V20 Group warns at Africa Climate Summit: World needs fit-for-climate global financial system now
Nairobi, 5 September 2023 – The Vulnerable Twenty Group of Ministers of Finance (V20 Group) called on international financial institutions to move “with a greater sense of urgency towards a fit–for–climate global financial architecture ready to enable stronger climate action by driving sustainable development for the most vulnerable and scaling up access to and volume of financing.”
President William Samoei Ruto, President of Kenya and host of the Africa Climate Summit, said, “Africa is ushering in a new era of international solidarity and multilateral governance to guide the world in climate action and a new Green Industrial Age. African nations are emerging as the new torch-bearers of the most impactful climate action. At the summit, we aspire to start a new growth agenda that will deliver shared prosperity and sustainable development.”
Following the lead of President Ruto, who met with Ghana’s President and Climate Vulnerable Forum chair Nana Akufo-Addo during the summit, finance ministers from the two countries and other V20 member economies in Africa expect the summit to show that financing can be dramatically scaled and accelerated in order to defuse the debt and climate crises as well as avoid global economic conflagration. The V20 Group called for the full integration of the V20 Accra-Marrakech Agenda in the summit’s Nairobi Declaration.
“We refuse to pursue the same path while hoping for different outcomes. No more. We expect nothing less than a fit-for-climate global financial system. We need to make debt work, to normalize the integration of loss and damage funding through the MDB system, revolutionize how we manage risk, and generate new resources through guarantees and credit enhancement that can offset high capital costs for climate investments.” This was according to the Ghanaian Finance Minister and the V20 Chair Ken Ofori-Atta, who was represented by Minister of State Dr. Mohammed Amin Adam at the V20 event hosted in the African Union pavilion at the summit.
“Our focus is prosperity, not mere survival. Expect the V20 to continue to shake the tree of complacency and demand immediate action,” Ofori-Atta added.
Climate change has exacerbated loss and damage as well as indebtedness across Africa. Between 2000 to 2019, 55 V20 economies lost 20 percent of their wealth due to climate change impacts, equivalent to USD 525 billion in aggregate dollar terms. It is also estimated that 40 V20 economies are in debt distress. External sovereign debt of V20 countries together almost doubled between 2008 and 2021, from USD 295 billion to USD 818 billion. Over the period of 2022-2029, total debt service payments by V20 countries would reach USD 552 billion.
Moreover, bond spreads on private capital for V20 African countries have pushed upwards to over 900 basis points, further making the cost of capital out of sustainable reach. According to the Debt Relief for Green and Inclusive Recovery (DRGR) report released today, debt service costs represent 93 percent of climate finance needs in Africa.
Njuguna Ndung’u, Kenya Cabinet Secretary, National Treasury & Economic Planning, asked: “When do we get solutions that are formidable and appropriate in scale that are appropriate for the future? How do we address the climate and debt crises to provide momentum for growth? The international financial reform agenda must create fiscal space to deliver SDGs by 2030 through climate action. It is important that we build critical mass support for climate vulnerable economies around climate prosperity with the aim to deliver on catalytic deals that unlock new long-term sources of capital or deals that would be crucial to changing market economics.”
“It is time for African money to work for Africa’s people,” added UN Assistant Secretary-General Ahunna Eziakonwa.
Also speaking at the V20 event were World Bank senior managing director Axel van Trotsenburg; South Sudan member of parliament Woda Jeremiah Jago, European Climate Foundation CEO Laurence Tubiana, Task Force on the IMF member Kevin Gallagher; and Pepukaye Bardouille, Bridgetown Initiative Director and Special Advisor on Climate Resilience to the Prime Minister of Barbados.
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NOTES TO THE EDITORS:
About V20 Group:
Ghana is the current Chair of the Climate Vulnerable Forum (CVF) and the Vulnerable Twenty (V20) Group of Finance Ministers. The V20 Group is a dedicated cooperation initiative of economies systematically vulnerable to climate change. The CVF/V20 represents 68 countries, representing some 1.74 billion people and USD 3.8 trillion in GDP. Members of the V20 are:
Africa & Middle East
Benin, Burkina Faso, Chad, Comoros, Côte d’Ivoire, Democratic Republic of the Congo, Eswatini, Ethiopia, The Gambia, Ghana (Chair), Guinea, Jordan, Kenya, Lebanon, Liberia, Madagascar, Malawi, Morocco, Mozambique, Namibia, Niger, Palestine**, Rwanda, Senegal, Sierra Leone, South Sudan, Sudan, Tanzania, Togo, Tunisia, Uganda, Yemen.
**As a UN non-member observer state.
Afghanistan, Bangladesh, Bhutan, Cambodia, Fiji, Kiribati, Kyrgyzstan, Maldives, Marshall Islands, Mongolia, Nepal, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Sri Lanka, Timor-Leste, Tonga, Tuvalu, Vanuatu, Vietnam.
Latin America & Caribbean
Barbados, Colombia, Costa Rica, Dominica, Dominican Republic, Grenada, Guatemala, Guyana, Haïti, Honduras, Nicaragua, Paraguay, Saint Lucia, Trinidad and Tobago.
