2020 IMF and World Bank Annual Meetings: Disappointing response to Coronavirus crisis
Last week was a crucial week for the citizens of developing countries, who are being hit hard by the Coronavirus crisis. They are facing increasing poverty, growing inequality and uncertain futures – and were looking to the world's leaders for decisive action. Yet despite a week of stirring rhetoric from G20, International Monetary Fund (IMF) and World Bank (WB) leaders, who claim they are determined to tackle the crisis, the results are deeply disappointing. What is clear is that world leaders and the Bretton Woods institutions need to take much more ambitious steps to deliver in the public interest.
Risk of a “lost generation” in low-income countries
This year, the Annual Meetings took place (virtually) against the backdrop of the Covid-19 pandemic, which has triggered health, economic and social crises of unprecedented proportions, as well as significantly impacting countries’ capacity to address climate change.
As World Bank President David Malpass mentioned right before the meetings, and repeated constantly throughout the week, this is a “once-in-a-century” crisis that is especially impacting on the poorest. The World Bank’s latest poverty projections suggest that, by 2021, an additional 110 to 150 million people will have fallen into extreme poverty, living on less than US$1.90 per day.
The picture painted at a press conference by the IMF Managing Director Kristalina Georgieva was also worrying, even if over the last few months the picture has become “less dire”. As she put it: “We are still struggling with the darkness of a crisis that has taken more than a million lives, and driven the economy into reverse, causing sharply higher unemployment, rising poverty, and the risk of ‘a lost generation’ in low-income countries.”
These words are aligned with the report that the UN Conference on Trade and Development (UNCTAD) released in September, which argued that “there is a very serious danger that the shortfall will drag developing countries into another lost decade ending any hope of realising the ambition of the 2030 Agenda for Sustainable Development.”
Clear gap between rhetoric and actions
Five issues highlight a clear gap between rhetoric and meaningful actions both from world leaders and the Bretton Woods Institutions.
First, although the G20 vowed “to continue to do whatever it takes to support the global economy”, it fell far short of ambitions. Last week, the group of major economies failed to strengthen the Debt Service Suspension Initiative (DSSI) and only committed to a six-month extension and a future common framework for debt restructuring, which lacked any detail. The G20 seems to be addressing a mounting debt crisis in developing countries with a policy framework from a bygone era, causing countries in debt distress to be caught between creditor disputes, what David Malpass described as a “debtor’s prison”, which is already increasing the economic and social costs of debt crisis resolution. The failure to introduce debt cancellation continues to cause dismay, despite calls from more than 500 civil society organisations (CSOs) in almost 100 countries around the world for this vital measure. Private creditors and multilateral institutions are still not compelled to take part in the initiative, and so it has only covered 1.66 per cent of debt payments due in 2020 across all developing countries.
It is unfortunate that the world leaders choose to say “we are disappointed by the absence of progress of private creditors’ participation in the DSSI, and strongly encourage them to participate”. As Professor Daniela Gabor concludes, “by refusing to impose mandatory private participation, the G20 places the financial burden of the pandemic on the shoulders of taxpayers in both rich and poor countries. It cements an unequal power relationship, which poor countries have no instruments for challenging and their private creditors have few qualms in exploiting.”
Second, the response to the crisis has vividly exposed the inequalities between countries, something that the IMF has not shied away from. As IMF’s Managing Director put it, “some were able to do more than others. For advanced economies, it is whatever it takes. Poorer nations strive for whatever is possible.” Despite IMF rhetoric in favour of increasing public spending, it continues to lock developing countries into decades of austerity, putting the achievement of the SDGs and the Paris climate agreement in jeopardy.
As both Eurodad and Oxfam research showed last week, the IMF is still playing a very problematic role in developing countries. According to Eurodad’s figures, 72 out of 80 countries that have received IMF financing are projected to begin a process of fiscal consolidation as early as 2021, which “could result in deep cuts to public healthcare systems and pension schemes, wage freezes and cuts for public sector workers such as doctors, nurses and teachers, and unemployment benefits, like sick pay”. This issue is mobilising civil society from around the world, as was reflected in the letter signed by hundreds of civil society organisations and academics, which called on the IMF to immediately stop promoting austerity.
