Late last year, when India took over the presidency of the G20 group of nations, I had the honor of being appointed Co-Chair of one of the Think20 task forces, namely the one dealing with Purpose & Performance: Reassessing the Global Financial Order.
T20, or Think20, is one of the G20 engagement groups. It consists of distinguished scholars and thought leaders from around the world. Operating independently of national governments, the T20 strives to furnish G20 leaders with policy recommendations rather than promoting specific agendas.
I was invited by the two convenors of the Think20 process, Sujan Chinoy, the Director General of the Manohar Parrikar Institute for Defence Studies and Analyses (listen to our conversation on the Business Diplomacy Today podcast, where we talk about India and China), and Samir Saran, the President of the Observer Research Foundation.
The task forces worked mostly virtually over the year, reviewing policy briefs and developing their own findings. Recently I participated in the T20 Summit in Mysore, India, where all seven task forces presented their results ahead of the G20 Leaders’ Summit of Heads of State and Heads of Government that will take place in Delhi on 9 and 10 September.
I also spoke on the “Taking Stock: 2030 Energy Outlook and Implications for Global Net Zero Emissions” panel. You can view the session below.
The Task Force Statement on Reassessing the Global Financial Order
The existing global financial system, established in the aftermath of World War II, is no longer suitable in today’s multipolar world that grapples with emerging challenges such as climate change and lagging Sustainable Development Goals (SDGs). There is a pressing need to reshape this system to efficiently allocate more resources, especially toward developing nations, to foster sustainable, inclusive, and resilient growth. This transformation demands an annual investment exceeding US$1 trillion, which means that multilateral development banks (MDBs) ought to triple their financing by 2030. Moreover, a modernized global financial order should be equipped to address potential threats to financial stability, thereby minimizing the risks of systemic crises.
Introducing significant changes in the prevailing global institutions’ leadership, mandate, operational model, and governance is imperative. Such changes will facilitate a more streamlined flow of private capital and promote innovative solutions. The primary goals for this renewed financial framework include a significant surge in financial flows, a notable reduction in the cost and unpredictability of capital, and the introduction of crucial implementation measures encompassing governance reforms.
The recommendations
Achieving these goals hinges on three pivotal avenues: leveraging official capital (such as MDBs and debt structures), tapping into private sector capital, and harnessing financial innovations. The Task Force recommends several “action points” for each area.
Official Capital
Emerging economies are grappling with debt, exacerbated by the COVID-19 pandemic. Debt relief is vital for recovery, climate action, and sustainable development. The G20 can spearhead this by refining debt relief tools and promoting innovative solutions like debt-for-climate swaps. They should also bolster funding for programs aiding low-income countries during the pandemic. MDBs play a crucial role in financing development, but there’s a sentiment that they could do more. The Indian G20 presidency’s Independent Expert Group aims to modernize MDBs, focusing on broader financing and better coordination. The G20’s recommendations and the IMF’s special drawing rights can enhance innovative funding. With leadership transitioning to countries like Brazil, there’s an opportunity to reform MDB governance and operations. Regional Financial Institutions can further support MDBs in infrastructure projects.
Private financing
The G20 should integrate climate and development policies to drive sustainable growth, especially in the Global South. They can attract more private investment by promoting risk guarantees and public-private partnerships and defining green financing standards. Improved information standardization can reduce lender uncertainty, and the G20’s uniform tax regulations can prevent financial discrepancies. Addressing illicit economic activities is also essential.
Financial innovation
Tapping into private financial flows is vital to addressing global challenges. The G20 can facilitate this by promoting innovative financing mechanisms, enhancing existing institutions, and fostering collaboration among governments, MDBs, and stakeholders. They can also champion tools like municipal and social impact bonds to merge public and private financing for development.
Click here to read the full Task Force Statement
