The Paris Summit on 22-23 June brought together around 50 heads of state and scores of representatives of international, private-sector, and civil-society organisations to discuss a “New Global Financing Pact.” The idea was proposed at the UN COP27 Climate Conference in Sharm El-Sheikh last November in a session co-chaired by Barbados Prime Minister Mia Mottley and French President Emmanuel Macron.
After six months of preparations and give-and-take over the arrangements for the Paris Summit, attention turned to the closing session, in which Macron summarised the main points in his capacity as its “scribe,” as he more than once put it. One was reminded of the famous ancient Egyptian statue of the Seated Scribe, which offers some perspective on the history of international cooperation and the success, or failure, of summit diplomacy.
It would be something of an exaggeration to describe the diverse arrangements that regulate international financial transactions as a “system” at all. British economist Andrew Crockett made this point in 2009 in the aftermath of the world financial crisis. He was serving then as director of the Bank for International Settlements (BIS) at the time, and he was calling for reforms. However, he also anticipated that the current model would continue, even if slightly modified by an increase in regulation.
Crockett’s predictions later came true, regardless of claims to the contrary. He was also not the first to have called for significant changes with a view to creating a genuinely complete and comprehensive world financial system.
Can we assume that the lessons of previous crises have now been grasped and that the Paris Summit will usher in tangible changes to the current international financing “system”? Was there, as the headline of an article on the Project Syndicate Website put it, “A Financing Revolution in Paris?”
Unfortunately, the answer to both questions is no.
I sincerely hope that the coming days will prove me wrong, but a “revolution,” meaning a transition to a more efficient and more just global financial system, or at least a qualitative positive shift in the practices within the current system, will require more ambition than was shown at the Paris Summit, together with the practical steps to achieve it and a conducive political climate.
However, bearing this in mind, there were still some positive messages that came out of the Paris Summit.
In the past, funding priorities have been needlessly confused as a result of the deliberately perpetuated argument that climate action conflicts with sustainable development and vice versa. The COP27 Conference in Sharm El-Sheikh succeeded in arguing the opposite and underscoring the need for climate action to be incorporated into a comprehensive approach to sustainability.
The framework advanced in Sharm El-Sheikh stressed that little good can come from climate action that increases poverty, unemployment, and risks to long-term growth. The developing nations have been pressing this point for a long time, and it appears it found an encouraging echo in the article signed by the French president and 12 other leaders from developing and developed nations coming out of the Paris Summit.
The signatories to this article, entitled “A Green Transition That Leaves No One Behind,” acknowledged that interrelated shocks and crises have intensified poverty, debt, income disparity and climate deterioration and agreed to work together to address these problems.
Another positive development from the Paris Summit came from the sidelines of the meeting in the form of news of a $2.74 billion (2.5 billion Euros) Just Energy Transition Partnership (JETP) between the G7 group of nations and Senegal to finance the latter’s renewable energy sector and transition to a low-carbon economy over the next three to five years.
However, this deal says nothing about the rest of Africa, which is also required to invest in decarbonisation in the hard to abate industries such as steel, fertilisers and cement. The G7 has yet to take steps to address this matter, including serious studies of it, despite the vast potential of the field.
It was also announced at the Paris Summit that, after years of strenuous negotiations, Zambia has reached a deal with the G20 group of countries to restructure half of its $13 billion foreign debt.
Many activities during the summit reflected the developing role of government partnerships with the private sector and civil society on climate action and development in areas such as carbon markets, green hydrogen, and debt-for-climate swaps. Sessions were also dedicated to discussing new financing and credit-facilitation instruments proposed by international financial organisations and ways to reduce risks and increase returns on investments.
The leaders of the developing nations, especially in Africa, appeared more coordinated, as was evident in their demands for debt reduction, more financing and technical cooperation, and greater trade opportunities, in conjunction with their emphasis on the need for the developed nations to come through on their declared commitments to financing development and climate action.
These points, together with an account detailing the extent to which these commitments have actually been met, were reflected in the last session where details of a semi-annual performance report were given.
While steps were taken in the right direction at the Paris Summit, the challenges and opportunities of today’s world demand a greater degree of resolution and persistence to surmount the obstacles to sustainable development.
We have passed the halfway mark in the timeframe established for achieving the UN Sustainable Development Goals (SDGs). As the situation stands, less than 15 per cent of the SDGs goals will be reached by 2030, while more than 50 per cent of them are of target. Thirty per cent are even worse off than they were back in 2015.
To say that the implementation of the later agreement has been slow despite the many commitments made under it would also be an understatement. If the goals set out under the agreement are to be achieved, an immediate remedy must be found for the debt crisis that has become increasingly severe for the developing nations. Debt-servicing costs are increasingly gnawing away at the funds available for education and healthcare, not to mention those available for mitigating the impacts of climate change on the lives and livelihoods of the population as a whole.
An international community that has financial institutions with constraining capital will never be able to meet the needs of climate finance and development. The lack of the necessary capital turns the assumptions made at the Paris Summit about the ability of these institutions to offset risks for the private sector and promote innovative financing methods into daydreams.
In the world of finance, small is not always beautiful. Promises of billions will not bridge funding gaps of trillions, especially when the money comes in dribs and drabs and, more often than not, is also late.
* This article appeared in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 6 July, 2023 edition of Al-Ahram Weekly