Bangladesh coastline protection. IMF Photo/KM Asad 2021
Vice President of Impact
Addressing our planet's climate crisis requires commitment, cooperation and urgency, all supported by finance. However, our international financial system was not designed to meet challenges of this scale and is lagging behind in meeting the needs of developing countries in the fight against climate change.
In response to this challenge, the World Bank, the world's largest multilateral development bank (MDB), last year launched reforms that are more fit-for-purpose by making it easier for countries to access finance to tackle the climate crisis. The proposal was adopted. His other MDBs are pursuing similar transformations.
We need to step up implementation of these reforms in the year ahead. In November, the world will gather in Azerbaijan for the United Nations Climate Change Conference, COP29, to set new targets for climate finance. And new fiscal goals may not be achieved unless we know how these reforms will enable MDBs to deliver and mobilize resources where they are needed most.
Why is MDB reform necessary?
Developing countries are often hardest hit by climate change, but have limited resources to respond. Financial experts estimate that it may be necessary. Up to $2.4 trillion annually Achieving the goals of the Paris Agreement will require far more investment by 2030 than is currently available.
MDBs can help fill this huge investment gap. They provide subsidies and low-interest loans to developing countries to promote development, fight poverty, and combat climate change, and are well placed to help developing countries with climate-related challenges. It is located inFor example, after Hurricane She Maria displaced thousands of people in Dominica in 2017, the World Bank $115 million We are providing emergency assistance to rebuild the island and build resilience.
But even with MDB support, when climate disasters occur, many developing countries face fundamental financial pressures that are not effectively addressed by international institutions. Almost seven years after Hurricane Maria, Dominica remains heavily indebted and at risk of a debt crisis. Most Caribbean countries have large public debts. Limited access to private finance.
Other regions face similar challenges. Many African countries are struggling to finance energy transitions due to perceived risks, and some countries vulnerable to climate change, such as Kenya and Ethiopia, have had their credit ratings downgraded in recent years. The loans offered often have incredibly high interest rates, and the cost of capital for clean energy projects in African countries is very high. 3 times bigger than developed countries.
In response to these challenges, calls for MDB reform have been echoing throughout the international community in recent years. The good news is that these reforms are currently underway. Last October, the World Bank adopted a reform agenda that included a new course of action and a new vision statement to create a world without poverty. On a more livable planet – It has firmly integrated climate change into its core mission.
Bank new playbook It aims to “make an impact at scale” by increasing the mobilization of private capital and expanding fiscal capacity. Other MDBs have implemented similar reforms, and positive progress has been made on issues such as interbank coordination and the use of debt moratoriums to prevent countries from sliding into debt crises.
Why is implementing MDB reform important for 2024 fiscal goals?
The international community is currently debating new targets for how much climate finance developed countries should direct to developing countries. The current goal of $100 billion a year, set in 2009, was reached for the first time last year. The new targets are even more ambitious, with some countries aiming for more than $1 trillion. Meeting this level of funding requires funding from multiple sources, including the public and private sectors.
MDBs will play a vital role in achieving this goal, particularly with regard to the influx of new private sources of finance.Currently, MDBs are leveraging $0.60 of private capital for every $1 of his MDB loans, but G20 experts say called Double this ratio. This can have a transformative impact by promoting finances at a much higher level than before and helping you achieve your ambitious financial goals. MDBs can do more to reduce the risks of climate change projects through tools such as guarantees and create new private sector partnerships.
Why Mr. M?Will DB capture this moment?
At the World Bank Spring Meetings in Washington, DC this week, and throughout the rest of 2024, MDBs must move quickly to implement reforms to address immediate urgency and build momentum towards meaningful fiscal goals. It won't happen. Priorities should include:
- Mobilize private capital through partnerships that reduce and share risk.
- Strengthen financing conditions and expand concessional financing capacity to ensure that vulnerable countries can cope with the impacts of increasing climate change.
- Streamlining bureaucratic procedures to speed up funding in disaster response situations.
- Introduce new mechanisms to limit the debt burden of countries facing climate shocks, such as increasing the use of subsidies and non-debt financial instruments.
If finance is key to combating climate change, these reforms could have a huge impact by improving the flow of finance to the Global South. And if we want to see the ambitious climate finance targets agreed this November, MDBs can respond to the needs of developing countries, build trust and help them pursue a just transition to a better planet. is extremely important.
