middle-income countries to cope with climate-related losses and damages, adaptation and mitigation measures, and their needs in health, education, and social protection. To meet this increased need, the Paris summit wants to propose structural and sustainable solutions.

Some reforms have already been announced. Among these are honoring the commitments of developed countries to allocate 0.7% of their wealth to developing countries, the payment of $100 billion for climate, and the redistribution of $24 billion of the $100 billion in Special Drawing Rights (SDRs) promised in 2021 by G20 countries. Additionally, the implementation of effective reforms within multilateral development banks (MDBs). As of now, MDBs have an average loan term of 465 days, with financing capabilities deemed insufficient compared to actual needs.

Lastly, emphasis will be placed on innovative sources of financing. A new Financial Transaction Tax (FTT) has been proposed. The intention of this inexpensive tax, with minimal impact on markets and strong redistributive effects, is not new. The project has been on the European Commission’s desk for years and this tax already exists in some countries. According to the NGO One, an FTT applied to G20 countries would yield €162 billion per year with a nominal rate of 0.3% (currently implemented in France), €270 billion with a rate of 0.5% (the rate in the UK).

  • 5) Why do people refer to the ‘2030 Agenda’

The 2030 Agenda is a global plan adopted by the 193 UN member states in 2015. It includes 17 Sustainable Development Goals (SDGs) aiming to eradicate poverty, promote economic prosperity, equality, access to education and health, and environmental protection among others.

The Paris summit aims to propose solutions for financing these SDGs, going beyond the climate issue. Multiple crises and their consequences have reduced the fiscal and budgetary space of many countries, affecting their ability to finance their populations’ access to basic social services. At the end of the Paris summit, new commitments could be made to achieve the 2030 Agenda objectives.

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