While hopes for mobilizing private finance for climate response were boosted by the investment firms managing a collective $130 trillion who signed onto net zero pledges at the COP, actually getting the private trillions to move south remains a huge challenge. And two leading proposals point to the risks of missing the mark, one by misdirecting support and the other by failing to achieve adequate scale.
CGD Policy Blogs
In a new report, we rely on public reporting from multilateral development institutions and funds to provide a clearer picture of China’s participation across the multilateral development system. We find that China has staked out a uniquely important position, one that relies on leading roles as a shareholder, donor, client, and commercial partner. No other country wears so many hats so effectively across these global institutions.
Among the multilateral development banks, the Asian Development Bank (ADB) stands out for its strong financial support for COVID-19 response relative to its overall lending volume. While ADB has proven to be responsive to government’s general financing needs during the crisis, has ADB’s performance matched the specific needs of the governments and populations facing the crisis in the region? Have the greater volumes of support actually targeted the people, places, and sectors that most need it? In a new policy paper, we tackle these questions.
The G7 countries pledged a massive scale-up in support of developing-country financing at their recent summit in the UK. How it will be financed remains an open question. But analyzing trends in recent debt flows by lenders to developing countries, and taking stock of the Debt Service Suspension Initiative (DSSI), can provide some important lessons for the G7’s new ambitions.
The Biden administration and the Congress rightly went big in the recently passed American Rescue Plan at a time of tremendous need. The package was appropriately focused on the domestic side, but it did not neglect the rest of the world. One might reasonably ask then why $1 billion or $2 billion could not have been included for fighting the poverty, food insecurity, and health crises driven by the pandemic. That would have amounted 0.05 to 0.1 percent of the total package. And it would have been multiplied many times over in additional poverty reduction dollars, because that it was the MDB model does.
This week, the Inter-American Development Bank’s governors gather for their annual meeting. Much is at stake as the region reels under the compound crises of COVID-19 and recession. But none of this urgency is yet evident in the IDB’s public case to its member countries.
Today the IDB is again making the case for a capital increase to its shareholders. Yet, despite an unfolding crisis that threatens development progress in Latin America to a degree that eclipses the Global Financial Crisis, talk of a financing cliff at the bank is absent from its appeal for more capital. That’s because a spike in crisis financing has yet to materialize in IDB’s lending numbers.
In retrospect, the scale up in MDB financing during the 2008-2010 crisis, though significant, now looks conservative as we consider the potential scale of damage from the current COVID-19 pandemic. To put the question bluntly, if the human and economic devastation follows a worst-case scenario, just how much could the MDBs do to respond? We attempt to answer that question by assessing the legal, rather than prudential, constraints on MDB lending.
Debt relief for low-income countries is on the table of measures to consider for coronavirus response. The imperative right now is to get cash to LICs as quickly as possible. Suspending some debt service payments may be a good first step in freeing up some budget space for new spending. Beyond that, protracted debt-relief negotiations with multilateral and commercial creditors right now could be a distraction at best but could also actively undermine the ability of institutions like the World Bank to offer new financing for crisis response.
The experience of the 2007 global financial crisis can tell us a few things about how low-income countries could be affected by the coronavirus pandemic in the near term, even as we recognize that the myriad economic problems created by the pandemic are almost certainly greater in number and scale than the problems in 2007.