French President Emmanuel Macron is this week launching an ambitious campaign to change how the world's international financial institutions support developing countries.
The Summit for a New Global Financing Pact, opening on Thursday, will aim to change the way that multilateral institutions work. The French leader believes the system should be overhauled to better support poor nations and address threats such as climate change and future pandemics.
This road map would both seek to ease the debt burdens of low-income countries, while freeing up more funds for climate financing.
“The summit is vital for us for two reasons: for international co-operation, to show that we can still all work together, and it is necessary to preserve our planet,” said an Elysee source.
“The aim is to fight poverty while also responding to the challenge represented by the ecological transition.”
Expectations are high that the summit will deliver on a plan, first agreed to two years ago at an African finance summit, for wealthy governments to free up $100 billion for developing countries by lending unused special drawing rights to the International Monetary Fund.
Recognising the pressures of the climate crisis and developed countries needing to deliver on a separate promise of $100 billion in compensation for rising temperatures, French officials see progress in Paris as being able to set up more deals at Cop28, which opens in the UAE in November.
“The aim is to develop a road map to Cop 28 and the next G20,” the source said. “We want to demonstrate that confidence has returned because we will have delivered on a certain number of commitments.”
The summit will bring together about 100 countries and up to 50 heads of state as well as representatives of sovereign funds, the private sector and charities. Key finance officials attending the event include US Treasury Secretary Janet Yellen and the World Bank's new president, Ajay Banga, now in his third week on the job.
David McNair of the One Campaign, which promotes efforts to overcome development challenges, told The National that radical change needs to be on the agenda after the pandemic shock and the rapidly rising climate risks.
“All of the challenges we face – transitioning our energy systems, climate change – the estimates of the financing needs are in trillions but the current financing available is just not at that scale,” he said.
“We need to look at some transformative policy interventions.”
As governments look at allowing the World Bank to use leverage to lend more to poor countries without putting its top AAA credit rating a risk, there are proposals to use institutional capital to leverage borrowing by nations in capital markets.
“We want to go farther and should be able to set targets to put more public money on the table,” the French presidency source said.
In his first few weeks in his new post, Mr Banga has said he wants to “push” the bank's balance sheet to boost lending, possibly through tapping innovative “hybrid capital”, which mixes institutional debt with equity.
The developing world is also demanding debt relief after the burden exploded during the pandemic and was made doubly unsustainable by rising interest rates.
A separate G20 “common framework” for debt restructuring has proven painfully slow in its implementation, with western officials blaming China – now a major creditor after years of heavy lending – of dragging its feet.
On top of interest rate stress, developing and emerging countries are also struggling to secure the $1 trillion economists say they need by 2030 to finance carbon emission cuts, boost climate resilience and deal with damage from climate change.
Some leaders are expected to lend their weight to long-stalled proposals for a levy on shipping industry emissions ahead of a meeting next month of the International Maritime Organisation.
An important outcome of the Paris meeting could also be changes to international debt agreements that would help countries deal with sudden shocks.
“Contracts would be negotiated in a way that if there is some kind of pandemic or climate shock that impacts the economy by more than 5 per cent of GDP [gross domestic product], there would be an automatic debt service suspension,” said Mr McNair.
