Outlook 2021: effective multilateralism under the UN will be crucial
2021 brings the hope that the Covid-19 pandemic can be controlled, but existing inequalities are exacerbating access to the vaccine and with it, return to normal life. Here we set out what we expect to be the biggest issues we face as a network in the coming year.
The New Year has brought new vaccines and hope that the pandemic can be controlled in the foreseeable future. Yet the majority of the world will probably have to wait in line until the richest countries have been vaccinated. This will slow down their chances to protect themselves, resume normal life and will probably have knock-on effects on their economies and the ability of residents to work and travel. The response to the pandemic so far appears to follow existing fault-lines of global governance and decision-making. Consequently, existing inequalities are perpetuated, pushing the goal of delivering Agenda 2030 further beyond reach.
It does not have to be this way. Eurodad believes that it is possible to achieve an equitable distribution of wealth and power, which is fairly, democratically and transparently governed from the local to the global level. Publicly-regulated finance could enhance systems of redistribution to ensure economic justice and the universal realisation of human rights and environmental integrity. This is the vision driving the new Eurodad five-year strategy which we will start implementing during this unprecedented period.
It is a challenge that the Eurodad network, together with our partners and allies, can rise up to. 2020 saw the resurgence of the global debt movement, together with the creation and strengthening of many more collaborations, often with actors who have never previously worked on development finance issues.
These are the biggest issues we expect to address:
Average public debt levels in developing countries soared from 39.9 to 61.8 per cent of GDP between 2011 and 2020.1 Nearly a quarter of this increase, equivalent to US$ 1.9 trillion, took place in the last year as a result of the pandemic. Consequently, the impact of debt on developing countries will be truly dire in 2021. Governments of these countries are projected to pay their external creditors US$ 345 billion. At the same time, they require an estimated US$ 25-250 billion to provide a vaccine for their 6.2 billion citizens.2 Their struggle to ensure access to Covid-19 vaccines highlights the failure of the multilateral response to the crisis. Under the G20 Debt Service Suspension Initiative (DSSI), 46 participant countries will be able to suspend a mere US$ 11.4 billion in debt service to bilateral creditors in 2021.
In the meantime, developing countries teetering on the brink of default remain in the dark regarding how the new G20 initiative - the Common Framework for Debt Treatments - will be implemented. Its capacity to deliver adequate debt relief has been questionable from the start. This situation illustrates why it is vital that we make inroads towards the establishment of a multilateral debt workout mechanism under the UN to ensure a systematic and timely approach to orderly, fair, transparent, and durable sovereign debt crisis resolution.
Quantity and quality of aid
The combination of a lack of ambition to boost aid budgets and the belief that private actors will be able to fill the gap needed to meet the Sustainable Development Goals has led to an increase in the use of aid to subsidise the private sector. Blended finance mechanisms - which combine official development assistance (ODA) with other private or public resources - have been a common modality despite insufficient evidence of their impact on eradicating poverty and inequalities and contributing to environmental protection and development.
But there are several opportunities for positive change in 2021. Provisional reporting arrangements for private sector instruments (PSIs) and related ODA data collected since 2018 will be reviewed by the OECD this year. This review is the chance to reach a permanent agreement on reporting that includes PSI ‘implementation details’ and safeguards that ensure ODA is used effectively. CSOs have an important role to play in maintaining the spotlight on the continued need for non-PSI ODA and in reminding the donor community about their longstanding commitment to provide 0.7 per cent of GNI as ODA, on concessional terms. DAC members should not miss the opportunity to go back to the negotiating table with raised ambitions.
Looking towards Brussels, it is clear that the focus of the “Next Generation EU” package and the revised provisions for external action in the EU 2021-27 budget should be to strengthen public systems, particularly health, education, food and social protection. EU ODA should not be used to promote the involvement of private for-profit companies in public services, through privatisation schemes and public-private partnerships (PPPs). Unfortunately, we have seen a massive shift in EU aid modalities, in favour of a mechanism that has not proven to deliver on international development cooperation objectives or to bring added value.
In 2021 we will monitor how these are implemented. For CSOs the primary focus should be on increasing the development impact and accountability of development resources.
The convergence of the climate crisis and Covid-19 pandemic in 2020 made it clear that business-as-usual on climate finance wasn’t going to suffice anymore. Accordingly, debates on green growth, green bonds, and a green recovery grew, with many sharing their own version of how to create and achieve this new ‘green’ future. In 2021 we can expect to see efforts to try and put this into practice.
Key points to watch out for on climate finance include an increase in innovative sources of climate finance being pursued. Public climate finance providers are discussing a number of options, including environmental taxes on e.g. plastics, the use of special drawing rights (SDR), and fossil fuel subsidy phaseout (and possible repurpose for a sustainable global energy transition).
Processes to watch that will frame all of this include COP26, where discussions on a new global climate finance goal will begin. The current goal doesn’t include a stream of finance to address loss and damage, and with ever worsening cases, we can expect COP26 discussions to focus on the urgent need for a financing arm for this purpose. Worryingly, we can expect to see a continuation of the rise of private sector stakeholders in the climate finance sector, who are crowding out discussions on effective climate finance. This can’t be allowed to happen at COP26, since most private finance goes toward mitigation projects which are seen as more profitable. As well as COP26 itself, the UK Presidency has highlighted the Petersberg Climate Dialogue as a key moment on climate finance.
International Finance Institutions’ impact on development
2021 is the year in which the IMF could finally close the gap between its rhetoric and its practice on fiscal policies and the push back against austerity. Since the beginning of the pandemic, the IMF has been calling for a substantial use of fiscal policy in response to Covid-19. And yet, research by Eurodad found that 72 of the 80 countries that received IMF emergency loans between March and September 2020 are projected to begin a process of fiscal consolidation as early as 2021.
