On June 26, France released an outcome document from the Summit for a New Global Financing Pact, which brought together governments, multilateral develop banks (MDBs) and other stakeholders to consider reforms to the global financial system. Titled “the multilateral development banks vision statement,” the document was signed by 50 countries including the G7, with China notably absent. Together, the signatories commit to “a new global financial compact to address the challenges of today and tomorrow in a spirit of cooperation and solidarity.” So just what are the elements of this new global compact?
It will surprise no one to learn that most of the content is well-trodden ground. MDB cooperation is encouraged. Progress on MDB alignment with the Paris Agreement is welcomed. Efforts to adopt the recommendations from the G20 report on MDB capital adequacy should be redoubled. The agenda on channeling SDRs is unfinished. And private sector mobilization must be scaled. In sum: the declaration is less vision, more myopia.
The statement includes two potential new demands on scarce grant funding, both of which are under vigorous debate among MDB shareholders. The first is to use concessional/low-cost financing to address global challenges, and the second is to explore eligibility to concessional finance for the most vulnerable countries with a “multidimensional approach to vulnerability” (yet to be fully defined).
It is evident that the US is prepared to lead on the first issue. When US President Biden and Indian Prime Minister Modi met on June 22, their joint statement highlighted mobilization of concessional financing at the World Bank to support all developing countries as a key objective in the evolution roadmap. This followed a statement from the meeting between US Vice President Harris and World Bank President Ajay Banga to deliver “significant new concessional World Bank financing” to “incentivize action on global challenges across all borrower countries.”
The message that these proposals risk diverting aid from the poorest appears to have gotten through, but financing assurances are tepid. The language on providing concessional financing for global challenges concludes with “not at the expense of concessional finance for [low-income countries],” which is fine rhetorically but relatively meaningless from a practical point of view. Ditto for the language on the need to preserve the focus of concessional finance on LICs.
The commitments on IDA leave a lot to be desired. All agree that “the 2023 IDA mid-term review should aim to make sure that IDA can continue to adequately support eligible countries in FY 2024 and 2025 and over the medium-term.” The terms “adequately” and “aim to” do not reassure. IDA 21 gets a shout-out (it should be an ambitious replenishment!) but the current fundraising effort to shore up the crisis window does not.
Looking ahead, we can expect the issue of concessional financing for global challenges to dominate the MDB reform agenda. A threshold question is how to design a set of criteria that will clearly deploy—and not displace—private capital and do it at scale. The timing will also be tricky: IDA 21 negotiations launch in 2024 and are likely to overlap with fundraising for any new concessional facility, potentially putting IDA and IBRD in competition for the same ODA resources.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.