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‘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 now, 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.’ – An excerpt from the speech delivered by President of South Africa at ‘Summit for a New Global Financial Pact’ recently held in Paris

As the climate change crisis fast unfolds, with consequences being felt in both the high frequency at which single day temperatures keep peaking higher than recorded historically – at the back of around 1.1C rise in global annual average temperature since the Industrial Revolution, bringing ever so close to the 1.5C ceiling after which it will be virtually impossible to reverse the long-lasting impact of global warming in any meaningful way – and also in terms of the intensity and frequency at which climate disasters are happening, for instance, the catastrophic flooding in Pakistan last year, the urgency to deliver on both climate finance and a global financial architecture has become paramount.

Yet, the pace of a truly multilateral effort has been slow and inadequate to say the least; and quite weak in fact, given the correctly pointed out resentment of the African President at the Summit with regard to vaccine provision and manufacturing at the Summit.

In this regard, it needs to be pointed out that rich countries are required to come true on their climate finance related commitments – for instance, the rich, advance countries’ pledge back in 2009 for annual provision of $100 billion to developing countries still stands weakly complied upon, although President Macron of France, the host of the Summit, spoke that this pledge will be fulfilled going forward by rich, advanced countries – and in playing a meaningful role in improving the governance of multilateral institutions like International Monetary Fund (IMF) and World Bank to enable better provision of climate finance to developing countries.

While the World Bank has given commitment at the Summit with regard to introducing a debt pause clause for countries such as Pakistan suffering from a climate disaster, the level of finance being put on the table is far too low when seen in terms of climate finance needs of developing countries.

An article ‘Rich nations pledge to unlock hundreds of billions of dollars for climate fight’ recently published by Reuters highlighted in this regard: ‘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.

The leaders, gathered at a summit in Paris to thrash out funding for the climate transition and post-COVID debt burdens of poor countries, said their plans would secure billions of dollars of matching investment from the private sector.’

Similarly, the IMF has announced that it will facilitate in rechanneling of special drawing rights (SDRs) - that it allocated back in August 2021 to the tune of $650 billion but which went mostly to already rich countries, since it was wrongly allocated on the usual basis of how much a country contributed to IMF’s pool of resources – to low-income countries.

Two issues here are that only $100 billion will be made available by rich countries to be rechanneled, and more consequentially even this small amount in view of the immense need at hand – especially in the wake of little fiscal space, difficult debt burden, and high inflation that developing countries are faced with – will be provided as a loan, though at reportedly a subsidized rate.

As highlighted earlier, the level of climate finance is far too low, as pointed out by a recent article ‘Helping poorer countries fund the climate transition’ published by Financial Times: ‘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.’

A great champion, Prime Minister of Barbados, Mia Mottley, brilliantly fighting the cause of greater finance, and better financial architecture to meaningfully deal with poverty and climate change, especially for most climate vulnerable countries – like the island nation states, for example Barbados, where global warming means higher sea levels, and other countries like Pakistan where large extent of glaciers also adds to its high climate vulnerability –pointed out during the Summit that the pace at which the multilateral response on both these counts in relation to the fast-unfolding climate change crisis was slow.

She indicated in this regard‘…as we must give expression to do, the danger of inaction, or slow action, and the fundamental difference that committing and walking the walk, and not just talking the talk, will mean. …I ask us today to recognize that we cannot come to Paris but let our directors go back to the IMF for the World Bank and it be business as usual.

They do not act in their own interests. They act on behalf of our sovereign states and that is why we speak not only to the need for money, we speak to the need for the reform of the governance systems, because when these institutions were founded, our countries did not exist. And we speak for a complete transformation of securing the sources of capital as unpopular as it might be to voice it.

We do not ask for the bankruptcy of private companies… but we do ask everybody to share the burden so that we can share the bounty. And it therefore means that simply relying and holding only governments accountable, has run its course. And what is necessary now is for us to bring to the table also multinational corporations whose balance sheets dwarf more than two-thirds of the world…’

An important element of transformation of global financial architecture is to understand that the assault of neoliberal policy mindset will need to be reversed. For instance, under such mindset there has been overboard monetary austerity, which means that policy rate enhancement has been seen as the principal tool to deal with inflation – by raising it to squeeze aggregate demand – when it has been very clear that the high level of inflation almost everywhere has been a result of global supply shock due to the Covid pandemic, and accentuated by the war in Ukraine – not to mention the role of pushing for weaker regulations under the neoliberal assault also contributing to non-resilient supply chains under a major disruptive shock like pandemic, and also in controlling reportedly over-profiteering that low level of regulation of markets and supply chains has allowed.

This mindset – thrusted further on IMF programme countries like Pakistan, who having said have weak domestic resource mobilization effort traditionally – has created stagflation on a large scale globally, which further squeezed fiscal space to provide any significant level of climate budgets at national levels, needs to be reversed. Yet the Summit strongly appeared to remain silent on this very import reform need.

Highlighting the inadequacy, to which should be added the neoliberal role of World Trade Organization (WTO), for instance it’s wrongly supporting intellectual property rights (IPRs) even on Covid vaccine and that too during the heyday of the pandemic, calls for a similar neoliberal revision, a recent Project Syndicate published article ‘Rethinking Climate Finance for the Developing World’ by world-renowned economist Kenneth Rogoff pointed out: ‘While the Bretton Woods institutions serve an important purpose, their financial and governance structures, as well as their existing resources, are inadequate.

The International Monetary Fund and the World Bank primarily provide loans, not the outright grants that developing countries need. Moreover, these institutions’ governance mechanisms are designed to favor the interests of wealthy lender countries. To persuade developing economies to join the fight against climate change, they must be given a greater role in formulating global policy. The proposed funding must also be massive.’

Copyright Business Recorder, 2023

Dr Omer Javed

The writer holds a PhD in Economics degree from the University of Barcelona, and has previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7

Comments

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Azeem Hakro Jul 07, 2023 08:12am
Sir, the article overlooks the significant role of private sector finance in tackling the climate change crisis. Engaging the private sector is crucial for providing climate finance and ensuring their active involvement in addressing this issue. Furthermore, the article fails to address the issue of climate debt. Climate debt refers to the financial obligations of developing countries to developed nations for the damages caused by climate change. It is imperative to find a fair and equitable approach to address this complex issue.
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Omer Javed Jul 07, 2023 01:42pm
@Azeem Hakro, thanks. Firstly, the article indicates that the fast-unfolding climate change crisis requires a far better pace in terms of reforms and climate finace, from multilaterals, including the MNCs. Since, the article focuses on the multilateral aspect, so it only doscusses stakeholders' effprts and gaps from that perspective, and is not commenting on private sector domestically directly, but indirectly through overboard monetary austerity is highlighting fiscal space difficulties in terms of climate budgets (of both public and provate sectors). Secondly, climate debt in the way you rightly highlight has been focused upon, for instance, in what the commitments of rich, advanced countries, World Bank, IMF, and WTO. Hope this brings greater understanding. Thanks.
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Omer Javed Jul 07, 2023 01:49pm
@Azeem Hakro, second paragraphs edited for correction: Secondly, climate debt in the way you rightly highlight has been focused upon, for instance, in terms of the unfulfilled commitments of the of rich, advanced countries, with regard to climate finance, and also the slow pace of action with regard to climate change crisis (and during pandemic) by World Bank, IMF, and WTO; including identifying need for moving from neoliberal policy mindset. Hope this brings greater understanding. Thanks.
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