An overhaul of the global financial system is urgent and overdue. It is not delivering the resources needed to respond to the “polycrisis”. Barbadian PM Mia Mottley’s Bridgetown Initiative proposes a transformative action plan to change this. It is catalysing a debate on systemic reform at COP27 that unites action on climate and development. But this will only bear fruit if developed countries take the proposed changes seriously and join forces with the Global South to promote decisive, deep reforms.
At the UN General Assembly in September, leaders from the Global South expressed unhappiness with how the multilateral system is responding to the crises that are threatening to reverse decades of development. Not since the global financial crisis have we seen such pressure on developing countries: the global food and energy crises; debt distress; the climate emergency. Poor countries face shortages as wealthy nations bid up the price of fuel, food, and fertilizer while cutting off aid to the developing world. With fiscal space squeezed by debt and fluctuations in financial flows, decision-makers in the Global South are increasingly worried that efforts to accelerate decarbonisation will impinge on development. COP27 must catalyse a debate for systemic reform, giving the world international institutions capable of addressing climate and development.
Mia Mottley’s agenda for action, the Bridgetown Initiative, would address immediate fiscal concerns and increase vulnerable countries’ resilience to shocks. Some G7 countries have responded positively, but developing countries are cautious: they expect clear political signals from EU and US showing seriousness about transforming an outdated international financial architecture. They want to address the recurrent problem of developing country access to resources at the pace and scale needed to relieve financial stress, enable economic development and address climate change. Climate-resilient development requires changes in global institutions to overcome the veto that financial markets exercise on policy choices that involve spending to secure such inclusive, resilient development.
The Bridgetown Initiative’s asks can move the needle at COP27. They are also achievable. Many require no financial transfers from developed country taxpayers. They are based on the concept that if ideas change minds, then the global economic system will change for the greater good.
- Developed countries can exercise influence to push the World Bank and other multilateral development banks (MDBs) to better leverage their balance sheets. Recommendations from a G20 expert group could leverage an additional $1 trillion for climate and development finance. COP should build acceptance that these recommendations must be implemented.
- US and European leaders can deliver promises of emergency liquidity using $100 billion of Special Drawing Rights, through the IMF and MDBs creating fiscal space in developing countries, quickly, and without harmful conditions.
- Creating a Loss and Damage funding mechanism will support climate equity at COP. Political support for the UNSG proposal to tax windfall profits from oil and gas exports could be an important first step. At COP a group of countries could lead a feasibility study on this proposal.
- Innovative funding mechanisms could unlock additional political capital for a paradigm shift in resource mobilization. A Global Climate Mitigation Trust, borrowing on capital markets, backed by $500bn of Special Drawing Rights, donor guarantees, or similar instruments is another proposal. Hosted by the IMF or private sector arms of regional development banks, it would invest borrowed funds based on the size and pace of climate change mitigated, with potential to leverage private finance.
- Heightened recognition of the nexus of climate and development stimulates new ways to engage the private sector. Innovative instruments (debt for equity swaps, state contingent debt instruments, regional guarantee platforms) provide financing options for recipient countries, including the use of instruments that incentivize private finance, and could stimulate increased South-South investments.
The Climate and Development Ministerial is an important space for dialogue and could mainstream policy actions proposed by Bridgetown. The COP Presidencies of Egypt and the UAE could advance the C&DM as a consensus building forum.
The proposal by President Macron and Prime Minister Motley for an expert group addressing technical issues and implementation of Bridgetown would be another milestone for advancing progress on the climate and development agenda in the longer term.
These specific steps at COP27 would show developed countries are listening to the Global South and are willing to provide urgent finance at the scale needed. That’s how you change the game.