World Bank, IMF Meetings: ‘Last Chance’ Before COP29
The forums are an opportunity to close the Global North/South divide, but climate finance discussions are expected to be mostly “technical”.
In the words of Rob Moore, Associate Director at think tank E3G, the World Bank’s and International Monetary Fund’s (IMF) annual meetings represent the ultimate occasion to “break the impasse on the big gulf” that separates developing countries from providers of climate finance.
With climate finance due to be front and centre at COP29, time is running out to devise tangible solutions that can lead the a binding global agreement.
“There’s a sense that having done a lot of that technical work over the years and started to enact some measures, there’s now decreased political momentum behind [these efforts],” said Moore during an E3G briefing this week. “The annual meetings are probably the last point before COP where there is a chance for finance and climate ministers to come together and send a big political signal.”
The funding to developing countries will largely come in the form of a New Collective Quantified Goal (NCQG) – a successor climate finance target that will raise the US$100 billion floor set in 2009, and finally reached in 2022.
“This will be really important to try to bridge the divide that has emerged in the negotiations, and [address] the continued polarisation that we’re seeing between the Global North and the Global South,” said Moore.
Beyond the political signalling, however, Moore and his peers largely expect next weekend’s annual meetings to be “technical in nature” in regards to climate finance.
“There is a route to an agreement in COP that will be very challenging, require a lot of political leadership, and for everyone to be a little bit uncomfortable and find creative solutions,” he added. “We know that [developing countries’] needs are in the trillions. At the moment, the politics are such that it’s relatively unlikely there’ll be a real step change in defining development budgets within the next couple of years, or manifold increases in public finance.”
While climate finance needs keep increasing – the current gap is estimated at nearly US$200trillion by 2050 – especially in developing countries, many of which are in rising debt distress, aid budgets are shrinking among the conventional providers, Moore explained – creating a difficult equation to resolve.
“It goes without saying that the geopolitics around climate finance are not in a bubble, but even if they were, they would be quite tense this year,” he said. “Finding a route to an agreement in Baku [will] likely mean a combination of conventional international support being increased and improved in quality, and of wider structural questions around reshaping climate finance to ensure that countries have the fiscal headspace to actually lend.”
Remodelling sustainable finance
Given the obsolescence of some of the attributions created throough the Bretton Woods Agreement in 1944, the IMF and the World Bank have been under increased pressure to reform their structures in recent years.
Several high-profile conferences devoted to the subject have resulted in significant changes, with a specific focus on the need to rethink the purpose of multilateral development banks (MDBs) – which channel most of the funding to developing countries.
After mounting pressure to move beyond the terms set by the Bretton Woods agreement, the World Bank and IMF’s Spring meetings saw some signs of decisive change, such as the new corporate scorecard, updates to the International Bank for Reconstruction and Development, and the Global Solutions Accelerator Platform.
Much technical progress has been achieved in that respect, according to Moore – both around the mobilisation of private finance through updated frameworks, and in the development finance sector with the improved efficiency of MDBs.
In line with this, the implementation of measures to ensure the money ends up in the right places and is used to its best capacity has also evolved. “There’s been lots of work to maximise the impact of MDBs in that regard, but there is a risk of complacency at the moment,” Moore warned.
Although this progress is valuable, much more is still needed to support the transition globally and align with Paris Agreement goals.
“Climate impacts this year have been unprecedented in terms of heat, drought, floods, storms, and we’re set to see that getting worse over the years as emissions continue to rise,” said Kate Levick, Associate Director at E3G. “The IMF and finance ministers at the G20 meetings need to get ahead of this agenda, put in place measures that actually deal with the economic and financial impacts, and plan the rate of resilience to future shocks.”
As an immediate step, Levick suggested the IMF should make climate-resilient debt clauses a standard component of its loans. “MDBs have already started to integrate those into their lending – now it’s time for the IMF to do that too,” she added.
Beyond this, there is a question as to the delivery, pace and scale of modernisation of the resources needed to reach a climate-safe world – and to do so in a way compatible with countries’ development needs, observed E3G Senior Policy Advisor Laura Sabogal Reyes.
“Part of that agenda plays into country platforms as an effective mechanism to coordinate the support of different donors and actors,” she said. “This very much aligns with the push to ensure that this remains a country-driven discussion.”
Recent forums, including Climate Week NYC 2024, have led to greater clarity from countries about their transition pathways, according to Sabogal Reyes. “At the end of the day, all of these reforms are targeted at helping countries realise those transitions,” she added.
MDBs are key
Despite their shortcomings, MDBs will remain central to scaling public finance to address the climate crisis, suggested E3G Senior Policy Advisor Danny Scull.
“MDBs are crucial to the climate finance agenda – there’s simply no way to hit the numbers that academic reports have [quoted] without them,” he said. “[This] is because they leverage. As opposed to bilateral lending or aid that’s ‘dollar in, dollar out’, MDBs generally take contributions and can leverage it on capital markets.”
In line with this, the World Bank has adapted its agenda over the last two years to allow for “bigger and better banks”, Scull explained – introducing efficiency measures, capital adequacy framework reforms, and potential capital injections.
“That’s really how you can build a bigger MDB system to get to the numbers we’re going to be debating at COP,” he argued.
The World Bank released its development committee statement last week, pointing to operational changes such as a vision statement to include global challenges and climate-resilient debt clauses, climate diagnostic reports, incentives for cross-border borrowings of global challenges, and an expanded guarantee portfolio. Next up on the agenda could be governance reform, Scull ventured.
“But both the World Bank and the MDBs have not hit the scale that was envisioned at the beginning of this process,” he added.
Contributions made under the World Bank’s International Development Association – which helps low-income countries through grants and low-interest loans – should ideally hit US$30 billion, Scully argued, to mobilise the US$120 billion quoted by the Civil Society Organizations (CSOS).
“What we’re not expecting is any conversation around general capital increase, which would be the last major component of increasing the size of the MDB system,” he said. “All the work that’s been done over the last two years is fantastic, but it’s time to move past the ‘better bank’ and get to the ‘bigger bank’ reforms if we’re to have any chance of success, in Baku or otherwise.”
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