The World Bank/IMF Spring Meetings found the global economy in “delicate moment,” and urged multilateral cooperation and prudent policy decisions.
UNCTAD called for a “global green new deal,” involving extensive reforms to trade and investment rules.
The financial sector identified the need to integrate climate-related risks into financial stability monitoring and enhance finance for sustainable development.
1 May 2019: In April, significant declines in global economic growth were revealed during the Spring Meetings of the Boards of Governors of the World Bank Group (WBG) and the International Monetary Fund (IMF). The Meetings made it clear that multilateral cooperation is needed to address multiple challenges associated with changes in economic activity.
Multilateral development banks (MDBs), governments and others continued to stress the need to raise levels of green and sustainable finance, which are still insufficient to implement necessary climate change policies and meet the SDGs. They also reflected on climate-related risks to the financial sector and the role the sector plays in avoiding such risks. Debates among policymakers about systemic changes and reforms highlighted climate change as requiring emergency action to support the most vulnerable, including youth. This Update discusses these and other institutional finance developments that occurred over the last month.
IMF/World Bank Spring Meetings Call for Prudent Policy Decisions
The IMF’s widely anticipated signature publication titled, ‘World Economic Outlook 2019: Growth Slowdown, Precarious Recovery’ (WEO 2019), was released during the World Bank/IMF Spring Meetings, held from 12-14 April 2019, in Washington, DC, US. The report projects a decline in growth in 2019 for 70 percent of the global economy. Global growth, which peaked at close to 4 percent in 2017, “softened” to 3.6 percent in 2018, and is projected to decline further to 3.3 percent in 2019. Recovery in emerging and developing country markets, especially in Asia, is forecast for 2020, whereas advanced markets will continue to face challenges of an aging population and low productivity growth, the IMF warns.
The IMF highlights policy uncertainty as the underlying reason for this “dramatic change,” due to trade tensions and other factors which weakened investment, and business and consumer confidence. A decline in trade and economic activity resulted in lower commodity prices, including oil, affecting commodity-dependent economies. These findings are confirmed in the World Bank’s April Commodity Markets Outlook. In this “delicate moment,” the IMF says, multilateral cooperation and prudent policy decisions are needed.
Recommendations, such as those outlined in a communiqué issued by the Development Committee, call for “identifying the right balance between supporting demand and rebuilding fiscal space, helping countries improve debt management capacity, sustainability, and transparency, and strengthening domestic resource mobilization.”
UNCTAD Urges Reforms in Economic Arrangements
These suggestions hinge on countries’ circumstances, which themselves are, according to the UN Conference on Trade and Development (UNCTAD) and Boston University, a mere result of policies by international banks and economic regimes that reduce policy space and increase debt and inequality. Their critical report titled, ‘A New Multilateralism for Shared Prosperity: Geneva Principles for a Global Green New Deal,’ calls for extensive reforms, including to trade and investment rules. Governments, the authors argue, need enough policy space to undertake the proposed “global green new deal,” which would entail:
- Boosting demand in support of sustainable and inclusive economies using an active mix of fiscal and monetary policies as part of a general expansion of government spending that covers physical and social infrastructure but also using public employment schemes;
- Significant public investment, supported by a green industrial policy, using a mixture of general and targeted subsidies, tax incentives, equity investments, loans and guarantees, as well as accelerated investments in research, development and technology adaptation, and a new generation of intellectual property and licensing rules;
- Curtailing restrictive business and predatory financial practices to reign in “corporate rentierism” and crowd in private investment to productive activities included in the green economy; and
- Regulating private financial flows to steer private finance towards these broader social goals.
Making finance flows consistent with a pathway towards low greenhouse gas (GHG) emissions and climate-resilient development is inscribed in the goals of the Paris Agreement on climate change. During the World Bank/IMF Spring Meetings, developing countries called on the international community to recapitalize the Climate Investment Funds (CIF) in response to worsening impacts of climate change and sweeping finance gaps for low-carbon development. In a Joint Statement, they assert that the climate finance architecture must be optimized to harness the comparative advantage of each of the multilateral climate funds, including the Green Climate Fund (GCF), to maximize the complementarity and impact of climate finance in their countries.