Third, the World Bank Group response to the current crisis has been far from bold, even though Malpass has expressed his admiration for “organisations that are taking bold action and sharing their experiences for the benefits of others”. The World Bank has called for more action on debt, but it still refuses to participate in the DSSI. It has provided support for emergency health interventions, and last week announced it would deliver US$12 billion “to finance the purchase and distribution of Covid-19 vaccines, tests, and treatments”. However, as Oxfam argued, the Bank is missing a unique opportunity to address healthcare user fees, which are one of the major barriers to accessing healthcare, as “only 8 out of 71 World Bank Covid-19 country health projects included any plans to address healthcare user fees”.
Fourth, as Eurodad and SOAS research indicates, the World Bank’s plan to respond to the crisis aims to ‘build back better’ by accelerating and scaling-up support for private sector solutions, mainly through supporting the private commercial financial sector and large companies. While it is true that private sector companies need support to navigate the crisis, there is a high risk of not reaching the countries, sectors and companies that need public support the most.
Worryingly, the World Bank Group’s strategy that prioritises ‘market creation’ seems to receive the backing of major economies. G20 Finance Ministers called last week on the WBG “to scale up its work and deploy instruments in new ways to mobilize private financing to low income developing countries”. This has proceeded despite well-documented evidence regarding the multiple risks and implications of relying on private finance to deliver sustainable development, including the higher cost, fiscal risks, questionable effectiveness and equity implications. As a group of United Nations experts – former and current UN Special Rapporteurs – voiced before an online event earlier this week, “by continuing to opt for contracting out public goods and services, governments are paying lip service to their human rights obligations”. With this in mind, if donor governments were to replenish the WB’s International Development Association (IDA) – which supports the world’s poorest countries – its resources must be used to shore up the ability of recipient countries to provide qualitative and equitably accessible public services.
Fifth, decisive action was also lacking in terms of tackling climate change. The Coalition of Finance Ministers for Climate Action, a Ministerial-level group created to accelerate climate action currently composed of 52 countries from both the global north and south, also met virtually last week. The non-binding Joint Ministerial Statement, meant to ‘guide’ their actions on climate action going forward, focuses on financial infrastructure reform to create the space for sustainable finance operations by financial institutions, as opposed to creating the space for more effective climate finance that enables vulnerable, frontline communities to tackle climate change.
Given the current context, it’s worrying that the statement merely “notes” the opportunity to use Covid-19 recovery measures to align “economies and policies to the challenge of climate change”. The efforts taken now to recover from Covid-19 will have significant implications on sustainable development pathways going forwards and, by extension, developing countries’ ability to address climate change. Moreover, the statement makes no reference to the commitment of these finance ministers to work with their environment ministry counterparts to determine how best to fulfil the continuation of the existing global climate finance goal of “US$100 billion annually by 2020 for mitigation and adaptation” to 2025.
Meanwhile, the German non-governmental organisation Urgewald revealed that the World Bank Group continues ongoing investments in the fossil fuel industry, despite pledging to fight climate change. According to this research, data shows that – since the Paris Agreement to combat global warming in 2015 – the World Bank Group invested over US$12 billion in fossil fuel projects, while energy transition proceeds too slowly to avert climate crisis.
Time for a change in course
The unprecedented crisis that the world is living through calls for a re-think of the approach of both world leaders and the Bretton Woods institutions. Without a meaningful change in course, the current response risks deepening inequalities and amplifying the economic and social fallout of Covid-19. Now is the time for ambitious responses, both in terms of scale and policies, which allow national governments to have fiscal and policy space to deliver for the world’s poorest communities, instead of delivering empty words and piecemeal initiatives.