IFI governance


V20 communiqué analysis Spring Meetings 2023: Climate vulnerable countries call for global financial architecture fit to tackle climate and debt emergencies

19 April 2023

Former Maldives President Mohamed Nasheed, right, speaks at the V20 ministerial meeting at the International Monetary Fund on 16 April, while IMF Managing Director Kristalina Georgieva, left, looks on. Credit: IMF Photo/Ariana Lindquist

The V20 communiqué observed that, in the context of the ongoing polycrisis, climate change is undermining the efforts of climate-vulnerable states to achieve development aims, noting, “We lack the resources of our wealthy and major economic counterparts. Our fiscal space is under constant pressure from climate–fueled risks that impact development prospects in multiple ways.”

The communiqué also expressed dismay that the G7 and G20 had not yet followed through on commitments to align their Nationally Determined Contributions to the Paris Agreement with the accord’s temperature target, which will further exacerbate these costs. Former Maldives President Mohamed Nasheed, co-founder of the Climate Vulnerable Forum, a partner of V20, noted during the ministerial that, “when it comes to emissions, vulnerable countries are the creditors, and big polluters are the debtors.”

Yet, despite this, V20 countries face a vicious cycle of growing debt burdens and impacts from Loss and Damage due to climate change. Nasheed noted that the debt and climate crises are converging, causing a twin crisis: “We need large-scale debt relief. The V20 owes $492 billion in debt, almost mirroring the V20’s amount of losses and damages.”

The V20’s Accra to Marrakech Agenda – which was launched at the meeting and will be finalised ahead of the 2023 World Bank and IMF Annual Meetings in Marrakech – puts forward proactive proposals to counter growing debt in climate vulnerable countries, arguing for a partial debt suspension for them, and credit enhancements to induce all creditors to participate in orderly and predictable debt restructuring. Nasheed was at pains to point out that such a process must allow countries the fiscal space to invest in their climate prosperity plans, developed under the V20, rather than forcing them to undertake damaging austerity measures to pay creditors – as is the current status quo under IMF lending programmes, which have failed to deliver counter-cyclical financing to countries in debt distress and thus prevented climate action (see Observer Autumn 2021).

Role of the Bretton Woods Institutions: IMF’s over-reliance on carbon pricing questioned, as V20 calls for greater IDA financing

The V20 communiqué made clear the bloc’s desire to formalise its asks to the Bretton Woods Institutions – the World Bank and IMF – including via a request for the V20 to be granted official intergovernmental status, with a formal secretariat to carry its work forward.

While welcoming the IMF’s fledging climate work, the V20 called for it to go further, noting, “We call on the IMF to align its lending toolkit with the Paris Agreement by increasing the scale of available financing and by reforming its toolkit to help countries mitigate short-term macroeconomic imbalances in a manner that accelerates medium-term and longer-term climate resilient development pathways.”

The V20 called for the IMF to go beyond carbon pricing in its surveillance advice, echoing the findings of a new report by the Taskforce on Climate, Development and the IMF on the Fund’s attempts to mainstream climate in its mandate, launched on 13 April. The communiqué noted, “We encourage the IMF to further refine its analytical tools—such as debt sustainability analysis—to better capture climate risks including cross-border transition risks, and their macro-critical impacts, and resource mobilization needs.”

IMF Managing Director Kristalina Georgieva attended the ministerial, and acknowledged that the IMF must do more, noting, “we need a comprehensive definition of resilience that is not only financial but includes people.” However, while the IMF convened a roundtable on debt at the Spring Meetings, progress on improving the G20’s Common Framework to accelerate the debt resolution process remains muted (see Observer Winter 2020).

Similarly, the V20 called for more ambition from the World Bank and its multilateral development bank peers, noting, “We reiterate our call on multilateral financing institutions to deliver at least a doubling in international finance for adaptation within the next 24 months,” and noted the need for more concessional financing, with the communiqué calling for a “tripling of the concessional International Development Association (IDA) financing for IDA eligible countries.”

However, initial reforms under the World Bank’s ‘evolution roadmap’ – despite much hype – have thus far failed to deliver any additional concessional financing, and with the resourcing from the 2021 IDA20 replenishment front-loaded, IDA faces a ‘fiscal cliff’ next year which could result in a $10 billion drop in available IDA financing without action.

Despite these notable shortcomings, Axel van Trotsenburg, the World Bank’s Senior Managing Director for Development Policy and Partnerships, argued at the meeting – using a baseball analogy – “I think at the Spring Meetings we got to first base with the evolution roadmap…maybe in Marrakech we will hit a home run!”

With the World Bank’s largest shareholders, including the US, thus far reluctant to discuss a capital increase, provide additional IDA resources, or indeed acquiesce to any significant governance reforms at the World Bank – such as a reappraisal of the World Bank’s private sector-led Green, Inclusive, Resilient Development (GRID) paradigm or an end to the antiquated gentleman’s agreement – it remains to be seen how such ‘home run’ reforms will be achieved (see Dispatch Springs 2023).

As Ghanaian finance minister Ken Ofori-Atta, the V20’s current chair, noted in response to van Trotsenburg’s intervention, “We are all wondering who the batter may be that will clear the bases.”