The G20’s deceptive promise to act on the crisis of the century
Faced with the crisis of the century, the G20 has failed to meet the demands of the moment. As the Saudi Arabian presidency comes to a close, Eurodad policy experts take a critical look at what has been delivered.
The world has changed inexorably over the past twelve months. The year we had hoped would be a turning point towards a more gender-equal and sustainable world, that seeks to tackle the climate crisis with the urgency it demands by way of country climate plans, threatens instead to push hundreds of millions of people into poverty. And yet, when faced with the crisis of the century, the G20 has once again proved it is unable to respond to global crises with a truly global response. As an organisation where only the richest nations are represented, it is wholly unsurprising that the interests of the majority are not taken into consideration, given that they do not have a seat at the table.
This cannot continue. We need a multilateral solution to this global crisis and a renewed commitment to multilateralism. As the Saudi Arabian presidency of the G20 comes to a close, Eurodad’s policy experts cast a critical eye over a tumultuous year:
The G20 response on debt continues to be insufficient for tackling the scale of the crisis. The "Common Framework for Debt Treatments Beyond the DSSI," announced last week is yet another mechanism designed by and for creditors, which limits eligibility to a subset of developing countries and disregards needs and financial vulnerability considerations. What’s more, the Framework fails to require the mandatory participation of creditors from the private sector or multilateral banks such as the IMF or the World Bank.
Until countries get the debt relief they require, they will likely end up locked in a cycle of serial restructurings which will hamper their growth prospects and their ability to attract fresh financing.
If the international community is serious in its intention to achieve the SDGs, the Paris Agreement and the Beijing Declaration, the G20 must take the needs of developing countries into account in the debt resolution process. More ambitious action is urgently needed, which includes offering extensive debt cancelations and establishing a Sovereign Debt Workout Mechanism under the UN to comprehensively address unsustainable and illegitimate debts.
The G20 seems to follow a ‘business as usual’ strategy with regards to development finance, and infrastructure finance in particular. In its Leaders’ Declaration, the G20 called on the WB “to scale up its work and deploy instruments in new ways to mobilise private financing to low income developing countries,” despite well-documented evidence of the multiple risks and implications of relying on private finance to deliver sustainable development. Meanwhile, the G20 approach to infrastructure finance, focused on infrastructure as an asset class can result in even higher public sector debt and risks not reaching the countries and people most in need.
In fact, increasing reliance on market-based approaches to development finance was a key driver of rising debt vulnerabilities across the global south prior to the Covid-19 crisis, and contributed to theirvulnerability to the global economic downturn we are currently witnessing. Unfortunately, the G20 remains focused on addressing the challenges facing private investors and pushing market-friendly ‘structural reforms’, rather than seeking a clearer picture of how countries’ financing needs to meet development and climate aims can be reconciled with long-term debt sustainability. These aims have to be at the centre of recovery efforts after the crisis, particularly when looking at how rising debt burdens and financing pressures have contributed to chronic underinvestment in public health systems across the developing world, which consequently undermined their capacity to address the Covid-19 pandemic.
The OECD’s Blueprint for the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released in October, does not qualify by any measure to advance the ‘globally fair, sustainable and modern international system’ that the G20 claims to be working towards.
Contrary to the rhetoric, hardly anything has advanced since the beginning of the year in the OECD-led negotiations. Existing transfer pricing rules that have been proven to be problematic and unfair are maintained, running in parallel with the new rules that only apply to a small part of the overall profits of multinational corporations.
While the idea of allocation taxes on the basis of a formula, included in the Blueprint, is welcome, it is poised to only benefit countries in which multinational corporations have higher volumes of sales and users. This would be of limited value, especially for small developing countries.
Similarly the Inclusive Framework has missed the opportunity to negotiate a minimum effective corporate tax rate, which could potentially help developing countries to protect themselves from the worst forms of corporate tax avoidance. Progress to achieve agreement on this would require putting the interests and realities of developing countries in the front and centre of the negotiations, which is clearly not the case.
This is hardly surprising as the OECD’s Inclusive Framework does not allow all countries to participate on an equal footing. Countries are only allowed to participate if they sign up to the OECD and G20’s existing package on base erosion and profit shifting. Furthermore countries, even if invited to participate in the negotiations, cannot influence the pre-set mandate. The continued stalemates, delays and lack of inclusiveness of the “Inclusive Framework” makes it once again clear that the best place for negotiations and agreements on global tax rules is the United Nations.
The G20 committed to address global financing needs to ensure affordable and equitable access to Covid-19 treatment and vaccines. While this is positive , no steps have been taken to ensure that public national and international resources mobilised to support research and development as part of the Covid-19 response, are used to maximise public benefits and not pharmaceutical companies’ profits. A clear statement in this regard would have been expedient to give credibility to the G20’s own recognition of the role of extensive immunisation as a “global public good”.
Similarly, while we welcome that the G20 reaffirms the importance of Universal Health Coverage (UHC) financing in developing countries, it is concerning that nothing was said on public funding and the public provision of health services, which are critical to achieving UHC in developing countries and elsewhere. Efforts continue to be focused on initiatives to further the involvement of private sector financing in health provision, instead of mobilising national and international public finance for global health.
What’s more, the lack of attention to loss and damage in the Communique and discussions by G20 leaders is astounding, especially given the ongoing climate impacts faced by developing countries. Given the compounding nature of the Covid-19 crises, now is the opportune moment to establish a dedicated finance stream to address the losses and damages that they face. Anything less stands in contradiction to the G20’s stated commitment of ''safeguarding our planet and building a more environmentally sustainable and inclusive future for all people.''
It's also worrying to see G20 countries merely reaffirm their commitment to phasing out fossil fuel subsidies more than a decade after the initial commitment was made. Moreover, the use of terms such as ''clean'' and ''variety of fuels and technology options'', leaves the door open for gas and nuclear, thereby establishing a reliance on fuels that will be phased out. It's imperative that energy access for all means access to renewable and sustainable energy sources that provide opportunities for sustainable jobs, help to support cleaner air, and healthier communities.
Attention has now moved from Saudi Arabia to Italy and the Italian Presidency in 2021 to deliver in a way that the G20 failed to do this year.Experience has taught us that relying solely on a progressive US administration to effect change is unsustainable. Other G20 countries, for instance those from the EU who are a sizable part of the group’s membership,must uphold their historical and legal responsibilities within the Lisbon treaty to developing countries.
And yet, what we can expect the G20 to deliver will never be sufficient. For as long as it remains the case that most countries are barred from having a seat at the table, they will never be able to guarantee that their realities and interests are equally addressed. Only a truly multilateral process, through a UN Economic Reconstruction and Systemic Reform Summit will be capable of delivering the scope and scale of cooperation needed to recover from the crisis of the century.