Would the G20 $100 Billion Be Equitably Granted to the Developing Countries?

The G20 countries pledged to transfer $100 billion to developing countries, out of a total of $650 billion in Special Drawing Rights (SDR) issued by the International Monetary Fund, according to the final statement issued by the Rome Summit on Sunday.

"We welcome recent pledges of nearly $45 billion, as a step toward a global ambition totaling $100 billion, in voluntary contributions to benefit countries most in need," the leaders said in the statement.

Thus, the G20 countries are following in the footsteps of the leaders of the Group of Seven, who had set a goal of $100 billion in special drawing rights to be transferred to countries, mostly on the African continent.

In an interview with Al-Estiklal Soumia Rahali researcher in economics at Istanbul Sabahtin Zaim pointed out that, “The G20 countries commitment to transfer $100 billion to the developing countries is definitely a good step. Yet, the challenge is first about the equitable distribution of those funds. Second, it is unlikely for the rich countries to distribute the funds as grants; they generally give them in the form of loans, or commercial terms which increases the indebtedness and dependence of the developing countries.”

 

Climate Funds in the G20 Summit

The Green Climate Fund (GCF) emerged in the historic Paris Agreement as “the world’s largest climate fund, mandated to support developing countries raise and realize their Nationally Determined Contributions (NDC) ambitions towards low-emissions, climate-resilient pathways,” explained by the GCF official website.

The G20 two days summit, held in Rome between 30 and 31 October 2021, reaffirm, “The developed countries' climate finance commitment to jointly mobilise $100 billion per year, and welcome new commitments by some G20 members,” indicated the G20 leaders' declaration.

The statement emphasized the summit’s main results: “Keeping the goal of limiting global warming to 1.5 degrees compared to pre-industrial levels within reach and accelerating their actions towards achieving global net zero greenhouse gas emissions or carbon neutrality by or around mid-century.”

The declaration added that the aim is to “implement the new rules for a more stable and fairer international tax system, including a 15% global minimum corporate tax, by 2023. In addition to advancing efforts to ensure better and more timely access to COVID-19 vaccines in low- and middle-income countries.”

The final important summit output was about establishing a G20 Joint Finance-Health Task Force to ensure adequate financing of pandemic prevention, preparedness and response.

 

Unequitable Funding System

Rahali explained that, "The problem with the IMF Grants is that the SDRs are distributed according to each developing country's quotas in the International Monetary Fund, so the bulk goes to the richer countries. On that basis, Africa will only benefit from $34 billion, hence the idea of ​​some developed countries to donate part of their share to the most needy countries.”

According to the European Network on Dept and Development (ENDD): "​The New SDRs will bring much needed liquidity to struggling developing countries facing recession and an increase in poverty. They could also help make the recovery fairer and more inclusive, increasing fiscal space for governments to invest in health, education, social protection and green and secure jobs.”

“However, these are also decisions that underscore the inequalities of the global financial system, and which will do little to address its structural shortcomings, including solving the sovereign debt crisis. It is important to highlight these limitations to avoid a misplaced sense of complacency and identify ways to address them,” emphasized the ENDD.

 

Channeling Mechanisms: Not Fair Enough

Eurodad and 250 international organizations announced that, “The $100 bn won’t be sufficient to bring the reserves of countries considered to have weak creditworthiness by credit rating agencies up to adequate levels, nor to endow low-income countries (LICs) with the US$ 450bn that the IMF estimates they will need over the next five years to meet pandemic-related costs. For most indebted countries, the amount of SDRs received will be less than the cost of their debt service in 2021.”

The NGO added: “The SDRs allocation from developed to developing countries cannot be a substitute for the urgent implementation of debt relief measures, not least to ensure that the additional resources are not directed towards external private creditors. More decisive steps are also needed to reform the global debt architecture and the Bretton Woods Institutions (IMF and World Bank) quota system, towards building a more democratic, just and equitable system.”

 

Direct Grants to Africa

The Canadian Finance Minister Chrystia Freeland announced, Saturday in Rome, that her country will distribute 20% of its drawing rights in the International Monetary Fund to developing countries to support the economic recovery after COVID-19.

France had previously committed to “redirecting 20 percent of the money it receives from the International Monetary Fund to the African continent,” according to the announcement made by President Emmanuel Macron.

Macron said, in a statement last September, that "if all the major powers follow France's example, the goal of transferring $100 billion to Africa will be achieved."

The United Kingdom also pledged to provide 20 percent of its drawing rights, as did Japan to provide 4 billion dollars of its own.

As for Spanish Prime Minister Pedro Sanchez, whose country does not belong to the "Group of Twenty," he also announced, on Sunday, that Madrid will allocate 20 percent of the special drawing rights to the developing country.

 

Key Principles for Fair Grant Allocation

The Third Word Network NGO stressed 5 key principles for a transparent and Fair Allocation of SDR to developing countries.

Provide debt-free financing, so it does not add to unsustainable debt burdens of developing countries, whose annual external public debt payments are projected to average US$300 billion over 2021 and 2022.

Conditionalities free: countries should be able to use them as they wish without having to accept economic policy conditions in exchange

Transparency and accountability in their use should not trump countries’ democratic ownership but in fact strengthen civil society’s scrutiny

They should be additional to existing ODA and climate finance commitments

Middle-income country (MICs) access: they should be accessible to middle income countries as well.