The V20 Group of Finance Ministers met on 16 April on the side-lines of the World Bank Spring Meetings, issuing a communiqué  shortly after their ministerial dialogue. Official statements at the ministerial were glum, reflecting the mood set on the eve of the Spring Meetings by US Under Secretary for International Affairs, Jay Shambaugh, who noted in comments at the Peterson Institute for International Economics on 11 April that “net outflows from low- and middle-income countries, particularly to official bilateral and private sources, are at multi-decade highs.”

At the ministerial, Chris Sinckler of Barbados, an alternate executive director to the World Bank who was representing Barbados’s incoming V20 presidency in place of Prime Minister Mia Mottley, made no qualms about this reality being unsustainable for V20 Group members, lamenting that there are “considerable outflows going to the institutions designed to help us get out of the development traps that we find ourselves in.” Similarly, Mahmoud Mohieldin, currently an executive director at the IMF for the Arab States and Maldives constituency and previously the World Bank’s Senior Vice President for the 2030 Development Agenda, noted in his intervention that although when he was with the Bank his team had coined the term ‘Billions to Trillions’ in reference to the hoped-for scaling up of private finance into development efforts, given the current reality, it’s “now it’s millions in, billions out” from the V20’s members.

The V20’s communiqué noted that in this context, progress towards global climate and development goals hangs by a thread: “In developing countries, the United Nations (UN) Sustainable Development Goals (SDGs) are off track with 30 percent of targets stalled or reversed and 50 percent categorised as insufficient or weak, including hunger and poverty targets.” It added, “our ability to help win…[the] global fight against climate change is increasingly impaired due to Nationally Determined Contributions (NDCs) that are not aligned to achieve  1.5℃ by 2030. This misalignment reflects a financial architecture that does not correspond with the realities of climate change.”

Debt, cost of capital and climate action: Untangling a twisted knot?

Given this conundrum, the V20 included extensive discussion of the growing debt distress within its membership in its communiqué, and urged the G21 to “overhaul the Common Framework,” including via “inclusive participation to involve all creditor classes and debtor governments including middle-income countries”. The V20 also noted the need for quicker disbursement of financing from the World Bank and its multilateral development bank peers, “as no country can afford to wait the usual 18-36 months for MDB financing,” and called for “affordable financing – and if it is on a case-by-case program – then each country’s funding needs to be tailored where its interest rate is lower than the projected medium-term growth rate.” This was an apparent nod to the IMF’s newly released World Economic Outlook, which  predicted historically low future growth rates over the coming five-year period (see Dispatch Springs 2024), as well as the V20’s new debt review of its members released on 17 April, which found that “V20 members are expected to pay $904.7 billion in debt service over 2022-2030.”

Against this backdrop, the V20 called for the IMF in particular to take a more holistic approach to debt sustainability, in order to enable its members to pursue green economic transformation, in the face of multiple, escalating crises. The communiqué noted, “We reiterate the need for the IMF to “make debt work for the climate” including for their Debt Sustainability Analysis (DSA) to incorporate real climate and development investment and spending needs and the full range of climate risks, and determine what it takes for each country to achieve them, thus moving away from conventional austerity-based measures towards resource mobilization-driven prosperity approaches.”

The communiqué  added, “We look forward to South-South economic and trade cooperation…in order to invest in green industrialization opportunities with high-quality, fully climate-adapted, correctly priced, and on-time delivery of climate-resilient development projects for more job creation and revenue generation.”

After unequally distributed 2021 SDRs allocation, V20 calls for reform of the Resilience and Sustainability Facility

In parallel to a civil society proposal at the Spring Meetings led by ActionAid USA and Bretton Woods Project that called for reform of IMF Special Drawing Rights (SDRs) to make future allocations more predictable and needs-based, the V20 welcomed ongoing efforts to rechannel SDRs through the IMF and MDBs, while noting “the uneven distributions of SDR allocations.”

Reflecting on the IMF’s new Resilience and Sustainability Facility (RSF), which is intended to on-lend rechannelled SDRs to ameliorate potential ‘balance of payments’ impacts related to climate change, the V20 urged the Fund “to remove the requirement for a concurrent IMF program to access the RSF” (see Observer Spring 2022). The V20 argued, “The RSF should be accessible to members determined to mitigate prospective balance of payment shocks by investing in climate action. Noting that IMF conditionalities emphasise fiscal consolidation as [a] precondition which could jeopardise a country’s ability to lay the groundwork for a meaningful structural transformation and for building climate resilience.”

The V20 also called for the rechannelling of SDRs through regional MDBs – which so far IMF shareholders have yet to agree to, despite relatively conservative proposals for SDR-backed hybrid capital facilities at the African Development Bank and Inter-American Development Bank.

The V20 also called for an ambitious 21st replenishment this year for the low-income country lending arm of the Bank, the International Development Association (IDA21; see Dispatch Springs 2024), and noted that it expects to finally receive official observer status at the World Bank and IMF by October’s Annual Meetings, in order to participate in meetings of the Development Committee and the International Monetary and Finance Committee.