The journey to reform the international financial architecture: a long and winding road

As COP29 gets under way in Baku, it represents the latest in a series of intergovernmental discussions designed to address the climate, nature and inequality crises. Amid this crowded season of summits, IIED’s Laura Kelly takes a moment to reflect on ongoing efforts to reform the international financial architecture and the way forward in this long journey.

Laura Kelly's picture
Insight by 
Laura Kelly
Director of IIED’s Shaping Sustainable Markets research group
12 November 2024
Collection
UN climate change conference (COP29)
A series of pages related to IIED's activities at the 2024 UNFCCC climate change summit in Baku
Two people bending down, cooking in a pot set over an open fire. This was part of a cooking demonstration for the village.

The World Food Program and a consortium of five NGOs provided cash transfers in Niger to vulnerable households, as well as emergency food assistance (Photo: EU Civil Protection and Humanitarian Aid, via Flickr, CC BY-NC-ND 2.0)

When it comes to global efforts to address the climate, nature and inequality crises, the last quarter of the year is often a busy one. 2024 has been no different. Late October saw the 2024 International Monetary Fund (IMF) and World Bank Group Annual Meetings taking place in Washington DC. At the same time the UN biodiversity conference (COP16) was being held in Cali, Colombia. 

Meanwhile this week, governments, civil society and others have gathered in Baku, Azerbaijan, for the UN climate conference, COP29. G20 leaders will also meet in Rio De Janeiro, Brazil, for their annual summit, during the second week of COP29. Then in early December donor governments will meet in Seoul, South Korea, to agree the replenishment for the World Bank’s most concessional financing instrument, the International Development Association (IDA).

One obvious, initial reflection is that these processes need to coordinate their scheduling better to avoid the risk of parallel discussions on the same issues. But there is also the deeper issue of how to break down the siloes and better link these discussions.

Annual meetings: main takeaways

So, what are some of the main takeaways from the IMF-World Bank Group Annual Meetings? My big picture reflection is that with many low-income countries experiencing severe debt distress, efforts to modernise the financial architecture are dragging on. Plus, the clock is ticking for climate and development goals – and yet there is a worrying lack of any sense of urgency. 

IDA is a key source of finance for climate as well as for development. This part of the World Bank provides vital financing to low-income countries. As IIED research has shown (PDF), with more cash flowing out of developing nations as debt repayments than coming in, IDA is a lifeline. 

Last month’s annual meetings represented the last big chance to rally support before the IDA replenishment in December: it was also a litmus test for how serious donor countries are about international cooperation. 

This ties into the COP29 summit in Baku, where a new climate finance goal is set to be decided. Given that multilateral development banks are the largest sources of climate finance, the stakes are high. Denmark, Spain, Latvia and Poland have already made ambitious new financial commitments to the IDA. However, the major donors have remained silent and France has announced cuts to its development budget.

Bretton Woods anniversary: slowing momentum

This year marked the 80th anniversary of the Bretton Woods Conference that established the current global economic institutions, namely the IMF and the World Bank. The anniversary has provided a backdrop to demonstrate real progress on reforms to make the institutions more equitable and adapt them to meet today’s challenges. 

The World Bank had made some progress on reforms over the last couple of years and is working to increase focus on impact and data, with its new scorecard. It has also launched CIVIC: the new Civil Society and Social Innovation Alliance programme to work with civil society organisations. However, it feels like momentum has been slowing. 

While the World Bank is beginning to move, the IMF lags behind. It has taken some steps to better integrate climate change into its work: but given the extent to which this issue affects low-income countries’ economic prospects, more is needed.

With the IMF’s managing director Kristalina Georgieva starting her second term last month, and with all the 80th anniversary talk, many hoped this would be the moment for bolder moves. The IMF has made some progress on debt, but we still need a whole suite of reforms (such as integration of climate and nature into the Debt Sustainability Analysis) to spur economic growth and increase investment consistent with achieving climate and development goals.

Accelerate action on global finance and climate

Within this context, concrete proposals on what needs to change – and how – are still being made by global South countries. For instance Mia Mottley, the Prime Minister of Barbados, has reiterated the calls of the Bridgetown Initiative 3.0 which launched in June, highlighting the urgent need to unlock more finance for adaptation and help shockproof economies from natural disasters. Its goal is to create a more equitable system and help drive long-term economic growth.

Looking down the road ahead to the outcomes of COP29, the G20 summit and IDA replenishment – and looking beyond into 2025 and the uncertainties of a new American administration – it is clear that action on global finance and climate change needs to speed up and must become much more coordinated. Any failure to do so will have implications for all of us.