In recent years, world leaders have promised significant action to tackle the climate crisis and support vulnerable nations. They committed to transforming the World Bank to focus on climate issues and to bolster the multilateral system’s funding and lending for concessional needs.
An agreement between creditors would provide debt relief to countries that most needed it. Where public money was insufficient, the multilateral system could catalyse private investment in developing countries.
Despite the bold rhetoric, 2023 was a disaster in terms of support for the developing world. The private sector collected US$68 billion ($92 billion) more in interest and principal repayments than it lent to the developing world.
Amazingly, international financial institutions and assistance agencies withdrew another US$40 billion and net concessional assistance from international financial institutions was only US$2 billion, even as famine spread. “Billions to trillions,” the catchphrase for the World Bank’s plan to mobilise private-sector money for development, has become “millions in, billions out.”
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It is little wonder that World Bank shareholders have not raised capital, substantially changed financing practices or taken other bold steps. The International Monetary Fund (IMF) is on net withdrawing funds from the developing world; comprehensive debt relief has gone nowhere and financial defaults have been avoided only by the moral default of slashing health and education spending.
Setting aside the complex problem of climate change for a moment, world leaders haven’t even been able to tackle the simplest, most straightforward challenges.
War, inflation and poor governance have brought some of the poorest people — including in Chad, Haiti, Sudan and Gaza — to the brink of famine, yet the international response has been slow and muted. This is a humanitarian disaster in its own right and a symbol of our broader inability to act in the face of a crisis.
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Four big ideas
If the world can’t even provide food to starving children, how can it unite to defeat climate change and reorient the global economy? How can the poorest countries trust the international system and not be left behind if that system can’t address the most basic challenges?
This week, finance ministers, central bankers and economic leaders are gathering for the Spring Meetings of the World Bank and the IMF in Washington, DC, where they will discuss the global economy and lay out plans to strengthen it. However, these efforts will fail if rhetoric falls as flat as it did during 2023 in terms of concrete action.
Here are four big ideas as to what is necessary:
Reverse the capital flows so that the lowest-income countries receive more support than they pay to private creditors. In the short term, that means expanding the multilateral development banks’ (MDBs) use of innovative financial tools such as guarantees, risk-mitigation instruments and hybrid capital. In the slightly longer term, it means stepping up with new money from shareholders — a capital increase for the World Bank and regional development banks, which will require legislative approval in shareholding countries.
MDBs should be transformed into big, risk-taking, climate-focused institutions. Development banks have tinkered around the edges with bolder approaches to lending, but it is time for them to scale up those efforts. Wealthy countries, the biggest shareholders in the multilateral system, need to provide political support for risk-taking.
The International Development Association should be fully funded, a highly effective institution that provides much-needed resources to the lowest-income countries. The World Bank’s president has called for the largest-ever IDA replenishment from donors; given the challenges ahead, the world cannot afford to deliver anything less.
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Finally, tackle food security. Last year, the United Nations raised only about one-third of what it sought for humanitarian relief from international donors and it had to slash its goals for 2024. Stepping up with funding for the several hundred million people without enough food to eat would alleviate a humanitarian disaster and provide evidence to sceptical countries that the international system still can work.
Half the world goes to the polls this year, from the US and the UK to India and Mexico. Pervasive distrust of governments and their promises is a ubiquitous issue and we see daily that the idea of an international community is becoming an oxymoron. The conventional wisdom is that foreign policy falls by the wayside as politicians focus on campaigning and domestic issues that will win them votes.
We dare to hope that historians will look back at this week’s meetings as a moment when global leaders seriously addressed global challenges. The problem is not primarily intellectual. Blueprints like that of the G20 expert group we chaired on strengthening the MDB system abound. It is a problem of finding the political will to take on the most fundamental issues facing humanity. — © Project Syndicate, 2024
Lawrence H. Summers was US Secretary of the Treasury (1999-2001), Chief Economist of the World Bank (1991-93), Director of the US National Economic Council (2009-2010) and President of Harvard University (2001-2006), where he is currently University Professor. N.K. Singh, President of the Institute of Economic Growth, is a former chairman of India’s Fifteenth Finance Commission, member of Parliament and secretary to former Prime Minister Atal Bihari Vajpayee
