Proposal title: The G20 at the Frontier of Creating New Global Debt Management Processes Urgency, Ambition, and Geopolitical Adjustments
On behalf of the China-West Dialogue, the key question for 2023 is:
Will the successful Bali G20 Summit become an enduring turning point, ratcheting up the level of involvement of all G20 member countries in increasing ambition and the delivery of outcomes?
Or, will Bali be a blip, a “brief shining moment” that fades into memory as the world returns to war, geopolitics recedes again into confrontational narratives and the capacity of the global leadership to address systemic challenges wanes?
The G20 has proven to be a platform in which geopolitical adjustments can occur and where progress on global governance does happen. The CWD has chosen to focus on the global debt crunch not only because it is vital to global stability but also because there are opportunities for China and the US to work together on global debt, which CWD believes could help shift the dynamics of geopolitics. And in doing so CWD can facilitate stronger global cooperation in addressing global challenges. (See End Note: “China-West Dialogue: Origins, Principle and Purpose”.)
CWD Recommendations:
*The G20 should further develop the Common Framework for Debt Treatment Beyond the Debt Service Sustainability Initiative(DSSI) which they established in 2020. With support from all G20 member governments, the objective would be to make the Common Framework a go-to-process for achieving financial health for both vulnerable low- and middle-income developing countries, with processes and capacities to handle multiple sovereign debt cases expeditiously and link them to sustainable longer term development trajectories.
*In 2022 the G20 Leaders agreed at their Bali Summit to step up Common Framework implementation efforts, requiring new processes, procedures and principles for both debt management and development finance for countries vulnerable to debt distress.
*In addition, the Bali Summit proposed that the deteriorating debt situation in vulnerable middle-income countries could be addressed by similar multilateral coordination processes involving all official and private bilateral creditors in swift action to respond to their requests for debt treatments.
*The new informal High-Level Debt Roundtable being convened by the India G20 presidency on February 17 with support from the IMF and the World Bank should be positioned as the G20 policy forum on Global Debt Management for the world.
*By expanding and reinvigorating the G20 Common Framework, the High-Level Roundtable on Global Debt Management would become the global nexus point for all the relevant public and private sector financial players and for organizing the necessary data and conceptual and analytical frameworks to forge longer term sustainable development trajectories from short-term sovereign debt crises.
*With support from all G20 member governments, the objective would be to make the Common Framework a go-to-process for achieving financial health for both vulnerable low and middle income developing countries, with processes and capacities to handle multiple sovereign debt cases expeditiously and link them to sustainable longer term development trajectories.
*By connecting debt payment workouts to strong longer term investment programs articulated as national development narratives aligned with the SDGs and the Paris Agreement as a stepping stone toward achieving better global futures, the process would be designed to avoid austerity traps triggering adverse social impacts and making debt rescheduling packages politically unsustainable.
*The current discussions around the reform of the MDBs focuses on prioritizing longer term social and climate goals and mobilizing private resources as well as official development assistance. This mix of multilateral, bilateral and private finance in the past has generated inequalities between creditors which need to be addressed as China looms as the largest bilateral creditor in global finance.
*Relying now on the MDBs to power the flow of development finance requires avoiding actions which impair their credit ratings and thus their real time operational viability, and capital increases may be limited by the current budgetary and fiscal contexts of significant replenishment countries. But their role in catalyzing private finance in a world in which domestic savings, national public development banks, pension funds and bond issuers and holders are major sources of potential funding, could change the global financial landscape
*As a result, the newly strengthened G20 Common Framework for the High-Level Debt Roundtable would have to be broad and focused, inclusive and manageable, politically astute and operationally effective. The comprehensive and inclusive processes involved would require groundbreaking changes that will extend from one G20 presidency to another and require continuous and complex inter-institutional arrangements for data flows and financial analysis. There could be a Common Framework Executive Group to manage implementation, conducive to bringing technical and political dynamics together in a fruitful expeditious process under the oversight of the G20 High Level Debt Roundtable.
* The G20 Debt Roundtable will need to take a fresh look at basic principles for managing global debt in both the short and long run. The principles that need review and strengthening are: coordination mechanisms, debt transparency and full disclosure of relevant information, comparability of treatment, stronger and quicker debt governance in both creditor and debtor countries, timely detection of solvency problems and rapid execution up front of debt-stabilizing policies, means for ensuring private sector participation, assessment of the potential impact of climate change on debt sustainability and opportunities for investment, enterprise development and employment in green growth.
* The G20 might be assisted by study groups in the T20 to work on these principles and report back to the G20 iteratively as progress is made during the Indian G20 presidency and beyond.
National Development Finance Institutions
An international community of national and regional DFIs has recently been brought together under the Finance in Common Initiative (FICS) launched by President Macron. (FICs 2022) It is supported by a Global DFI Database of some 550 DFIs created and managed at the Peking University, with support from the Agence Francaise de Developpement (AfD). A GDFI website and annual Conferences are devoted to encouraging cooperative endeavours and peer learning to transform the financial system towards climate and sustainability. (GDFI) The next conference is to be hosted by Colombia in the summer. In the new Common Framework context, DFIs may feature as domestic debt is drawn into the equation of haircuts and new lending to support medium term development narratives, although the integrity of domestic financial institutions would be a concern.
Conclusion
Against this complex background of multitudinous new players, institutions and networks, there is a clear impetus toward ambition to capitalize on this transition moment in meeting new global debt-development challenges, it is hoped that the first meeting of the G20 High-Level Roundtable will provide an opportunity for breakthroughs in converging country perspectives and agreement on architectural innovations to provide the world with the capacity to chart pathways forward combining debt workouts with long-term development and financial sustainability.
