Financial system reform tops agenda at WB, IMF meeting

Signage of the World Bank. FILE PHOTO | POOL

Financial system reform tops agenda at WB, IMF meeting

As ministers gather in Washington DC for the IMF and World Bank spring meetings, high on the agenda must be reform of the international financial system. These meetings come against a backdrop of crises: in development and climate change, while for the first time in decades extreme poverty is on the rise.

At the forefront of African leaders’ minds at September’s Climate Action Summit in Nairobi will be the millions facing a vicious cycle of high vulnerability to climate change and low investment in climate adaptation.

With 50 million people facing severe food insecurity across East Africa, we must break this cycle. We need a better and bigger international financial system, as championed by the Bridgetown Initiative of Mia Mottley, the prime minister of Barbados.

We must redouble our efforts to end extreme poverty, rejecting the false choice between development and climate.

As our two countries, the UK and Kenya, demonstrated through a climate finance agreement at COP27, Africa can lead the way in choosing sustainable and resilient growth, with women and girls at the heart of it, as the path to job creation. We must also reduce global CO2 emissions. Between 1990 and 2021, the UK economy grew by 65 percent while CO2 emissions fell by 48 percent, showing you can do both. National policies should drive this, supported by the international system.

Multilateral Development Banks must do more. They stretched to address the pandemic and the consequences of Russia’s invasion of Ukraine. However, the finance available will fall next year.

The World Bank is not fully leveraging its fund for the poorest countries – the International Development Association, which has a larger capital base than any other. It should be stretched to support countries such as Kenya.

The African Development Bank sharing risk with the UK and City of London insurance markets to release an additional $2 billion for climate finance, shows what is possible with innovation. Amending the Articles of the African Development Fund to facilitate market borrowing could release an extra $25 billion.

The IMF provided $14 billion to low income nations in 2020 and the first half of 2021, but many no longer get the support needed. Only 16 countries have recently contributed to the IMF’s facility for the poorest countries. Others should step up.

The international community must meet its commitment to channel $100 billion of special drawing rights to vulnerable countries through the IMF’s trusts, and explore whether we can channel those drawing rights through multilateral development banks to multiply impact.

With many countries facing a potential debt crisis, the G20 Common Framework, where G20 and Paris Club countries coordinate debt treatments, must deliver to clearer, more predictable timelines.

More private finance can be unlocked too. Multilateral Development Banks should support the whole investment cycle, from policies to mobilising investors, adapting business models to recycle capital faster and reduce risk.

Finally, we need a system that deals with shocks through better planning and finance that flows rapidly when crises strike. The UK’s work with African Risk Capacity to insure Somalia against drought triggered an early and rapid payout.

Last year, the UK’s Export Credit Agency offered clauses in its loan agreements to suspend repayments when a shock hits. Other lenders should follow to free up fiscal space when crisis-hit governments need to invest in recovery.

To transform our international financial system, we must take bold actions on extreme poverty, climate change and crisis preparedness. This is the only way to achieve our development and climate goals.

UK Development Minister Andrew Mitchell and Kenyan Finance Minister Njuguna Ndung’u, are both FORMER central bank governors for their respective countries.