Making the International Financial System Work

MARRAKESH – In the last two years, a series of international summits have focused on the future of the global financial architecture. But as we convened in Marrakesh for the annual meetings of the International Monetary Fund and the World Bank, many were asking whether it made sense to try to fix the existing system. Some were already convinced that this is neither possible nor desirable.

Let’s prove them wrong.

We arrived in Marrakesh four months after leaders gathered in Paris for the Summit for a New Global Financing Pact, where they laid out four principles that should guide our global efforts. The pillars of the so-called Paris Pact for People and the Planet echoed the finance-related outcomes of the United Nations Climate Change Conference (COP27) that took place in Sharm El-Sheikh seven months earlier; and they animated the negotiations at the G20 Summit in New Delhi, the Africa Climate Summit in Nairobi, and the recently concluded UN General Assembly in New York.

What are these principles? First, no country should have to choose between fighting extreme poverty and fighting the climate crisis. Second, country ownership of development and climate-transition strategies is essential, with each country charting its own path according to its specific national circumstances. Third, a shock of concessional finance is needed. And fourth, private investment must be leveraged to accelerate progress toward the Sustainable Development Goals.

Do we need figures to appreciate what the Paris Pact has achieved so far? On concessional finance: G20 leaders agreed in September to unlock $200 billion in additional lending firepower from multilateral development banks (MDBs).

Do we need voices to attest to how fast the global financial system is changing for the better? Here we are. We come from very different countries, Egypt and France, but we are united by the knowledge that we can indeed reshape the existing global financial architecture. In fact, in just the past few years, we have witnessed major steps toward that end. We will keep carrying that effort forward.

Two years ago, for example, the implementation of a global fiscal stimulus to overcome the COVID-19 pandemic seemed a formidable challenge. But we managed to reach a global agreement that led to the historic issuance of $650 billion worth of special drawing rights (SDRs, the IMF’s reserve currency), and secured a commitment from developed economies to channel 20% of their allocations to the countries that needed the funding most. France went even further, scaling up its reallocation ratio to 40%.

Three years ago, who would have thought that all the largest bilateral creditors would coordinate on sovereign-debt treatment for countries hit by a debt crisis? And yet, in 2020, creditors from across the G20 – including China, the United States, and the Paris Club – came together to do just that, and the Common Framework for Debt Treatments was born. Though it remains a work in progress, the Common Framework has already done considerable good, such as for Chad and Zambia.

Two years ago, climate-finance negotiations were still paralyzed by a thorny issue: developed economies’ delay in delivering the $100 billion in annual support for climate-change mitigation and adaptation they had promised to their developing-country counterparts. At COP27 in Egypt, we overcame this issue and even agreed to create new financial arrangements, sponsored by the European Union, to address loss and damage.

Two years ago, few would have imagined that climate vulnerabilities would be integrated into the core of MDBs’ operating models. Yet today, the largest such institutions, such as the World Bank, are making progress toward this goal. Moreover, some bilateral development partners, such as France and the United Kingdom, have decided to include climate-related clauses in their loans and now allow countries to suspend debt servicing when facing climate disasters.

Two years ago, we lacked an innovative toolbox to establish development partnerships in line with the national priorities of the supported country, as per the “country ownership principle.” Now, “country platform” is becoming the new normal. Having served on both sides of such negotiations, we can tell you that this new approach is working. Egypt showed the way with its Nexus of Water, Food, and Energy (NWFE نُوَفِّـي) program, launched at COP27. France and other development partners have worked this way with Indonesia, Senegal, South Africa, and Vietnam, among others, to build Just Energy Transition Partnerships, which support these countries as they move along their respective paths away from fossil fuels or coal.

Two years ago, who could have foreseen a consensus on reforms to the international financial architecture? And yet we enacted game-changing advances in Marrakesh. Echoing the Paris Pact adopted in June, we confirmed that we want to eradicate poverty and ensure a livable planet, and we agreed to further financial support for global public goods, such as public health.

This year’s spring meetings of the IMF and World Bank in Washington unlocked an additional $50 billion for the World Bank. In Marrakesh, some countries launched innovative instruments to boost the Bank’s capacity even further.

Almost a year after COP27 in Egypt, the 2023 annual meetings of the IMF and World Bank, hosted by Morocco, proved it once again: where there is political will, there is a way forward. We can make meaningful progress toward a fairer, more efficient international financial system. Rather than attempt to work outside the system by creating alternative fora, we must make the system we have work.

Chrysoula Zacharopoulou is French Minister of State for Development, Francophonie and International Partnerships. Rania Al-Mashat is Egypt’s Minister of International Cooperation.

Copyright: Project Syndicate, 2023.
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