World leaders pledge to accelerate reform of global financial architecture

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Penang, 25 Sep (Kanaga Raja) — World leaders gathering at the United Nations headquarters in New York on 22 September pledged to “accelerate reform of the international financial architecture to address the challenges of today and tomorrow.”

This commitment by world leaders came in the pivotal “Pact for the Future” along with two annexes that was adopted by consensus at the Summit of the Future over the weekend.

In the 56-page Pact, the world leaders committed to 56 actions in the areas of sustainable development and financing for development; international peace and security; science, technology and innovation and digital cooperation; youth and future generations; and transforming global governance.

The issue of reform of the international financial architecture came under the section on “transforming global governance.”

In the Pact, the world leaders said: “Reform of the international financial architecture is an important step towards building greater trust in the multilateral system. We commend ongoing reform efforts and call for even more urgent and ambitious action to ensure that the international financial architecture becomes more efficient, more equitable, fit for the world of today and responsive to the challenges faced by developing countries in closing the Sustainable Development Goal financing gap. The reform of the international financial architecture should place the 2030 Agenda at its centre, with an unwavering commitment to investing in the eradication of poverty in all its forms and dimensions.”

In this regard, the world leaders decided to:

“(a) Continue to pursue deeper reforms of the international financial architecture to turbocharge implementation of the 2030 Agenda and achieve a more inclusive, just, peaceful, resilient and sustainable world for people and planet, for present and future generations.

The world leaders also pledged to “accelerate reform of the international financial architecture to strengthen the voice and representation of developing countries.”

“We acknowledge the important role of the United Nations in global economic governance, recognizing that the United Nations and the international financial institutions have complementary mandates that make the coordination of their actions crucial, while fully respecting existing governance mechanisms and mandates independent of the United Nations that preside over specific organizations and rules. We note with appreciation the initiative to convene a biennial summit at the level of Heads of State and Government to strengthen existing and establish more systematic links and coordination between the United Nations and the international financial institutions and we stress the importance of inclusive participation. We recognize the importance of continuing to pursue governance reforms at the international financial institutions and multilateral development banks. We underscore the need to enhance the representation and voice of developing countries in global economic decision-making, norm-setting and global economic governance at international economic and financial institutions, including the International Monetary Fund and the World Bank, to deliver more effective, credible, accountable and legitimate institutions. We welcome steps to improve the voice and representation of developing countries, and the creation of a twenty-fifth chair on the International Monetary Fund Executive Board for sub-Saharan Africa and recent changes to quotas and voting power. We underscore the importance of improving diversity and gender representation in the executive boards, senior management and staff positions. These steps can equip these institutions to better address global challenges,” they said.

In this context, the world leaders decided to:

“(a) Encourage the Board of the International Monetary Fund to take further steps to continue to support a strong, quota-based and adequately resourced institution and improve the voice and representation of developing countries, in particular through the ongoing work of the Executive Board of the Fund to develop by June 2025 possible approaches as a guide for further quota realignment, including through a new quota formula, under the seventeenth general review of quotas, while protecting the quota shares of the poorest members;

(b) Urge the governing bodies of the World Bank and other multilateral development banks to take further steps to achieve robust and broader representation, voice and participation of developing countries, while fully recognizing ongoing efforts in this regard.”

Furthermore, the world leaders committed to “accelerate reform of the international financial architecture to mobilize additional financing for the Sustainable Development Goals, respond to the needs of developing countries and direct financing to those most in need.”

“Developing countries require enhanced access to financing from all sources to achieve the Sustainable Development Goals. Flows of capital to many developing countries are falling, and more capital is leaving many developing countries than is coming in. Multilateral development banks play a vital role in supporting sustainable development and the achievement of the Goals and are critical to increasing countries’ access to finance on more affordable terms and helping to unlock private sector investment. We welcome ongoing reform efforts of the multilateral development banks to mobilize greater financing for the 2030 Agenda, recognizing that further reforms of the banks are urgently needed, in addition to the strengthening of domestic resource mobilization and domestic policy and regulatory environments,” they said.

In this regard, the world leaders decided to:

“(a) Deliver a robust and impactful twenty-first replenishment of the International Development Association that includes contributions and strong policy commitments from both new and existing donors that significantly increase the resources of the Association, and work towards establishing a pathway to significantly and sustainably increase the Association by the 2030 replenishment;

(b) Urge multilateral development banks to accelerate the pace of reforms to their missions and visions, incentive structures, operational approaches and financial capacity, and to consider additional steps to increase the availability of finance, provide policy support and technical assistance to developing countries to address global challenges and to achieve the Sustainable Development Goals;

(c) Urge multilateral development banks’ governing boards and management to enable additional finance from the banks’ own balance sheets by fully implementing, where relevant and appropriate, the recommendations from the Group of 20 independent review of multilateral development banks’ capital adequacy frameworks, including reflecting the value of callable capital in multilateral development bank capital adequacy frameworks and issuing hybrid capital at scale, while ensuring financial sustainability of respective multilateral development banks;

(d) Encourage the boards of multilateral development banks to consider scheduling further general capital increases, while recognizing recent capital contributions, if needed;

(e) Invite the multilateral development banks, in consultation with the Secretary-General, to present options and recommendations on new approaches to improve access to concessional finance for developing countries, with full respect for the independent mandate and authorities of the respective governing body of each multilateral development bank and request the Secretary-General to update Member States on progress;

(f) Note the work of the international financial institutions, international organizations and multilateral development banks to consider structural vulnerability and invite them to consider using the multidimensional vulnerability index, as appropriate, as a complement to their existing practices and policies in line with their respective mandates;

(g) Call on multilateral development banks to provide timely support to developing countries by increasing and optimizing long-term concessional finance, including lending in local currencies, as well as the design, financing and scaling up of country-owned and -driven innovative mechanisms.”