More information on the World Bank/IMF Spring Meetings is available in the SDG Knowledge Hub story on the establishment of a coalition to accelerate climate action and the SDG Knowledge Weekly focusing on public, private and blended finance.
The message from youth around the world on climate and SDG action is loud and clear: get moving or get out of the way.
Policymakers Under Pressure
The IMF’s WEO 2019 recognizes substantial public distrust of establishment institutions born out of rising inequality and dissatisfaction with existing economic arrangements. It notes that the accompanying polarization of views and growing appeal of extreme policy platforms make it difficult to implement structural reforms for boosting potential output growth and strengthening resilience, including to climate-related risks. Notably, the IMF explains Germany’s decline in economic growth by pointing to the new emission standards in the auto sector. Yet it was the country’s liberal Free Democratic Party (FDP) which raised concerns in this regard to Chancellor Angela Merkel in Parliament on 10 April. The FDP questioned Merkel’s government’s efforts towards a new climate change law, looking beyond sector-specific approaches.
Earlier in April, during the Global Conference on Strengthening Synergies between the Paris Agreement and the 2030 Agenda for Sustainable Development in Copenhagen, Denmark, participants strategized around opportunities for systemic change and advantages of cooperative frameworks. Kristian Jensen, Minister of Finance, Denmark, said “the message from youth around the world on climate and SDG action is loud and clear: get moving or get out of the way.”
On 16 April, Members of the European Parliament (MEPs) in Strasbourg, France, heard an appeal by the Swedish youth and climate activist Greta Thunberg to act on the global ecological and climate emergency. During the hearing, MEPs called on the EU Presidency and the EU Commissioner for Climate Action and Energy to take a strong stance on climate change in the upcoming EU Council summit and the UN Climate Change Conference later this year, stressing also the need to get tougher on the aviation industry.
In the UK, on 1 May, Members of Parliament approved a motion to declare an environment and climate emergency. The UK’s largest money manager, Legal and General Investment Management, also identified climate change action as a priority. As part of its Climate Impact Pledge, the bank does not hold companies in the Future World funds, where such companies are seen to take insufficient actions, or do not align on issues such as the Paris Agreement, carbon pricing and government action.
Accelerating Finance for Sustainable Development
The levels of green and sustainable finance needed to deliver on the Paris Agreement and the SDGs are still insufficient. The Islamic Development Bank Group, (IsDBG) during its 44th Annual Board Meeting, held in April in Morocco, under the theme, ‘Transformation in a Changing World: the Road to the SDGs,’ committed to USD 337 million of new investment to its 57 member countries.
The Asian Development Bank (ADB) and the UN Development Programme (UNDP) signed a five-year Memorandum of Understanding (MoU) to accelerate progress towards sustainable development in Asia and the Pacific. The MoU aims at further collaboration at the country and regional levels and stronger cooperation in accelerating progress towards the SDGs in the region. Forms of collaboration will include: joint knowledge creation; exchange and dialogue; direct technical assistance; and project implementation in areas such as SDG implementation; innovative financing for the SDGs; disaster risk reduction (DRR); access to clean and affordable energy for all; and the promotion of regional cooperation and integration.
Luxembourg signed an agreement to back the International Network of Financial Centres for Sustainability (FC4S), a network of 22 members from Europe, Asia, Africa and North America, convened by the UN Environment Programme (UNEP). Members are committed to shifting their investments to support the goals of the 2030 Agenda and the Paris Agreement.
Integrating Climate-related Risks into Financial Stability Monitoring
Given that climate-related risks are a source of financial risk, possibilities of forming a symbiotic relationship between the two must be explored. The Network for Greening the Financial System (NGFS) issued a set of recommendations in its first comprehensive report titled, ‘A call for Action: Climate Change as a Source of Financial Risk,’ identifying best practices to facilitate the role of the financial sector in achieving the objectives of the Paris Agreement. The authors call on central banks, with support from policymakers, to: bridge the data gaps; build awareness and intellectual capacity and encourage technical assistance and knowledge sharing; achieve robust and internationally consistent climate- and environment-related disclosure; support the development of a taxonomy of economic activities; and integrate climate-related risks into financial stability monitoring and micro-supervision, as well as sustainability factors into own-portfolio management.
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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past IISD climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.