The financial crisis of 2008 took most people by surprise even though the writing was on the wall, with academics and civil society alike warning that casino capitalism came with a price. This time it is different. We knew for years that there was a huge crisis coming and we identified the structural solutions that were needed. The debt crisis has been building up for over a decade and is undermining the achievements of the sustainable development goals (SDGs). The Covid-19 pandemic turned festering problems, including persistent inequalities exacerbated by underinvestment in public services - and subsidised by unpaid care work mostly done by women - into gaping wounds. Vaccine apartheid and the controversy surrounding vaccine ‘donations’ put global solidarity under huge pressure. Then came supply chain disruptions; inflation; interest rate cuts in the US, EU and other industrialised economies; the Russian invasion of Ukraine; food insecurity in many countries in the global south;  instability in the global energy market; and sovereign debt default. All of these problems are intensified by rapidly accelerating climate change, expected to be worsened by the El Niño climate phenomenon in 2023. This deep and multilayered crisis has  been described by historian Adam Tooze as a ‘polycrisis’, highlighting not only the multiplicity of shocks, but how “they interact so that the whole is even more overwhelming than the sum of the parts!”

We have entered 2023 with our eyes wide open: we must act quickly yet carefully to tackle the causes of the polycrisis. There are several well-known quotes about crisis and opportunity being both sides of the same coin. And there are several opportunities for 2023 to go down in history, not as the preamble for disaster, but as the portal to a more just world.

A new sovereign debt roundtable in 2023

The debt crisis exemplifies the size and complexity of the problems to be dealt with. As Ghana joined the ranks of countries that are in debt default on 19 December 2022, and Sri Lanka advanced negotiations with its creditors on restructuring its debt, 182 economists released a statement on 8 January. They noted: “The Sri Lankan case will provide an important indicator of whether the world—and the international financial system in particular—is equipped to deal with the increasingly urgent questions of sovereign debt relief and sustainability; and to ensure a modicum of justice in international debt negotiations.” 

The question is whether a new sovereign debt roundtable that International Monetary Fund chief Kristalina Georgieva has announced for February - and which will include a wide range of stakeholders including China and private sector creditors - improves the situation. Or will it fall short of what is needed, as in the case with the Common Framework for Debt Treatments? Will borrowing countries be able to effectively and meaningfully participate? Will agreements be binding on private sector creditors? Or will this be yet another desperate attempt to maintain the status quo of creditor-dominated debt architecture? A genuine break from the past, by advancing a UN-based process to develop a debt workout mechanism would provide a lasting solution that would be in the interest of debtor countries and their creditors. The much anticipated start of negotiations of a fourth Financing for Development Conference, to be discussed in 2023, would provide the space for this. 

Countering the austerity wave

On the back of the debt crisis, an austerity wave will continue to sweep across the world in 2023, further weakening social spending that had already been reduced during the pandemic. The new austerity wave risks weakening existing finance commitments in sustainable development, climate change and the environment. This is despite the urgency of the need, the immorality of unfulfilled ODA and climate finance commitments, and their human and environmental costs. 

As part of the #EndAusterity campaign, Eurodad together with our partners and allies have argued that austerity is not inevitable. Nor can we rely on private finance to fill the gaps left by falling public investment. Evidence repeatedly suggests that privatisation of public services and using public money to leverage private investment for development end up being economically and socially costlier than budgeted. This year, the IMF/WB Annual Meetings will be held in Marrakech, Morocco, and civil society in the MENA region will be present in great numbers to support the financing of public services and challenge International Financial Institutions’ policies and advice that promote austerity.

Quantity and quality of development and climate finance under scrutiny

Countries in the global south have long demanded that commitments for north-south public transfers of development and climate finance, including the 0.7 per cent of GNI ODA commitment - and the missed US$100 billion climate finance by 2020 pledge (extended to 2025) - be fulfilled. The polycrisis makes their calls more urgent  

All eyes are now on the post-2025 climate finance goal. Negotiations will go up a notch this year including several deep dives with experts, high-level ministerial meetings, and public consultations. Several ministerial and financial institution discussions on the Loss and Damage Fund agreed at COP27 will also take place, with some led by the UN Secretary General, who will also host a ‘no nonsense’ Climate Ambition Summit in September. This is welcome as countries in the global south need climate finance at low or no extra costs. Yet almost 90 per cent of the finance pledged to Pakistan after the catastrophic 2022 floods is in the form of loans. 

While the 0.7 per cent commitment continues to be unmet, and rules monitoring aid volumes are being slowly eroded, a new agreement offers hope that ODA delivered will at least be better monitored to improve its development impacts. The December 2022 Summit of the Global Partnership for Effective Development Cooperation (GPEDC) agreed on a reformed Global Partnership Monitoring Framework to boost ‘country ownership,’ strengthening indicators and allowing governments that receive aid to lead on monitoring its effectiveness. Even though the framework is voluntary, 2023 will be a test of its value with all eyes on  OECD Development Assistance Committee (DAC) member countries to see if they will step up implementation of development effectiveness commitments, with countries in the global south in the lead. 

Global Financial Architecture reform

In response to the polycrisis there has been mounting pressure from both the global north and south to reform the global financial architecture. Barbados’ Prime Minister Mia Mottley has been the most vocal champion of this reform. Mottley’s Bridgetown Initiative encompasses reforms of multilateral development banks (MDBs) as well as of the IMF, and a strong call for increased financing - including the use of Special DrawSDRs. 

The G20 published its independent review of MDBs’  capital adequacy frameworks (CAFs) in July 2022, followed by increased demands that the World Bank and the MDBs implement reforms that would allow them to risk and lend more. Responding to this pressure, and to criticism of its weak action on climate change, the World Bank has announced a plan to revisit its mission, operations and resources. It is far from perfect. The proposals fail to reconsider the WB and MDBs’ reliance on private sector-led and financialised approaches to development, despite evidence of their negative impact. It remains to be seen whether the pressure for reform will translate into anything of substance, beyond a focus on quantity (more lending) to address quality issues: i.e. where the money goes and the conditions that are attached. 

Another opportunity for institutional reform is the IMF’s 16th General Review of Quotas. Civil society is demanding that the review delivers a substantial increase in quotas and introduces significant adjustments so as to strengthen the voice and representation of emerging markets and developing economies.

These reform discussions are taking place against a highly fragmented international political environment.  But regardless of their complexity they  are long overdue and could help to rebuild trust in multilateralism

UN General Assembly resolution on international tax cooperation

Reversing the south-north flow of finance, particularly through international tax dodging and abuse by multinational corporations and wealthy individuals, is a long-term and structural response to the need to shore up public sources of financing for development. Thanks to the November 2022 UN General Assembly resolution calling for inclusive and effective intergovernmental tax cooperation at the United Nations, there is a real opportunity to finally design global tax architecture that involve all countries and that serve development, human rights, environmental protection and tackling climate change. If modalities to negotiate its design are agreed at the UN this year, 2023 can go down in history as the year that the world finally agreed to work together to design a global tax system fit for the 21st century. 

At the midpoint to the deadline for Agenda2030 and the Sustainable Development Goals, this agreement would provide the driving force to get the global economic order out of a rut. It is one of the critical steps that can make 2023 the year we acted to overcome, rather than deepen, the polycrisis.