Action Items for Urgent and Decisive Action to Reform and Transform the International Financial Architecture in support of the Nairobi Declaration:
Improving Global Governance
1. Finalise G20 membership for the African Union, providing a voice for 1.5 billion Africans.
2. Finalise V20 recognition as a Group in the IMF, providing a voice for 1.74 billion people where over half the population resides in Africa.
3. The IMF’s quota-based resources should be increased to reflect the need for an orderly transition to a climate-positive, resilient economy and addressing loss and damage, and it is paramount for any alteration in quotas strengthen or preserve the voice and representation of V20 members.
4. Reform and transform debt relief and debt sustainability, through the establishment of the Global Expert Review on Debt, Nature and Climate ahead of COP28, championed by Kenya, Colombia and France, and the V20, to assess the impact of debt on low- and medium-income countries capacity to preserve nature, adapt to climate change and transition and transform their economies.
Call to Action
1. Rapidly scale the use of sovereign and MDB credit enhancement mechanisms, including guarantees and blended finance, to increase access to affordable finance including through local currency financing.
2. Improve access to the IMF Resilience and Sustainability Trust, by removing the requirement to have a concurrent IMF program to enable countries that need the Resilience and Sustainability Facility (RSF) access the financing.
3. Normalise rechannelling of SDRs to MDBs, in particular the AfDB, enabling these MDBs to facilitate new borrowing of up to four times SDR value. The support of at least five developed nations should be secured.
4. Call on MDBs to formulate plans for a general capital increase to boost low cost financing while concurrently pursuing balance sheet optimization measures by Springs 2024 as called for in the G20 Independent Expert Group report on Strengthening MDBs.
5. Explore the full range of capitalization options including issuing bonds to be held by central banks in perpetuity as equity contributions.
6. Immediately increase external low-cost finance for the SDGs and climate action, including by: (1) ensuring financial sustainability of the IMF’s Poverty Reduction and Growth Facility (PRGT) and Catastrophe Containment and Relief Trust (CCRT) through enhanced pledges; (2) scaling up towards a tripling of available resources for the World Bank’s International Development Association (IDA) through donor contributions, IDA bonds, balance sheet optimization; and (3) securing a high-quality, quantitatively ambitious, new collective quantified goal on climate finance in UNFCCC negotiations, with little to no reliance on financing that leads to unsustainable debt, while ensuring accountability of developed countries to meet their prior commitments to deliver climate finance.
7. Promote long term fiscal discipline through the Sustainable Budgeting Approach to mainstream fiscal policy that supports both development and climate finance needs. The effect of this approach will be to increase market confidence, transparency, and fiscal stability, leading to improved credit ratings and lower costs of finance.
8. Fund project preparation financing and deal making to boost the pipeline of investable development positive climate projects in Africa reaching financial close.
9. The UNFCCC Loss and Damage Fund must be resourced by COP28 to build social protection systems to reach the most vulnerable communities including human mobility and budget support for climate vulnerable economies to climate vulnerable economies to restore critical infrastructure and services. Having pioneered the V20 L&D window as a means to demonstrate not only desirability but also viability of regularising L&D response and scaling this up as well.
10. Structured and adapted response to future crises based on pre-arranged and trigger-based funds and financing as spearheaded by the G7-V20 Global Shield against Climate Risks to build regional and global protection systems, especially through the development of new partnerships among central banks to offer liquidity facilities including climate contingent swap lines.
11. The mobilisation and allocation of resources based on historical responsibility while advancing international carbon levies and taxes on shipping, aviation, oil, and gas, which may include a floor tax of at least 15% in order to fund adaptation and loss and damage. Equally important is to ensure a just transition where a carbon levy on shipping at 100 USD/ton can create USD 80 billion dollars in new financing a year of which 49% of that can go to transforming the shipping industry including social protection and skills upgrade for the workforce and 51% to finance low-carbon transformation, adaptation, resilience toolkit and loss and damage.
12. Recalling the V20 call for a New Deal on Carbon Financing, we seek the delivery of carbon exchanges to realise near-term investments for development positive climate projects and programs that deliver fair-share action and integrity which can be credited to relevant investments. Within the New Deal on Carbon Financing, we call on the IMF and other actors to become carbon banks to safeguard macroeconomic stability by recognizing natural capital assets, where carbon exchange can be credited to debt repayments.
13. All institutions to normalise climate resilient debt clauses, as kick-started by the World Bank, with positive net-present value for bond issuers and a broad definition for climate and other shocks, noting that unexpected shocks are one of the most common drivers of African nations entering debt distress.
14. Transform sovereign credit rating methods to recognise and reward progress in economic transformation while establishing minimum standards for transparency, and in so doing, increasing the accountability of credit rating agencies.
- Accra-Marrakech Agenda (A2M)
- ACF White Paper on Priorities for an Equitable Reform of the Global Financial System
- Bridgetown 2.0
- Emergency Coalition on Debt Sustainability and Climate Prosperity
- UN Economic Commission for Africa Conference of Ministers 2023 – Resolution 2023/11 on “African High-level Working Group on the Global Financial Architecture” and Resolution 2023/7 on “Advancing the sustainable debt coalition initiative in Africa and beyond”
- V20 Ministerial Dialogue X Communique
- V20 Ministerial Dialogue IX Communique