This week, the World Bank Group and International Monetary Fund (IMF) are convening their Spring Meetings, an annual gathering of the world’s foremost development institutions, governments and experts. This comes at a critical juncture following unprecedented cuts to international aid budgets and uncertainty around the positioning of the United States in the global institutions it created and shaped. It also comes after COP29, which saw the tenuous agreement of a new global climate finance goal to triple conventional climate finance to $300bn annually by 2035 and aim to reach the $1.3tn experts say is needed in overall international investment to developing countries (excluding China).
The development community is scrambling to minimise the impact of funding cuts on people and planet, which will, rightfully, be the immediate focus. As it does so, it will also need to contend with what comes next. This will mean evolving a longstanding strategy for mobilising climate finance that brings together a more effective support system, bigger and better international financial institutions, and structural reforms to remedy barriers to a green and resilient economy.
The outlook for achieving this was already challenging. It will now need surgical precision. Many commentators have questioned whether efforts to reform the international financial architecture to reflect the scale of development finance challenges remain alive. Progress can be made this year but it will require decisive action in key areas:
- Improve the efficiency and effectiveness of delivery in order to do more with less. There is too much duplication and not enough collaboration in the international support landscape and less room than ever for waste in the system. This means simplifying the vast mosaic of climate and development funds (building on progress made through last year’s G20), enhancing access and ensuring support gets where it is needed most. It means development partners playing to their strengths and sharing intelligence rather than hoarding it. And it means pivoting to a model centred around country platforms — focussed on long-term partnerships with developing countries to deliver sustainable investment and lasting institutional change.
- Identify mechanisms that can reach scale in a fiscally constrained world. This means targeted use of development finance to bring in investment that creates green jobs and builds resilience. There are well understood but underused models for doing this without donors having to reach into their pocket. These include increasing the use of hybrid capital at multilateral development banks (MDBs), using more green guarantees to lower the cost of capital and mitigate misaligned risk perceptions that reduce investment to developing countries, and expanding MDB efforts to securitise mature assets in emerging markets in order to bring in institutional investment.
- Take bolder action to enable markets to deliver the outcomes that people and planet need. This is already happening all over the world. Europe’s security crisis has forced policymakers to think hard about how private finance can be channeled towards societal objectives, and Brazil is showing how national development banks can drive delivery of climate, nature and development objectives. A similar bold spirit is needed to address the most critical financial challenges limiting investment in developing countries: sovereign debt burdens, increased currency volatility, and misalignment between perceived and actual risk (including by credit rating agencies). Tackling these together can unlock the green and resilient investment needed to ensure financial stability. This will take time, but even identifying the vehicles and fora by which meaningful progress can be made will focus minds. In the meantime, development instruments that lower the cost of capital and enable countries to borrow can help accelerate action now.
- Reformulate the social contract underpinning international co-operation. This will not be quick and it will need political courage. But it is necessary for a more secure world. Done well, partnerships centred on enhancing development outcomes and building closer relationships between countries can be structured to be mutually beneficial to both the recipient and the provider of support. A case in point is green industrialisation in Africa, where support for the uptake of clean energy can improve energy access and efforts to enable the responsible supply of goods and resources for a climate-safe economy offer a far more sustainable job creation model than one powered by fossil fuels (where the majority of wealth creation benefits those far away from the projects themselves).
A broad coalition have the ability to pave the way, with collaboration between Europe, China and major emerging markets like Brazil and South Africa likely to be decisive in shaping the geopolitical frontier. The Spring Meetings will not provide a comprehensive solution, but they do provide an opportunity to chart the path forward.
