G20 3rd Finance Minister and Central Banks Meeting - Session V: Capital flows, global debt and MDBs reform
25 July 2024
Your excellencies,
In recent years, cascading crises have revealed the fault lines in our international financial architecture. The G20 took important steps during COVID. Today we have to find again the same sense of urgency, and learn the right lessons from what has worked, and what has not.
The numbers speak for themselves.
Financing gaps are widening – in 2015, we measured the SDG financing gap in the global south at 2.5 trillion dollars; today, it is at 4 trillion.
Debt burdens are suffocating the fiscal space of the developing world, hurting development and the basic needs of their people.
As minister Haddad has said, this is a development financing crisis, that risks the achievement of the SDGs. But the SDGs are too big to fail.
Illicit financial flows are growing, with Africa reporting outflows of nearly 100 billion dollars per year, twice as much as the Continent receives in foreign direct investment or ODA.
Resources are going the wrong way, at the wrong time, and to the wrong places. This year, we expect net negative capital flows from the global south of 50 billion dollars. This is like a reverse blood transfusion: from the poor to the rich, from the weak, to the strong.
Global trade is stagnating under the threat of protectionism and fragmentation, with investment flows falling at double digit rates.
Development finance has not kept up with global growth. The system has become too small compared to the needs. What we heard today from the President of the World Bank and from IDB in terms of increased coordination and innovation of regional MDBs is very reassuring. We need more of this.
Lastly, the Global Financial Safety Net is fractured in two; with countries that can expand their balance sheets at will or have swap agreements, on one hand, and those who cannot, on the other.
Your excellencies,
This disparity in how crises impact different nations, is not only an economic challenge but also a political time bomb. It perpetuates a vicious circle where crises breed instability, and instability, in turn, deepens vulnerability.
Systemic failings require systemic fixes. The G20 is uniquely placed to provide them. It can ensure that the MDB evolution push keeps its original ambition of the SDG Stimulus in extra annual lending, a distant goal from what we have currently on the table.
On debt, key reforms to the common framework, and greater creditor coordination can help plug the gap in our multilateral debt restructuring. The G20 IFA working group is very important in this direction.
Yesterday’s historic ministerial declaration on tax cooperation is a huge step in the fight against tax erosion, illicit financial flows, and extreme wealth inequality.
Better use of SDRs, including automatic allocation in times of crises and greater rechanneling – especially through MDBs as we heard from the African Development Bank, managing risks to crowd-in private sector financing, quota adjustments as well as faster disbursements from the RST and PRGT, can go a long way in meeting the SDGs.
Many steps in this direction have been taken by the G20. But in economics, as important as the direction is the speed and the scale of the action.
Your excellencies,
This week marks 80 years since the Bretton Woods Agreement, signed in July 1944. Our international financial architecture is unbalanced not because of some evil design.
It is unbalanced because it is unfinished. On debt, on SDR, on development finance – we must finish the job that our predecessors started in Bretton Woods, and that we are carrying forward today under the presidency of the Brazilian G20. The choice is yours, and the time is now.
I thank you.
