4th International Conference on Financing for Development Debt and Climate — II

Business Recorder

2 days ago

Sadly, unlike the lack of media coverage, and very little discussion of policy circles on this – both on the government, and opposition sides, and in the academic arena – the '4th International Conference on Financing for Development' (FFD4) holds utmost importance.
This is because it is not only taking placing after ten years, but at a time when both adequate level of finance for fighting the existential threat of climate change crisis is urgently needed, and also when it is very important to deal with fast brewing sovereign debt crisis in a number of developing countries, including Pakistan.
Moreover, while the first conference in this regard took place well back in 2002, called the '2002 Monterrey Consensus', which placed responsibility on international community to provide finance for international economic development under a comprehensive global framework, it was in the second such conference, the '2008 Doha Declaration', that other aspects in the shape of gender perspectives and financing for dealing with climate-related issues were also made part of its agenda.
Debt and climate — I
Later on, in the third addition of this conference, the '2015 Addis Ababa Action Agenda' enhanced the scope of financing to include 'economic, social and environmental' concerns, and to view them in an integrated way, considering at the same time, the needs of financing for meeting '2030 Agenda and the SDGs [Sustainable Development Goals]' that were prepared in parallel to this conference.
It is important to note that due to weak multilateral spirit – which was also amply seen during the Covid-19 pandemic in the shape of practice of 'vaccine nationalism', and through lack of provision of development finance to deal with the urgent needs of the pandemic, and without compromising on meeting the SDG –there has been very slow progress on evolving an effective framework for finance globally for not only providing sustainable finance, both in terms of quantity and conditions, so that developing countries, in particular those that are also highly climate challenged, are not pushed to take on a lot of loan.
Nevertheless, the level of debt globally has increased in an astronomical level, especially in developing countries over the last few years, whereby resolution of a serious global debt issue is one of the main objectives of the FFD4. In December 2024, the United Nations Secretary-General formed an 'Expert Group on Debt' to provide an informed analysis to FFD4 so that proper deliberation could take place in this regard in this Conference, which took place during June 30 – July 3.
The Report from this expert group titled 'Confronting the debt crisis: 11 actions to unlock sustainable financing' while highlighted that 'The global financing landscape has evolved significantly, and not in favor of the developing world' and that 'Instead of funding schools and hospitals, or job creation, developing countries are trapped in a vicious cycle of rising interest payments and shrinking fiscal space, privileging their debt service payments over their investment for the Sustainable Development Goals (SDGs).'
Moreover, the Report while rightly highlighting the severity of debt crisis pointed out: 'What has been called a 'silent' debt crisis is silent no more. Across the Global South, debt burdens are not only reducing prospects for economic growth and long-term resilience but are also crushing sustainable development. In 2023, 38% of developing countries - nearly half of which were located in Africa - spent over 10% of their government revenues on interest payments.
Over two-thirds of low-income countries are now either in debt distress or at high risk of it, yet only four - all in Africa - have undergone formal restructuring through the G20 Common Framework. With private creditors holding 54 percent of external public and publicly-guaranteed debt in 2023, restructuring has become slower, costlier, and more complex.'
It is in this context that the Report suggested 11 actions across three categories 'multilateral reforms', 'co-operation between countries' and 'national measures'. Among the first category, suggestions included (a) repurposing and further replenishing 'Debt Reduction Trust Fund (DRTF)', and 'Catastrophe Containment Relief Trust (CCRT)' to enhance the scope to include middle-income countries, in addition to low-income poor countries; (b) allowing pause in debt repayments by crisis-hit countries, which are vulnerable to climate change or other natural disasters, indicating in this regard 'Mechanisms like climate-resilient debt clauses (CRDCs) and other state contingent debt instruments can formalize such standstills in debt contracts, improving resilience without requiring lengthy renegotiations'; (c) including middle-income countries in the 'G20 Common Framework', and reducing completion time for process related with restructuring'; (d) need for augmenting IMF's 'Debt Sustainability Analysis' in terms of scope, and timelines, so that more accurate appreciation of debt sustainability, where the report pointed out: 'Most developing countries rely on DSAs produced by the IMF, which have limited scope, a short-term focus and sometimes overestimate the capacity of countries to recover'; and (e) augmenting the underlying process for re-channeling of SDRs for much-need greater speed, where the Report indicated: 'A potential solution to the rechanneling constraint arising from SDRs reserve asset status could be by modifying quotas to pre-allocate a portion of new issues to MDB recapitalization, before they are allocated to IMF members and become part of their reserves.'
In the second category, among other suggestions, the Report recommended enhancing the pace of adoption of 'debt swaps', for which it would help to establish hubs for better information sharing. Here, the Report stated that 'Debt swaps can be an effective instrument to reduce debt burdens while directing resources toward critical development priorities such as climate action, nature, health, education, and poverty reduction.
However, their use remains limited due to technical complexities, high transaction costs, and the absence of standardized frameworks. Similarly, other innovative financial instruments, such as blue bonds or SDG-linked bonds, remain underutilized despite their potential for positive impact. Establishing a centralized platform or hub could help scale up the use of these instruments by serving as a one-stop resource for technical assistance, capacity building, and knowledge-sharing.'
The Report starts of in a kind of 'defensive way', which is unacceptable given the 'strong offensive' from not only fast-unfolding climate change crisis, the lack of multilateral finance being provided – including low level provisioning of special drawing rights (SDRs) by International Monetary Fund (IMF), where it was back in August 2021 that majority of the allocations from $650 billion went to already rich countries, since even in an exceptional time of pandemic, allocations were made on usual routine of 'quota' rather than being needs-based – and an inadequate global debt restructuring framework, when it points out that rather than suggesting most importantly needed steps, an alternative approach is being taken where what is likely to be politically feasible is what is being suggested.
