For a more responsive, just and inclusive global financial system -by – Ambassador Nicolas Galey

Nicolas Galey

Ambassador of France to Pakistan authored this article on  the Summit for a New Global Financing Pact, which will be held on 22 and 23 June in Paris

The post-war international financial architecture is no longer sufficiently adapted to deal with the growing inequalities, climate change, biodiversity erosion and public health challenges prevalent in the 21^st century. The international community’s responses are currently fragmented, partial and insufficient. Firstly, concessional resources provided by development institutions are not delivering their full potential in terms of impact, co-finance and alignment with needs. Secondly, the expansion of finance conditions and rise in debt are slowing investment in developing countries and do not provide them with means to address the challenges they are facing.

Yet international solidarity has never been more critical amid a growing number of crises that are weakening the poorest and most vulnerable countries to an even greater extent. To help the most exposed countries exit the Covid crisis; deal with the consequences of Russian aggression in Ukraine on their food and energy security; and cover the very high cost of climate transition and consequences of extreme climate events, as Pakistan experienced last year with the unprecedented floods, it is necessary to scale up finance.

The global financial system inherited from Bretton Woods has reached its limits at a time when we are facing two major threats to the future of our planet. The first is insufficient support for development and for the protection of our global public goods due to a lack of resources. The second, which is even more crucial, is the risk of geopolitical fragmentation, at a time when we need effective multilateralism and enhanced cooperation more than ever.

A number of G7 and G20 countries, organisations and associations share this observation with France and wish to promote the same conviction: we have to act fast and join efforts to correct the imbalances and injustices generated by these divides. We are, therefore, now calling for a review of our software and for a shake-up of finance. We must together drive change in our global financial system to make it more responsive, just and inclusive, fight inequalities, finance the climate transition and biodiversity protection, and move closer to achieving the United Nations Sustainable Development Goals (SDGs).

This is the objective of the Summit for a New Global Financing Pact, which will be held on 22 and 23 June in Paris. This Summit intends to be inclusive, with every country, every opinion and every proposal being able to be expressed. France is happy, in this regard, to welcome the Prime Minister, Mr Shehbaz Sharif, at this Summit.

This Summit is part of a positive momentum. The launch of reform by the World Bank, the SDG mid-term review and commitments made at COP where Pakistan’s intervention was instrumental are all reasons for hope to build on this momentum. Tangible solutions have already been initiated: the Paris Club and the G20 launched an initiative for debt treatment, and France plays a pivotal role in implementing coordinated solutions under the Common Framework. We have proposed and obtained the issuance of $100 billion in IMF Special Drawing Rights for the most vulnerable countries. All countries in a position to do so must take part in this effort. Several multilateral development banks have begun to respond to the G20’s requests and have implemented initial measures to optimize capital to increase their lending capacity.

But we must now go even further, following the example of the Bridgetown Initiative, a set of innovative solutions spearheaded by Barbados to address climate vulnerability affecting many middle-income developing countries.

We will promote a reform agenda for development banks and the IMF to provide more finance to countries in the most need as well as global challenges. It is an agenda that aims to improve existing instruments and capital and to promote innovative approaches and instruments to support the poorest and most vulnerable countries. It also aims to mobilise more private finance using risk-sharing and guarantee mechanisms to redirect financial flows towards these countries to support the local private sector and durable infrastructure. This requires stepping up the use of our instruments and public and private innovative and new financing mechanisms.

To be more effective, our international financial institutions should be able to do more than they are currently doing to work better together, while better mobilising private savings. To be more inclusive, we must above all give a greater voice to the most vulnerable countries in international fora.

The Summit for a New Global Financing Pact highlights global finance challenges and the many leaders participating will give the impetus needed to carry out the transformations our system requires.

We do not have to choose between fighting poverty, tackling climate change and its impact and protecting biodiversity. A just transition is the only answer.