UN Secretary-General Antonio Guterres has backed calls for urgent action to transform the global financial system in a bid to ease the deepening debt distress while putting poor nations in a better position to handle critical issues such as climate change and nature loss.

Late Wednesday Guterres joined forces with Barbadian Prime Minister Mia Mottley, who last year launched the so-called Bridgetown Initiative, to call for extensive reform of the world’s financial system and a stimulus package that would provide an additional $500 billion in public lending to developing nations that would go towards meeting their Sustainable Development Goals (SDGs).

“The international finance architecture is short-sighted, crisis-prone, and bears no relation to the economic reality of today,” Guterres said in a statement.

Guterres, Mottley, and a group of other representatives from national governments, academia, and civil society gathered at UN headquarters in New York Wednesday to discuss a six-point action plan to help poor nations better service their debt and meet their SDG goals.

Those points included an immediate re-channelling of at least $100 bln in unused Special Drawing Rights (SDRs) through the IMF and multilateral development banks and ways to offer nations support in restructuring their debt with long-term low interest rates.

On the agenda was also the $500-bln annual lending plan towards SDG goals as well as measures that could mobilise more than $1.5 trillion per year of private sector investment in the green transformation.

The world is running out of time to fix its international system that is broken, outdated, infested with short-termism, and downright unfair,” said Barbados’ Mottley.

“Too many countries are being prevented from fighting the climate crisis and from creating decent opportunities for billions of people – their citizens. If countries cannot access the finance they need at rates they can afford, the world will lose the battle, not simply the countries.”

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Climate-related finance demands are very likely to grow in the coming weeks and months, as nations meet in high-stakes nature negotiations in Montreal, and discussions escalate elsewhere on broader global-financial-system reform pursuant to the climate crisis.

The joint statement from Guterres and Mottley referenced this year’s Financing for Sustainable Development Report, which found that as many as 52 low- and middle-income developing economies are either in debt distress or at high risk of it – more than 40% of the world’s poor people.

Earlier this month, the Sustainability-linked Sovereign Debt Hub, a group of companies and organisations hosted by Geneva-based non-profit NatureFinance, said that with the right reforms, debt-related sovereign bond issuances can grow 100-fold this decade to help address the crises trio of debt, climate, and nature.

Linkage to nature markets, such as carbon and biodiversity credits, could help scale such instruments, it found.

One example of such instruments is already underway, with the UNDP working with Cambodia, India, Malaysia, and Thailand to develop tiger ecosystem bonds, which can be part-funded by the sale of high-quality biodiversity credits.

Meanwhile, ahead of the IMF’s Spring meetings earlier this month, US-headquartered NGO Avaaz called on the organisation to undertake far-reaching institutional reforms and put nature and biodiversity loss at the heart of global financial reform.

The issues will likely resurface at a series of key events throughout the remainder of the year, with the Paris Summit on a “New Global Finance Pact” in June next in line and the annual meetings of the IMF-World Bank Group in October a crucial date.

GATHERING MOMENTUM

Guterres’ statement came as philanthropists the Rockefeller Foundation on Wednesday issued a statement on the “broad recognition of the shortcomings of the current international development finance system to deliver the objectives of the 2030 Agenda for Sustainable Development, the Paris Agreement, and the Kunming-Montreal biodiversity framework”.

The statement was based on a number of panels and workshops held during the IMF-World Bank Spring meetings, and contained a call for urgent, ambitious collective action that has the support of the governments of Barbados, Brazil, Costa Rica, Egypt, France, Ghana, Nigeria, Senegal, and the UK, as well as several other philanthropist organisations.

Targeting in particular the role of multilateral development banks (MDBs) in addressing SDGs and climate change, the statement outlined the following reforms that it said should be carried out as soon as possible:

• MDBs must update their mission, incentives, and operational approaches to better address global challenges such as the SDGs
• MDBs must be scaled up significantly, enabling them to be more responsive to global challenges
• MDBs must dramatically boost their financial capacity
• They must mobilise more private capital, including through new financial mechanisms, to better help meet the SDGs and the targets of the Paris Agreement
• They must thoroughly review their operational model to become more efficient and make efforts to better engage credit rating agencies

The Rockefeller statement also supported the call for at least $100 bln worth of unused DRSs to be re-channelled by the IMF.

“Put bluntly, development and climate finance are not near available, affordable or accessible enough. We need to deploy more innovative development and climate finance with due attention to the risks of further increasing levels of indebtedness,” the statement said.

By Stian Reklev – stian@carbon-pulse.com

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