Devex Invested: Dissecting the declarations at G20 and Finance in Common

What do you get when you gather representatives of over 500 public development banks in Cartagena, Colombia, that collectively invest some $2.5 trillion annually? In the case of last week’s Finance in Common Summit, the outcome is a five-year plan to address challenges to providing effective and sustainable financing — including tackling foreign exchange risk, bolstering climate finance, and addressing debt. The final communiqué lays out that work, including operationalizing efforts to align finance with the Sustainable Development Goals and the Paris climate agreement. • It covers climate finance efforts such as a new green bond initiative and a blue finance road map. Another goal is increasing cooperation and building up the structures of the Finance in Common group — which entails setting up an innovation hub to look at two key financing issues. • The first is the use of contingent debt clauses in contracts, which would freeze loan repayments in the event of a climate disaster. Some multilateral development banks have experimented with such clauses — and the World Bank agreed to use them at the Paris finance summit in June — but in Cartagena there was a push for much broader adoption. The hub’s second focus is how to deal with foreign exchange risk and finance more projects in local currencies. In order for national development banks to do more of that, they will need technical assistance to build their capacity, especially in Africa, says Rémy Rioux, CEO of the French Development Agency. • African DFIs need to build capacity around operations, properly identifying green projects so they can feed into global pipelines, improving local currency risk management, and scaling up local resource mobilization including through raising local bonds, Cyril Okoye, secretary general of the Association of African Development Finance Institutions, tells Adva. • How much institutions can do will also be limited by their mandates and their balance sheets — though their shareholders and governments have the power to address some of that, according to the final communiqué. Interestingly, some of these institutions — particularly some larger, lesser known entities with large Gulf-funded pools of cash — could likely find a lot more to leverage on their balance sheets than the World Bank, Rioux tells Adva. But not everyone was thrilled with the summit’s results. Several civil society groups warned that some of the proposals would aggravate debt problems and that these banks have not proven that they are actually tackling the crises that the world faces. Others said that the banks too often ignore the needs and desires of local communities and need to alter their approach. That first point was echoed in part by Colombian President Gustavo Petro, who after keeping the crowd waiting for about two hours, gave the summit’s closing address. “Extraordinary” global crises need resources to match, but debt “annihilates” governments’ ability to fight climate change and address other development challenges, he said. He expressed skepticism that the private sector can solve the problem, saying that “profit cannot be the driving force behind the solution to the climate crisis” because the market created the crisis. + Catch up on our coverage of news and analysis on the global financial architecture reforms. Just not enough India handed the G20 presidency over to Brazil last weekend, as the African Union was added as a permanent member of the group of major economies. In the final communiqué, world leaders resolved to “pursue reforms for better, bigger and more effective Multilateral Development Banks (MDBs),” and to “better integrate the perspectives of developing countries … into future G20 agenda and strengthen the voice of developing countries in global decision making.” Meanwhile, on climate, leaders reiterated their “commitment to achieve global net zero GHG emissions/carbon neutrality by or around mid-century.” Devex Climate Correspondent William Worley tells Vince the communiqué represented “the bare minimum” given the scale of extreme weather already affecting the planet. Though Will did note the significance of leaders now putting a clear number ($5.8-5.9 trillion) on the amount needed by low- and middle-income countries before 2030 to meet their commitments under the Paris climate agreement. So was India’s G20 a success? United Nations Development Programme boss Achim Steiner told reporters Monday in response to a question from Devex that while the G20 is meant to confront financial shocks, it is “embedded in a larger … socioeconomic and political context.” This past year, “the divisions and the tensions were so deep that to some extent, the scope for India to help the world move forward on what you referred to as the financial and debt issues clearly was constrained,” Steiner said. But the UNDP chief was cautiously optimistic too: “Nobody after New Delhi can claim that they do not know where the constraints are,” he said, alluding to the need for debt relief and MDB reform, without which low-income countries will continue to find it impossible to access finance to pursue global public goods. Steiner said: “I think our hope is now that we will see more of the G20 nations stepping forward to unlock and unblock the impasse that is still standing in the way of a commensurate response to the level of financing and debt resolution that we need.” ICYMI: African states detail their needs on World Bank reform ahead of G20 Plus: G20 experts urge 'inescapable' capital increase for development banks (Pro) Background reading: How the debt crisis imperils development — and why it's getting worse (Pro) + Not a Devex Pro member yet? Start your 15-day free trial of Pro today to unlock all our exclusive reporting and analysis. Guterres’ gambit With the G20 over for this year, attention turns to the U.N. summit next week on the SDGs in New York. Julie Garfieldt Kofoed, senior director for sustainable development initiatives at the U.N. Foundation, has this look at how to make a dent in the $4 trillion SDG investment gap among low- and middle-income countries. “Although it will only get us approximately 15% of the way to closing the $4 trillion SDG investment gap, the stimulus would tackle the high cost of debt and rising risks of debt distress, in part, by converting short-term, high-interest borrowing into long-term (30-year-plus) debt at lower interest rates,” Kofoed writes in an opinion piece for Devex. Aligning public development banks with the SDGs is on the menu too. Global military spending last year was $2.24 trillion. But, as Kofoed writes, “there are smarter investments we can make to care for this planet and its people.” Opinion: Yes, we can afford $4 trillion for an inclusive future + As the 78th U.N. General Assembly enters full gear, Devex is featuring two special newsletter editions to give readers a comprehensive, insider view of the event, with a preview on Sept. 18 and a wrap-up on Sept. 25. Sign up to our daily Newswire to be sure to get the UNGA-devoted editions in your inbox. What we’re reading Morocco expects IMF and World Bank annual meetings in Marrakech to go ahead despite last week’s devastating earthquake. [Bloomberg] Africa's inaugural climate summit ends with mixed reviews. [Devex] Climate report card says countries are trying, but urgently need improvement. [The New York Times] Why Finance in Common is still worthwhile, despite its limits. [ECDPM] Michael Igoe contributed to this edition of Devex Invested.