The 2024 Spring Meetings are taking place in Washington DC this week, co-hosted by the World Bank Group and the International Monetary Fund. There, the world’s finance ministers and central bank governors from the G20 are gathering in the shadow of an uncertain economic outlook and a tense geopolitical environment. This year, global debt and climate finance funding are high on the agenda.
The economic backdrop
In the lead up to this year’s meetings, in a speech, IMF Managing Director Kristalina Georgieva outlined that while data shows that global growth is marginally stronger and inflation is down, there’s still “plenty to worry about.”
Georgieva noted that global economic activity is “weak” by historical standards, fiscal buffers have been depleted, and debt is up.
The IMF boss also spotlighted that ongoing geopolitical tensions increase the risks of fragmentation.
Indeed, looking at the MENA, the World Bank’s economic update, published this week, explores the impact of regional conflict, and notes that nearly every resident of Gaza now lives in poverty, with famine imminent. Further, GDP fell by 86 per cent in the last quarter of 2023.
More broadly, the report highlights that the conflict has increased uncertainty and heightened risk in the rest of the MENA region.
Overall, World Bank economists forecast a modest 2.7 per cent rate of growth in 2024.
However, while low growth is expected to bring what it called “tepid” improvements in living standards, with a 1.3 per cent growth in GDP per capita, this increase is driven mostly by GCC economies.
At the talks this week, the United Arab Emirates is represented by the Ministry of Finance (MoF). Ahead of discussions, His Excellency Mohamed bin Hadi Al Hussaini, said: “The UAE Ministry of Finance will aim to advance discussions on macroeconomic stability and debt sustainability, as well as address the ripple effects of geopolitical challenges on global trade and medium-term growth prospects.”
Adding: “In the context of the current landscape, it will be vital to strengthen multilateral efforts to accelerate sustainable development and push the world towards an inclusive and resilient path.”
Debt restructuring & reform
Debt is also a strong point of focus this week, with calls for developing debt restructuring.
While global debt levels stand at more than $300 trillion, in the last three years, there were 18 sovereign defaults in 10 developing countries. Further, 60 per cent of low-income countries are at high risk of debt distress or already in it, according to the World Bank.
Moreover, in a report released this week, the World Bank outlined that for the first time this century, one-half of the world’s 75 most vulnerable countries are facing a widening income gap with the wealthiest economies.
As such, in recent weeks, we’ve seen the likes of UN Climate Change Executive Secretary Simon Stiell call for an “ambitious round of replenishment” for the International Development Association (IDA), while this week, World Bank President Ajay Banga urged for donors to contribute $100 billion to the IDA.
However, the climate financing gap is astronomical, and in developing countries, it’s estimated that at least $1 trillion is required to help those on the frontlines of climate change cope, and this year, these countries will spend a record $400 billion servicing debts.
Further, a new report from the Debt Relief for Green and Inclusive Recovery Project (DRGR) warned that, in the next five years, an estimated 47 emerging market and developing economies (EMDEs) would surpass external debt insolvency thresholds if they invested the capital required to meet the 2030 Agenda and Paris Agreement needs. The report subsequently calls for urgent debt relief, reforms to global financial architecture, and credit enhancements.
Indeed, calls are growing for reforms, and ahead of the meetings this week, an open letter was sent to the G20 leaders, urging an end to “crippling debt.”
Organised by non-profit communications and campaign group Project Everyone, the letter had over 100 signatories, including former Prime Minister of Denmark Helle Thorning-Schmidt, Former Prime Minister of New Zealand Helen Clark, and Dr Joyce Banda, Former President of the Republic of Malawi, alongside other notable climate figures, activists and celebrities.
“Removing burdensome debt allows countries to invest in their people and their future: in resilience, education, health, and nutrition. This drives growth and creates strong partners to trade with,” the letter reads.
“You can invest in a better, bigger fund for people and planet: The International Development Association (IDA). You can fix the broken repayment systems that weigh on economic development. You can reform the tax regimes that give polluters impunity and make those with the most resources pay a fair share.”
Fossil fuel funding
Indeed, when it comes to fossil fuels, public financial support is at a record high, and as Tara Laan, senior associate at the International Institute for Sustainable Development (IISD), outlined, hundreds of billions are still being poured every year into “fossil fuel subsidies, financing, and investments by state-owned energy companies.”
“Instead, these funds could be used to support vulnerable consumers and businesses in other ways and to bridge the funding gap for tripling renewable energy,” Laan.
The IISD highlights that MDBs have a key role in closing the finance gap, and notes that while funding for coal projects have stopped, most still back gas as a “transition” fuel, or finance oil and gas through intermediaries.
Further, the think tank calls for MDBs to engage with NOCs and host governments, providing fiscal and regulatory assistance to plan and implement the transition.
World Bank updates
In terms of internal reforms, ahead of the meetings and as the World Bank approaches its 80th anniversary, Banga noted that the time for project approval has decreased from 19 to 16 months, with the goal of reducing this further to 12 months by the middle of the year.
Also highlighted was the loan-to-equity ratio adjustment, an upcoming new enterprise-wide platform for loan and insurance guarantees, and reforms to its business planning and budgeting processes, among others.
Further, this week, the World Bank announced the launch of a $35 billion plan to connect 300 million people in Africa to electricity, with support from the African Development Bank Group.
At the event, AfDB President Akinwumi Adesina said: “No economy can industrialize in the dark, and no economy can be competitive in the dark.”
Adding: “Africa, in my view, is tired of being in the dark.”
By Madaline Dunn, Lead Journalist, ESG Mena