The Report highlights this approach as 'While bold and ambitious reforms are essential, they must also be pragmatic and feasible for near-term implementation. Proposals with limited prospects for political traction will fall short of driving meaningful change. …For this reason, the policy proposals of the Expert Group do not address all the desirable or necessary changes that would improve the global debt architecture. …Alternative approaches also have to be considered. …Applying this approach has led the Expert Group to identify a set of eleven policy priorities.' Instead, given the fast-closing window with regard to keeping global average annual warming below 1.5C and a quick ballooning of global debt crisis, should have resulted in pushing the political will to do what is essential must.
The problem is time, in addition to already very slow progress with regard to meeting SDGs-related target for 2030, not to mention that lack of multilateral finance, and a wrong persistence with over-board austerity policy has drastically taken away from domestic fiscal space, negatively impacted foreign exchange reserves accumulation, increased imported- and cost-push inflation, and exorbitantly raised interest payments.
The same Report pointed out that on one hand interest payments have increased substantially over the last few years, while dwindling global growth prospects will in turn negatively impact revenue collection.
It indicated in this regard: 'In developing countries, external sovereign debt stocks reached $11.4 trillion in 2023. While the pace of debt accumulation has slowed in recent years and is significantly below pre-pandemic levels, external debt servicing costs have surged, more than doubling since 2014, with developing countries paying $1.7 trillion in 2023 alone.
Least developed countries (LDCs) are particularly hard-hit, with the ratio of public and publicly guaranteed (PPG) external debt service to government revenue nearly doubling to 14.6% between 2013 and 2023. …The rising cost of debt servicing is preventing many developing countries from rolling over existing debt and investing in critical sectors. …In 2024, the number of people living in countries that spend more on interest payments than on critical social services such as health and education increased by 100 million, to 3.4 billion people.
A staggering 5.6 billion people live in countries which experienced deteriorating public sector debt dynamics between 2017 and 2023, a period where increases in interest costs outpaced growth in government revenues in over two-thirds of developing countries. …Looking ahead, the situation is likely to deteriorate further. Global growth is slowing, with projections for 2025 revised downward to 2.3–2.8%, compared to earlier estimates of 2.7–3.3%.
The slowdown is expected to affect both developed and developing economies, which will undermine government revenues.'
That called for a radical agenda from both the expert group, and in the 'Serville Commitment', the 'draft resolution submitted by the President of the Conference'.
Although there are important areas of focus with regard to provision of sustainable finance, and resolution of debt crisis, the document does not contain neither concrete steps – like provision of climate change related SDRs to climate change challenged developing countries during the medium-term' – nor is there much earned naming and shaming of practice of over-board austerity policies.
Such a drastic approach was warranted given that the development finance conference took place after long intervals, that the conference holds immense importance given the long preparatory work that goes through – the organizational work under the 'Intergovernmental Preparatory Committee', which included regional groups – where Pakistan also serves as vice-chair for 'Asia-Pacific States' region – held its first meeting around a year ago during July 22-26, 2024 in Addis Ababa – and that during this ten years not only has climate change crisis unfolded at a fast pace, global debt has risen significantly, while absolute poverty has also started to increase at the back of years of decline.
Moreover, it is strange that there is apparently no policy briefing, on media or in the form of published report provided by the related policymakers heading these groups, or more generally from the Ministry of Finance, Ministry of Foreign Affairs, and most likely related Ministry of Planning, Development& Special Initiatives, and Ministry of Climate Change and Environmental Coordination – since the scope of FFD4 included policy emphasis from Foreign Affairs offices of participating countries, as pointed out in one of the FFD4 online placed document 'Financing for development: a primer' in the following words: 'The FFD process brings together finance, foreign affairs, development and other line ministries, helping to strengthen coherence on financing for development' –on the scope of the FFD4, at least not with any fanfare, if at all any much-needed briefing was provided.
Such dissemination was needed for providing information, especially highlighting the specific prospects of this conference for Pakistan, and generating a discussion process among the larger civil society, and academics, and to use useful feedback in the policy formulation process. At least, it is hoped that the discussions at FFD4 will be better communicated by policy circles, and by the media.
Nonetheless, some of the important proposed commitments of the 'draft resolution' included with regard to 'official development assistance', for instance, that 'We acknowledge the urgency of underlying sustained efforts to reverse declining trends in official development assistance and urge developed countries to scale up and fulfill their respective official development assistance commitments, including the long-standing commitment by most developed countries to achieve the targets of 0.7 per cent of gross national income for official development assistance to the least developed countries.'
Moreover, among proposed commitments with regard to augmenting 'global economic governance' included, for instance, that 'We encourage the International Monetary Fund Board of Governors to explore further quota share realignment to enhance developing countries' voice and better reflect members' relative position in world economy, while protecting the shares of the poorest members, under the seventeenth General Review of Quotas.'
The 'draft resolution' proposed enhancing the role of SDRs, both through increasing the scope of the re-channeling effort, where it proposed the following: 'We encourage additional countries to join the voluntary special drawing rights rechanneling effort, and call upon countries to in a position to do so to voluntarily rechannel at least half of their special drawing rights to developing countries, including through multilateral development banks…' It was also proposed, among other recommendations that 'We encourage the [International Monetary] Fund to continue to review the role of special drawing rights and their place in international monetary system…'
(Concluded)
Copyright Business Recorder, 2025