As many of these countries are already in debt distress, in 2021 we can expect a wave of new long-term lending programmes riddled with conditionalities. Or the IMF could demonstrate that it truly has become a different institution. An important step in this regard is to issue new SDRs to support countries inadequately covered by current financial safety nets. Moreover,it can help countries increase public spending for the Covid-19 response and recovery. With our partners and allies we will continue to scrutinise IMF lending programmes and their conditionalities, and demand that higher public spending in the face of crisis is a policy afforded not only to rich economies, but also to countries in the Global South.
The World Bank’s (WB) own figures 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. Yet Eurodad research revealed that the WBG’s response to the pandemic is failing the challenges it faces. It revealed a persistent prioritisation of private over public interests, both in the immediate pandemic response and beyond, which proceeds despite multiple concerns regarding the implications for development, poverty eradication or welfare provision. In 2021 we will be working with partners from the global south and north to expose the WBG promotion of market-based approaches to public services, including through public-private partnerships, while reclaiming high-quality and gender responsive public services.
The WB’s influence on national policies, typically through financing with policy conditionalities attached, undermines policy space and often has harmful impacts. This has also been exerted through flagship publications, like the Doing Business Report (DBR), which has incentivised deregulation policies worldwide and suppressed domestic aggregate demand and economic diversification. In August 2020, the publication of the DBR 2021 was halted. In 2021 we will campaign to see the end of this damaging publication.
Finally, in the wake of the first global public development banks (PDBs) summit in 2020, the Finance in Common (FiC) summit, we can also expect to see public development banks beginning thinking about how to implement more thorough plans to align their mandates, policies, operations and portfolios with the SDGs and the goals of the Paris Agreement. In 2021 the international community, including active CSOs from North and South who have been promoting an agenda to ‘reclaim’ PDBs, must hold them accountable for the good intentions delivered at the FiC.
Meanwhile, the pandemic and the dire economic outlooks have placed more pressure on the ongoing heated discussions about how to design the future tax systems at both the national and international levels. These tax debates point to the very sensitive question of "who should pay the Corona bill". If countries once again fail to address international tax dodging by the world's wealthiest individuals and corporations, the default option will be that consumers and workers have to pay.
At the moment, we’re seeing a very exciting increase in the momentum for new ways to tax ultra-wealthy individuals and corporations. In a number of countries, there is a growing debate about wealth taxes, and at the international level there is a stronger focus on the injustice of large multinational corporations paying very little tax.
The critical debt situation, as well as the fact that many billionaires and corporations have seen their wealth and profits grow to new highs during the Covid-19 crisis, only make this debate even more important and urgent. However, new initiatives to tax ultra-wealthy individuals and corporations will not be truly effective unless we get a strong global tax system that can prevent international tax dodging. The OECD-led negotiations on corporate tax and the digitalised economy were supposed to deliver new ways to prevent international tax avoidance by multinational corporations, and the final outcome of these negotiations is expected in mid-2021. Unfortunately, we can already see that the level of ambition in the negotiations has dropped to a level where the outcome will not provide the solutions we need. In fact, there is a clear risk that the new rules will end up making the system even more complex and dysfunctional than it already is. Furthermore, it is deeply concerning that in particular the interests of the smallest developing countries have so far been ignored in the OECD-led negotiations.
However, since international corporate tax dodging is costing countries around the world hundreds of billions of dollars every year, governments simply cannot afford to fail to provide a real solution to this problem. 2021 will be the year when governments have to ask themselves what’s next in the global fight against international tax dodging. We find it very encouraging that more and more countries are looking to the United Nations (UN) as the place that might lead the work to provide the effective and development-friendly solutions that we haven’t seen from the OECD-led work. This issue will be a central part of the discussion when the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel) – which was set up by the presidents of the UN General Assembly and the UN Economic and Social Council in 2020 – presents its final report in February 2021.
It is also important to note that in 2020, the developing country members of the UN Tax Committee kick-started an important initiative to formulate new rules to strengthen taxation of digital services. Unlike the OECD-led negotiations in the Inclusive Framework, this initiative had a strong focus on the interests and realities of developing countries. Since the current mandate of the UN Tax Committee is coming to an end in 2021, it will be crucial for the UN and its Member States to ensure that the Committee members are able to finish this important work and adopt these new rules before the end of their term.
Finally, and at long last, 2021 seems to be the year when the EU will discuss whether citizens should be allowed to see how much multinational corporations pay in tax in each country where they operate. This key proposal – known as public country by country reporting - has been blocked at the EU-level since 2016, but after the big Corona support packages that EU governments provided to corporations in 2020 there is now a renewed focus on the need to increase corporate transparency as a key tool to reduce international corporate tax avoidance. Furthermore, the European Commission is expected to publish its long-awaited communication on business taxation. This will be a welcome moment to kick-start the EU-level debate about fairer and more effective alternatives to the failed transfer pricing system, as well as how to effectively respond to EU Member States that continue to behave as tax havens.
An important lesson which we should all take from the Covid-19 pandemic is that effective multilateralism under the auspices of the UN is more urgent than ever and we will work hard to secure this in 2021. This will be essential not only to tackle the pandemic, but also the interlinked and complex crises of inequality, climate change, environmental degradation and biodiversity loss.
1 Figures in this section correspond to Eurodad calculations for 118 developing countries based on International Monetary Fund (IMF) and World Bank figures.
2 Estimations based on costs for Oxford/AstraZeneca and Moderna vaccines.