The world is in the grip of the existential threat of climate change crisis, mainly, and one of its main consequences has been the threat of Pandemicene, where the Covid pandemic– with all the health and financial crises that the humanity, especially the developing countries had to go through– unfortunately may not be the last such health crisis of such enormous global magnitude.
Yet, the needed global response, in terms of matching level of multilateralism, to the level of existential threat at hand, has been missing. Hence, during the last four decades, which is being seen by scientists as the tipping point after which the climate change crisis started to happen all the more quickly, and especially for a decade or so, when the pace of this crisis increased significantly much more, both in terms of annual average global warming temperatures breaking records in a number of years during this time, and during which time the coronavirus epidemic that had been resurfacing time and again, since it first appeared in the early 2000s in the shape of SARS, finally became a pandemic in 2019, in turn causing tremendous loss to life and the global economy.
A July 29, 2022 Reuters published article ‘Rich countries failed to meet their climate funding goal’ pointed out in this regard ‘Rich nations failed to meet a long-standing pledge to deliver $100 billion to help poorer countries cope with climate change, the OECD said on Friday. Back in 2009, developed countries promised that by 2020 they would transfer $100 billion per year to vulnerable states hit by increasingly severe climate-linked impacts and disasters.’
In the recently held ‘Summit for a New Global Financial Pact’ in Paris, the French President reportedly made a commitment that this pledge will be adhered to going forward. A recent Reuters published article ‘Rich nations pledge to unlock hundreds of billions of dollars for climate fight’ pointed out the main commitments flowing from this Summit, which it also indicated, was intended to improve the global financial system, and assistance for developing countries. The article highlighted ‘Multilateral development banks like the World Bank are expected to find $200 billion in extra firepower for low-income economies by taking on more risk, a move that may require wealthy nations to inject more cash, world leaders said on Friday..’
While these are good messages from the powerful corners of multilateralism, they seriously fall short of the needed funds to assist developing countries facing a difficult debt situation, and together with (wrongly) over-board monetary tightening globally making capital very expensive while debt repayments also becoming a very uphill task, and in turn, countries in the global South in particular left with little fiscal space to effectively spend on climate resilience, and managing the effects of climate disaster.
Also, the reportedly rechanneling of special drawing rights (SDRs) to the tune of $100 billion from the allocation of SDRs made by International Monetary Fund (IMF) back in August 2021 – when $650 billion were given by IMF globally as enhanced SDR allocation, but most of which went to already rich, advance countries, since the allocation was wrongly made on the usual quote-based criterion – is too little as compared to the calls made of around $3 trillion since the heyday of the pandemic.
Having said that, there was serious ‘resentment’ shown by the South African president at the Summit, and in fact, rightly so given the severe practice of vaccine apartheid, and lack of support of rich, advanced countries in terms of waiving of intellectual property rights (IPRs) related to vaccine production during the covid-19 pandemic. He emphasized this serious lack of spirit of multilateralism as follows: ‘I played a key role as chair of the African Union during the covid period. We felt like we were beggars when it came to vaccine availability. When we felt we needed access to vaccines, and the Northern Hemisphere countries had bought all the vaccines in the world, and they were hogging them. And they didn’t want to release them at a time when we needed them most. And we felt like we were begging, and at times it felt like there would just be droppings from the table, that yes, we will give you that and then. And let me tell you something that, that’s generated a lot of resentment. We resented that. And it got worse, when we said we want to manufacture our own vaccines. And when we went to the WTO [World Trade Organization], there was a lot of resistance. Enormous resistance. And we kept saying what is more important, life, or profits, by your big pharmaceutical companies. And that too, I must tell you know, generated and deepened that disappointment, and resentment on our part, because we felt like, life in the Northern Hemisphere is much more important than life in the global South.’
Insistence of policy in multilateral institutions like IMF and World Bank on primarily being based on Neoliberalism, and within it, austerity, means that the debt burden, both external and domestic, has kept on rising due to over-board monetary tightening globally in the wake of the pandemic, and aggregate supply shock significantly increasing inflation. That needs a serious revisit away from Neoliberalism, as one of the main steps to improve the global financial system, and in increasing both lending capacity of capital markets, and fiscal space of developing countries.
While the Summit showed some commitment to provide financial assistance to developing countries to better deal with the climate change crisis, yet the needs are far greater in this regard– not to mention lack of any significant commitment shown by advanced countries to cut down on carbon emissions, especially in the wake of the fast-closing window to keep the global warming from exceeding the temperature of 1.5⸰C– as pointed out by a recent Financial Times (FT) editorial ‘Helping poorer countries fund the climate transition’ as follows ‘In emerging market and developing countries excluding China, more than $2tn in investments each year is estimated to be needed to tackle climate change and its impacts by 2030; current investments are running at about $500bn.’
In fact, a November 2022 Report ‘Finance for climate action: scaling up investment for climate and development’ produced by ‘The COP26 and COP27 Presidencies, together with the UN Climate Change High-Level Champions’ pointed out with regard to needed climate change related expenditures that ‘Emerging markets and developing countries other than China will need to spend around $1 trillion per year by 2025 (4.1 percent of GDP compared with 2.2 percent in 2019) and around $2.4 trillion per year by 2030 (6.5 percent of GDP)…’
Moreover, the same article also highlighted that while it was important to raise more finances, the huge level of global debt also had to be dealt with from the viewpoint of that proportion of it that was due to the carbon footprint of advanced countries over the years. It indicated in this regard ‘Raising finance will not be straightforward. Total government debt currently equates to about $86tn. Around 60 percent of low-income countries are in debt distress, or at high risk of it. Many feel they should not be paying for the damage caused by historic emissions from industrialized economies. Competition to attract green investment is meanwhile heating up, and the private sector is put off by the higher cost of capital in developing countries.’
Having said that, insistence of policy in multilateral institutions like IMF and World Bank on primarily being based on Neoliberalism, and within it, austerity, means that the debt burden, both external and domestic, has kept on rising due to over-board monetary tightening globally in the wake of the pandemic, and aggregate supply shock significantly increasing inflation. That needs a serious revisit away from Neoliberalism, as one of the main steps to improve the global financial system, and in increasing both lending capacity of capital markets, and fiscal space of developing countries.
Having said that, a recent FT published article ‘Central bank chiefs warn interest rates will keep rising’ Hence, it is quite clear that while the Summit in Paris tried to send positive signals in terms of climate finance, and improving global financial architecture to make this happen, yet the same message in terms of an appropriate revisit of neoliberal policies, and the significance of the supply side in inflation determination since the heyday of the pandemic, and its lesser role in turn of fiscal stimulus and aggregate demand influence on inflation, is not being understood by central banks.
Therefore, such a policy revisit is not happening even after months of across-the-board monetary tightening– which has also caused rapid and deep capital flight from developing countries – and the mindset of major central banks indicating that this policy of monetary tightening is likely to continue, was highlighted by the same FT published article as ‘The world’s top central bank chiefs signalled their readiness to increase interest rates further and keep them high, as they warned tight labour markets are still pushing up wages and prices. The heads of the US Federal Reserve, the European Central Bank and the Bank of England warned at a conference in Sintra, Portugal, that more action may be needed to bring inflation down towards targets of about 2 per cent despite some economists’ predictions that further rate rises could trigger a recession or financial crisis.’
