By Bodo Ellmers

The much-hyped Summit for a New Global Financing Pact took place in Paris during the third week of June. Convened by French President Macron in loose cooperation with Mia Mottley – the Prime Minister of Barbados and the mother of the “Bridgetown Initiative to reform the International Financial Architecture” – the objective was to find new ways to fill the mounting gaps in cross-border development and climate finance.

In the run up to the Summit, two other relevant bodies were also convened in Paris. The Organisation for Economic Co-operation and Development (OECD)’s Development Assistance Committee (DAC) – the most relevant multilateral body for international public finance – held its annual dialogue with civil society organizations.

The day before the Summit, the Paris Forum – a sub-configuration of the bilateral creditor cartel Paris Club – was also convened to discuss solutions to the debt crises. Members of staff from the Global Policy Forum (GPF) Europe took part in all three major policy events in Paris. This is our take on the deliberations, including a reality check two weeks after the Summit.

Simple problem – we need money

The financing gaps for both development and climate remain huge, in the range of trillions of dollars. In fact, these gaps are growing bigger as climate change proceeds at a rapid pace and the implementation of the 2030 Agenda for Sustainable Development has veered seriously off track. Financing options have fallen over the course of the past year, as central banks from the global North raised policy interest rates rapidly and massively. In doing so, they have completely closed access to financial markets for one third of developing countries, and rapidly increased market interest rates and thus borrowing costs for the rest.

Where private funds became inaccessible or unaffordable for poorer countries, public finance transferred by richer countries could fill the gap. But even existing commitments for official development assistance (ODA) and international climate finance are being missed by a wide margin. The fact that many governments in the global North are “normalizing” fiscal policies and cutting spending overall after the COVID-19 crisis makes it unlikely that development and climate budgets will receive additional allocations anytime soon.

Plan B to maneouver through this dilemma is the Bridgetown Initiative. In its original 2022 iteration, this is a three-pillar-approach to mobilize additional finance without any, or without severe, fiscal implications for richer countries. This is to be done by: (a) reforming the International Monetary Fund (IMF) and its lending toolkit to make more liquidity available; (b) reforming the World Bank to scale up development lending ;and (c) creating a new Trust Fund for climate change mitigation funded with special drawing rights (SDRs), the reserve asset that the IMF can create out of thin air, theoretically in infinite quantity.

Bridgetown 2.0 was released a couple of weeks before the Summit in Paris. It is now a wider collection of policy recommendations, some incorporated from the UN Secretary-General’s Sustainable Development Goals (SDG) Stimulus Package, which aims to make a US$ 500 billion spending boost to the SDGs. These sets of policy proposals, together with four working groups, were the main inputs for the Heads of State deliberations at the Paris Summit.

Difficult solution, take one: the Development Assistance Committee

ODA has significant upward potential, to say the least. In 2022, ODA amounted to US$ 204 billion or 0.36 percent of DAC Member States’ gross national income (GNI). This means that just meeting the internationally agreed 0.7 percent target would double ODA provision, and make an additional US$ 200 billion of public development finance available every year.

I did intense work with the DAC from 2009 to 2011, when I was a civil society organization (CSO) member of the – later disbanded – OECD Working Party on Aid Effectiveness and its Cluster on Using Country Systems. Coming back for the first time, 12 years later, the most remarkable change I noticed is that, back in those days, CSOs lobbied the DAC, for instance on untying aid and on reducing harmful policy conditionality. Now the DAC is lobbying CSOs.

And this is for good reasons. It is not just that governments are failing to meet the ODA targets. There is an increasing trend to “embezzle” ODA for non-developmental purposes such as refugee costs, or to double-report climate finance as ODA. Geopolitical tensions are also increasingly impacting on aid allocations, meaning that traditional criteria such as poverty-focus or potential ODA effectiveness no longer guide allocation.

Actually, the aid effectiveness agenda has faced a near-complete collapse over the past decade. The limited tangible data that is available suggests that donors have stopped using country systems almost entirely. Instead, they have gone back to badly harmonized and uncoordinated implementation through their own aid industry agencies, or disbursed funds through expensive multilateral agencies or disparate CSOs (the latter also explained due to the reluctance to work with autocratic governments).   

CSOs could, of course, help to hold their governments to account. We didn’t really get far when it came to agreeing the when and the how. The conclusion here is that ODA has significant upward potential, but still has a long way to go. Worse still, when it comes to the quality side of things, it’s moving in the wrong direction.

Ironically, while the OECD was destined to host side-events at the upcoming Paris Summit on their premises, there was widespread confusion both about the objectives of the Summit and the way in which it was conducted.

Take two – the Paris Forum

Debt relief could, of course, free up enormous fiscal space for development and climate spending. This would make the global South less dependent on the transfers that the global North is not providing anyway. CSOs had highlighted over and over again in the run-up to Paris that many governments are being forced to spend more on debt service than on health and education combined, and also more than their costs for the nationally-determined contributions (NDCs) would be. However, effective institutions to deliver debt relief are missing.

One of the main bodies to discuss debt architecture reforms is the Paris Forum – a forum attached to the Paris Club. When it comes to making the bold moves in debt architecture reform that are needed, and have been mapped by the UN Secretary-General recently, the Paris Forum has been quite a disappointment. There was little appetite to go beyond the G20’s and Paris Club’s dysfunctional “Common Framework”, despite pushes by CSOs and academics during the debates. And this is in spite of the evidence that this framework has managed to treat only one single country case (Chad) since it was established. Meanwhile more than half of the world’s poorest countries have severe debt problems and need an urgent debt workout if they are to meet their development and climate objectives.  