The world leaders also pledged to “accelerate the reform of the international financial architecture so that countries can borrow sustainably to invest in their long-term development.”

“Borrowing is vital for countries to invest in their long-term development. Countries must be able to borrow sustainably, and have access to credit on affordable terms, while ensuring full transparency. We are deeply concerned by the emergence of unsustainable debt burdens and vulnerabilities in many developing countries, and the constraint this imposes on their development progress. We recognize the importance of strengthening the safeguards to prevent these situations from occurring. We underline the importance of reforms to existing multilateral processes to facilitate collective action to prevent debt crises, and facilitate debt restructuring and debt relief, when appropriate, taking into account evolving trends in the global debt landscape,” they said.

Among their actions, the world leaders decided to “strengthen the multilateral response to support countries with high and unsustainable debt burdens, with the meaningful participation of the countries concerned and all relevant actors, ensuring an approach that is more effective, orderly, predictable, coordinated, transparent and timely to enable those countries to escape debt overhang and prioritize government expenditure on the achievement of the Sustainable Development Goals.”

The also decided to invite the International Monetary Fund “to undertake a review of ways to strengthen and improve the sovereign debt architecture, building on existing international processes, in collaboration with the Secretary-General, the World Bank, the Group of 20 and major bilateral creditors, and debtors, and request that the Secretary-General update Member States on progress and present proposals on this issue.”

The world leaders also pledged to “accelerate the reform of the international financial architecture to strengthen its capacity to support developing countries more effectively and equitably during systemic shocks and make the financial system more stable.”

“The growing frequency and intensity of global economic shocks has set back progress on the achievement of the Sustainable Development Goals. We recognize the role of special drawing rights in strengthening the global financial safety net in a world prone to systemic shocks, and their potential contribution to greater global financial stability. We welcome the pledges to rechannel over 100 billion dollars worth of special drawing rights, or equivalent contributions, to developing countries while stressing the urgency of delivering on these pledges to developing countries as rapidly as possible,” they said.

In this regard, the world leaders decided to:

“(a) Call on countries that are in a position to do so to voluntarily rechannel special drawing rights from the 2021 allocation, and for those countries to also consider rechannelling at least half of their special drawing rights, including through multilateral development banks, while respecting relevant legal frameworks and preserving the reserve asset character of special drawing rights;

(b) Encourage the International Monetary Fund to explore all options to continue to strengthen the global financial safety net to support developing countries to better respond to macroeconomic shocks and consider the feasibility of expediting issuances of special drawing rights and facilitating prompt, voluntary rechannelling to developing countries during future financial crises and systemic shocks;

(c) Welcome the ongoing review by the International Monetary Fund of its surcharge policy;

(d) Promote financial stability through international cooperation on, and consistent regulation of, banks and other financial service entities.”

The world leaders further committed to “accelerate the reform of the international financial architecture so that it can meet the urgent challenge of climate change.”

“Climate change and biodiversity loss exacerbate many of the challenges facing the international financial architecture and can undermine progress towards the Sustainable Development Goals. Developing countries should have access to finance to be able to pursue their interrelated objectives of achieving sustainable development, including poverty eradication and promoting sustainable, inclusive, resilient economic growth, and addressing climate change. Investment in sustainable development and climate action is essential. The international financial architecture should continue to channel and increase additional financing towards both sustainable development and climate action. Developing countries face increasing financing needs, especially those particularly vulnerable to the adverse impacts of climate change, leading to a growing demand for finance.”

In this regard, the world leaders decided to:

“(a) Call on multilateral development banks and other development finance institutions to increase the availability, accessibility and impact of climate finance to developing countries, while safeguarding the additionality of climate finance, to support developing countries to implement their national plans and strategies to address climate change;

(b) Call on multilateral development banks to mobilize additional financing to support adaptation and deploy and develop renewable, low- and zero-emission and energy-efficiency technologies in line with existing commitments;

(c) Call on international financial institutions and other relevant entities to improve the assessment and management of risks, including climate-related financial risks, support steps to address the high cost of capital for developing countries and provide policy support to help to better manage and reduce risks;

(d) Encourage the private sector, especially large corporations, to contribute to sustainability and protecting our planet and the achievement of the 2030 Agenda and the Sustainable Development Goals, including through partnership-based approaches, to scale up support to developing countries and enable climate action.”

In a further action, the world leaders pledged to “develop a framework on measures of progress on sustainable development to complement and go beyond gross domestic product.”

“We recognize that sustainable development must be pursued in a balanced and integrated manner. We reaffirm the need to urgently develop measures of progress on sustainable development that complement or go beyond gross domestic product. These measures should reflect progress on the economic, social and environmental dimensions of sustainable development, including in the consideration of informing access to development finance and technical cooperation,” they said.

In this regard, they decided to:

“(a) Request the Secretary-General to establish an independent high-level expert group to develop recommendations for a limited number of country-owned and universally applicable indicators of sustainable development that complement and go beyond gross domestic product, in close consultation with Member States and relevant stakeholders, taking into account the work of the Statistical Commission, building on the global indicator framework for the Sustainable Development Goals and targets of the 2030 Agenda for Sustainable Development and to present the outcome of its work during the eightieth session of the General Assembly;

(b) Initiate a United Nations-led intergovernmental process following the completion of the work of the independent high-level expert group in consultation with relevant stakeholders, including the Statistical Commission, international financial institutions, multilateral development banks and regional commissions, in line with their respective mandates, on measures of progress on sustainable development that complement or go beyond gross domestic product, considering the recommendations of the Secretary-General’s high-level expert group. – Third World Network