This paper is the product of the China-West Dialogue based on two CWD Zoom discussions, one of twenty-four participants on January 12, 2023, and a second of twelve participants on January 20, 2023. Based on earlier drafts and these discussions, this CWD draft proposal was written by Richard Carey, with substantive contributions from Colin Bradford. We would like to acknowledge the very significant contributions to this effort by Danny Bradlow, Deborah Brautigam, Homi Kharas, Johannes Linn and Jose Siaba Serrate, among others, while they should not be held accountable for the final content in this version of the paper.
CHINA–WEST DIALOGUE: Origins, Principle and Purpose
The China-West Dialogue was founded in April 2018 as a means of bringing together thought leaders from Europe, Canada, China and the United States to pluralize the bilateral US-China relationship. In thirty zoom sessions, more than sixty experienced officials, think tank researchers and academics have now been involved in CWD discussions. A foundational principle of CWD has been that it is with China not about China. China thought leaders are fully involved in shaping the series of exchanges and in participating in all of them.
As a result, CWD is a process which reflects its purpose to achieve results by embracing diversity. Participants are from a variety of professions, disciplines and backgrounds from more than a dozen countries. This results in pluralizing the interactions as a means of generating new perspectives and fresh approaches to the most important geopolitical relationship today. The China-West Dialogue is more a platform than a group. The ideas and proposals in this paper reflect the CWD process, which is designed to bring in a variety of viewpoints in forging innovative ideas and approaches.
Footnotes
1 Kharas and Rivard (2022)
2 Baqir, Diwan and Rodrik (2023)
3 ibid
4 Addis Ababa Action Agenda (2015)
REFERENCES
Homi Kharas and Charlotte Rivard (2022), “Debt, Creditworthiness, and Climate: A New Development Dilemma”, Washington: Brookings, Global Economy and Development program, Center for Sustainable Development, December, 2022.
LINK: https://www.brookings.edu/wp-content/uploads/2022/12/Debt-creditworthiness-and-climate-1.pdf
Deborah Brautigam (2023), “China and Debt Distress: From Club to Global Governance”, Washington: China-Africa Research Initiative (CARI), slide deck for CWD Zoom Session on January 12, 2023.
Johannes Linn (2022), “Expand multilateral development bank financing but do it the right way”, Washington: Brooking, Global Economy and Development Program, Future Development, November 29, 2022.
Daniel D. Bradlow and Magelie L. Masamba (2022), COVID-19 and Sovereign Debt: The Case of SADC, Pretoria: Centre for Human Rights, Pretoria University Law Press, University of Pretoria, 2022.
Masood Ahmed and Hannah Brown (2022), “Fix the Common Framework for Debt Before It is Too Late”, Washington: Center for Global Development, January 2022.
LINK: https://www.cgdev.org/blog/fix-common-framework-debt-it-too-late
Laurence Boone, Joachim Fels, Oscar Jorda, Moritz Schularick and Alan M. taylor (2022), “Debt: The Eye of the Storm”, London: Centre for Economic Policy Research, International Center for Monetary and Banking Studies, February, 2002.
LINK: https://cepr.org/system/files/publication-files/147590-geneva_24_debt_the_eye_of_the_storm.pdf
Reza Baqir, Ishac Diwan and Dani Rodrik (2023), “A Framework to Evaluate Economic Adjustment-cum-Debt Restructuring Packages”, Paris: Paris School of Economics, CEPREMAP, Finance for Development Lab, Working Paper 2, January 2023.
David McNair and Daouda Sembene (2022), “Do Unto Others: Why Today’s Debt Crisis Requires a Different Kind of Thinking”, Washington: Center for Global Development, Blog Post, December 19, 2022.
LINK: https://www.cgdev.org/blog/do-unto-others-why-todays-debt-crisis-requires-different-kind-thinking
Lazard Foreign Debt Advisory Group: Getting Sovereign Debt Restructurings out of the Rut in 2023: Three Concrete Proposals. February 2023.
Addis Abba Action Agenda (2015)
LINK : https://sustainabledevelopment.un.org/content/documents/2051AAAA_Outcome.pdf
NETWORKS:
Finance in Common [FICs] (2022), “Finance in Common Progress Report to G20”, July 2022. See especially the Joint Declaration of All Public Development Banks in the World at the Finance in Common Summit, 12 November 2020, pp. 36-42.
Network for Greening the Financial System [NGFS] (2023), “NGFS seeks public feedback on climate scenarios”, February 6, 2023.
LINK: https://www.ngfs.net/en/communique-de-presse/ngfs-seeks-public-feedback-climate-scenarios
United Nations Environment Finance Initiative [UNEP-FI]
LINK: https://www.unep.org/explore-topics/green-economy/what-we-do/finance-initiative
Global Development Financing Institutions Database (GDFI), Peking University: 528 Public Development Banks (PBDs) and DFIs.
LINK: http://www.dfidatabase.pku.edu.cn/
World Bank (2022), “Potential Statutory Options to Encourage Private Sector Creditor Participation in the Common Framework”, Washington: 2022.
OECD (2022), “Making Private Finance Work for the SDGs”, Paris: July 2022.
G20 Italia 2021, “G20 Sustainable Finance Roadmap, Rome: 7 October 2021.
LINK: https://g20sfwg.org/wp-content/uploads/2021/10/G20-Sustainable-Finance-Roadmap.pdf