It is time for the G20 to stop kicking the can down the road

This week, Ministers of Finance from the Group of Twenty (G20) are meeting to discuss financing for global development and green economic transitions. Whilst these meetings are part of a series in the run up to the G20 summit in November, the current state of the world means the stakes are high and action is needed now. The outcomes of the meetings this week matter for global security, prosperity, and the level of investment that children of today and tomorrow receive so that they can survive and thrive.

It is fair to say that this year has not turned out how many G20 finance ministers had hoped. Instead of a COVID-free world that is ‘building back better’, the prolonged pandemic, conflict, growing inequality, and climate change have created further instability in the world. News headlines over the last few weeks have brought into sharp focus the challenges faced by children across the world, whether directly by environmental disasters and conflict, or through broader economic hardship due to global “stagflation”. These challenges are hitting the world’s poorest children hardest.

Protecting children during this time of crisis, and pursuing solutions for green and inclusive recovery, requires increased public investment from governments and international actors – in education, healthcare, social protection, protection from violence and green infrastructure.  But this is simply not feasible for governments in the lowest income countries at present, given high and growing debt burdens, constrained revenue generation and limited access to affordable lending. These constraints have caused public spending on children to flat line, a trend which is set to continue for years to come, with worrying implications for key investments in children, such as education (see Figure 1).

Figure 1 – increasing interest payments on debt are expected to constrain public investments in education and other child relevant sectors across many developing countries

_{Source: Government budget documents , IMF article IV staff reports. 
Notes: Education spending refers to the Governments' own sectoral definition. Where possible external funding (e.g. aid) has been excluded.}
 

Global leadership from the G20 on this issue is urgently needed. At the start of the COVID pandemic, the G20 was quick to respond, initiating and supporting debt relief through the Debt Service Suspension Initiative (DSSI) and IMF Catastrophe Containment Relief Trust (CCRT) and supporting increased  affordable lending by agreeing additional support to the World Bank and IMF, as well as a new $650 billion Special Drawing Rights (SDR) allocation.

However, over the last 18 months support has waned while needs have increased. Debt relief initiatives created or heavily supported by the G20 have stopped or are ineffective, promises made to re-channel SDRs have not been fulfilled, and requests to adequately replenish International Financing Institutions (IFIs) have and continue to come up short.

This week’s meetings are therefore a critical crossroads moment. Will the G20 step up or will they continue to kick the can down the road? The answer lies in whether the G20 makes the following key commitments this week:

 i) Debt relief

• Restore the G20 DSSI until 2023 and expand the list of eligible countries to support middle income governments with significant debt burdens.
• Sufficiently replenish the IMF CCRT so it can continue providing relief at least up to the end of 2023.
• Take concrete action to ensure the G20 Common Framework for Debt Treatments is fit for purpose, including legislative protection for borrowers from legal action by private creditors; measures to ensure comparability of treatment; transparency and publication of clear timelines and process; protections against credit rating downgrades; and expansion of eligibility to more middle income countries.

ii) Access to affordable lending

• Provide the IMF with sufficient resources to enable its Poverty Reduction and Growth Trust (PRGT) and Resilience and Sustainability Trust (RST) to operate at maximum capacity, through loans (SDR recycling or other means) and subsidy resources. Look for other opportunities to recycle SDRs to meet the promise of recycling $100 billion of SDRs by the G20 summit in November.
   
• Call for an urgent review of IMF surcharges on its lending to middle income countries, which are a significant burden for many governments, including Ukraine.
   
• Scale up support to Multilateral Development Banks by committing to an adequate replenishment of the African Development Fund; and increased financing through the World Bank, including signalling a willingness for an early 21^st replenishment of the International Development Association (IDA) – a key source of financing for the lowest income countries.

iii) Tax justice

• Urgently address the inequalities embedded in the OECD-led global tax deal, ensuring lower income countries have genuine and equal voice and agency in the discussions, and that they benefit from, rather than are harmed by, its implementation.
   
• Support the calls made by African finance ministers and others for a UN Tax Convention. 

iv) International public finance

• Ensure that aid budgets prioritise programmes in lower income countries themselves, with any other eligible spending in wealthy economies counted as additional to existing aid budgets and targets, including the use of SDRs, refugee hosting and debt relief.
   
• Commit to a significant scale up in aid, including meeting past commitments to provide 0.7% of GNI as Official Development Assistance (ODA).
• Support the creation of a new climate finance mechanism for loss and damage caused by the climate crisis, and commit to a dramatic increase in public climate finance as new and additional ODA, allocating at least 50% to adaptation measures, particularly those that specifically benefit children most affected by inequality and discrimination.

These actions have the potential to unleash significant amounts of finance for governments to protect the world’s poorest children from the current economic downturn, and to invest in economic recovery that is green, just and guarantees a prosperous future for all. The policy options are ready and waiting; we just need the G20 to step up and give them the political backing they need.