A key constraint when it comes to debt architecture reforms has become that financial industry lobbyists have hijacked relevant policy-making bodies and are effectively sabotaging their proceedings. The completely opaque “Global Sovereign Debt Roundtable”, hosted by the IMF, is strongly influenced by corporate lobbies. Also at the Paris Forum, their lobbyists pushed back calls for a legal framework to facilitate debt restructurings, arguing that these would make foreign private investment in the global South more expensive in future. This was particularly strange since, a day earlier at the OECD, we had heard that “de-risking instruments” were needed, because private investment is currently too expensive.

The Paris Forum did not lead to any significant outcome. It also failed to make the link that many countries would not be in debt crisis today if rich countries had transferred the amounts of ODA and climate finance that were pledged under international agreements. In any case, it did nothing tangible to solve this problem. The passivity of the Paris Forum was a reality check ahead of the Summit, where the debt question was high on the agenda.

Difficult solutions: Take three – The Paris Summit

The Paris Summit was sold as THE event that would either find the big and bold solutions that we need, or at least create the political traction that is a prerequisite to finding solutions. Some appreciated Macron’s leadership in convening this summit. In particular, climate campaign groups jumped on the bandwagon and lobbied for participation and bold outcomes. Even a notoriously sceptical British friend of mine argued that “the French are the last ones in Europe who have a vision”.

Others saw the Summit as a distraction from Macron’s domestic political problems (following the autocratic manner in which he had pushed through unpopular pension reforms). Detractors saw it as an illegitimate forum that is in competition with more legitimate UN processes, or simply as an attempt to score points in the geopolitical Great Game for Africa, where France has lost a lot of ground to rivals lately. Earlier this week, in private talks with me, a senior OECD official coined the term “Louis-XIV-governance-style” for the way in which Macron and the Elysée tried to push everyone towards their summit.    

In terms of convening, the Summit was a success, as more than 40 Heads of States attended. This was, if I am not mistaken, the largest convention of political heavyweights for a financial policy debate since the Third International Conference on Financing for Development convened in Addis Ababa in 2015. Contrary to expectations, at least to my expectations, Macron succeeded in attracting a large number of Heads of States from the South to the Summit. Meanwhile, with the exception of Germany’s Chancellor Olaf Scholz, no relevant Heads of State from France’s closest allies in the G7 or major EU countries bothered to show up. It was, however,  remarkable that the BICS countries (without Russia) attended at the level of President (Brazil, South Africa), Prime Minister (China) or at least Finance Minister (India).

In terms of outcomes, it is unclear whether the Summit achieved what it was meant to achieve, as the expectations were never formally stated anywhere. Macron’s intentions had been to adopt a bold declaration, which his peers from other countries were to sign up to. This has not happened, however. The website just features a Chair’s Summary, a proposed roadmap and a vision statement for multilateral development banks. The Chair’s Summary maps a number of old and a few new policy initiatives. Among the latter is a commitment by the World Bank to introduce climate-resilient debt clauses in their future lending, and an agreement by bilateral creditors on the debt owed by Zambia (a country stuck in the “Common Framework” since its founding). However, it is unclear to what extent the Summit catalysed these announcements, or if they had been rather held back so that Heads of State could present something concrete at the Summit.

The Roadmap just maps the existing political calendar for 2023-2024 and the deliverables it aims to produce. Adding to the confusion, the website also features a document entitled “the Paris Agenda for People and Planet”, which enjoys the explicit endorsement of 17 countries. Besides vague commitments, this document also states that a joint working committee will be set up and that, “We will meet again in Paris, before COP30, to take stock of these commitments”. From this, it is not clear whether this “Paris Summit” was the last of its kind, or the beginning of a process. As the preparations begin for the Fourth International Conference on Financing for Development (FfD4), which is tentatively scheduled for 2024, any multilateral process would need to be aligned to the official UN preparatory process to avoid duplication and forum fragmentation.

Perhaps the most important output is a large pool of good quotes by Heads of State. Especially at the closing ceremony, great statements were made that outline the positioning of different camps. Many protagonists – including Brazil’s President Lula da Silva and the omnipresent Mia Mottley – also used the public concert organized by Global Citizen to get their messages to a broader audience.

While many advocated additional lending, Kenya’s President William Ruto declared that, “there is no space for debt anymore”. Mia Mottley added that “the developing world is sinking from debt.” She denounced that the UK could pay down Germany, which benefitted from generous debt relief after World War 2, helping the country to thrive economically, while a global architecture dominated by rich countries denies developing countries similar treatment in the 21st century.

Mottley said, “We have never had the appropriate discussions about the dismantling of the imperial order. Whether it is in the United Nations or in the Multilateral Development Banks, regrettably we continue to see first class and second class citizens.” Remarkably, she hadn’t even been at the Paris Club two days earlier, which remains a posterchild of this status quo.

Epilogue – A reality check two weeks later

Two weeks after the curtain came down on the Paris Summit, it’s time for a reality check. Shortly after the summit was over, Paris was on fire again as it became clear that not only workers and future pensioners are unhappy with Macron’s domestic policies, but also the marginalized youth from the banlieues. While the Paris Summit announced that the international community had reached the target to rechannel SDRs worth US$ 100 billion for the benefit of poorer countries, this is false information as it includes an amount worth 21 billion from the US, while there is no guarantee that the US Congress will ever release those funds.

And while Germany’s Olaf Scholz stressed the importance of keeping promises at the Summit, his government took less than two weeks to present a budget proposal for 2024 that includes severe cuts in both development and humanitarian assistance. The same week in London, a communiqué was leaked showing that the UK had dropped its climate and nature finance pledges. This makes the show in Paris look rather hypocritical. It turns out that there is still a long way to go to make sure we have a Global Financing Pact that actually delivers.