I’ve noticed a trend in policy debates to use one-word descriptions for the direction of travel. And the word on the streets of Washington D.C. during the World Bank/IMF Spring Meetings 2024 seems to have been “reform”.
The stakes are high for international financial institutions (IFIs) to fill global financing gaps, tackle poverty and save the planet. But reform requires time, resources and above all a clear plan. Despite some laudable advances, the Spring Meeting saw mismatched expectations and therefore disappointment from many.
In OTT’s Research Support Service, we’ve been tracking debates around the Spring Meetings and see three main areas where reviews are particularly mixed: debt, multilateral development banks (MDBs) and climate.
1. Debt
As the Spring Meetings were kicking off, recent research from the One Campaign has shown that for over 20% of emerging markets and developing countries, pressure to service growing debt has led to more money flowing out than in. With such unsustainable debt, expectations and stakes were justifiably high. And it wasn’t all disappointment in D.C.
The International Monetary Fund (IMF) confirmed changes to its Lending into Official Arrears (LIOA) policy. This means that the Fund will now be able to provide support to countries even if a major official creditor has not reached a final agreement with the debtor country. This, amongst other positive discussions at the Global Sovereign Debt Roundtable meeting in April, could see the IMF reach its goal of accelerating programme approval time to just two-three months post-staff-level agreement during debt restructurings.
The IMF and World Bank’s promise to review the debt sustainability analysis framework (DSA) in the next two years was also confirmed at the Spring Meetings. Amending what some see as overly-optimistic DSAs could hold significant progress on the support countries can access.
That said, civil society groups largely felt that progress on debt at the Spring Meetings didn’t touch the sides of the crisis. A week after the Spring Meetings, leaders called for renewed debt relief mechanisms at the Africa Heads of State Summit on the upcoming International Development Association (IDA) replenishment.
2. Multilateral Development Bank reform
Multilateral Development Banks (MDBs) are largely responding to intense calls for them to be “better, bigger and more effective” (G20, 2023). In response to critiques ahead of the Meetings from the Independent Experts Group of the G20, MDBs seemed to have taken their reform instructions very seriously. A range of publications, initiatives and high-level meetings were seen around D.C. MDB heads met to build on progress through their Viewpoint Note, which outlines five areas for closer collaboration and reforms made to date, including scaling-up financing, country-level collaboration and further MDB collaboration.
A significant area of progress lies in the potential for callable capital to increase MDBs’ lending capacity, providing that credit rating agencies are on board. Callable capital is essentially an “I owe you” from shareholders, and it’s generally understood that the funds are rarely expected to be called in. In a show of transparency and to unlock additional lending, five MDBs released reports to explain away any doubts about how this call on capital could work.
MDB collaboration and their Viewpoint Note do nevertheless nudge some reforms down the road, particularly on increasing private capital mobilisation to fill financing gaps. Details on how investors could be better informed of the riskiness of investing in emerging markets were scant. We’ll be keeping our eyes on the Center for Global Development tracker for MDB reform progress.
3. Climate
The World Bank and African Development Bank partnership to increase electricity access for 300 million people in Africa by 2030 was one of the headline climate policies to come out of the Spring Meetings.
However, substantial discussions on how to quickly get foundational reforms on climate moving were scant.
Indeed the V20 (the 68 most climate-vulnerable countries), were said to be “despairing” at the lack of progress on debt relief and climate finance. In their communiqué, the group of finance ministers called for deep reforms. They highlighted the importance of recycling Special Drawing Rights as hybrid capital, potentially to support climate finance – something the IMF blocked ahead of the Spring Meetings.
The first Loss and Damage Fund board meeting took place just a few days after the Spring Meetings. This mechanism aims to quickly disburse support when climate-related damage hits, without driving countries into further debt. The fact that this group has come together to work out the details of how this mechanism can work is a huge achievement.
However, with only USD 661 million pledged by 19 countries for a trillion-dollar problem, it remains to be seen if this fund will be truly transformative. Moreover, building a new fund from the ground up takes time and resources.
Bigger, better, faster (and stronger) IFIs?
MDBs have been told to be bigger, better and faster – sounds a lot like the 2001 Daft Punk song.
The World Bank’s new president Ajay Banga has been vocal about building a better bank and wants to cut project approval times by a third.
However, these headlines are not enough to put civil society and governments at ease. Debt and climate crises were addressed but more substantial talks were scheduled further down the road.
Reform requires time, resources and above all a clear plan. Reform roadmaps, such as the one the Brazilian G20 just announced that it will develop for MDBs, are a good example of setting a clear path – albeit a rocky one.
The Research Support Service delivers research and analysis support to organisations seeking a truly global perspective on their policy areas. As part of OTT’s Research Support Service, we monitor and report on key global policy events and processes to help inform our partners’ work. Get in touch to learn more.