South Africa will play an important international role in 2025 as president of the G20. The G20 is a group of 19 countries as well as the African Union and the European Union. Between them they represent 85% of global economy, 75% of world trade and 67% of global population. The G20 defines itself as the premier multilateral forum for international economic cooperation.
During its G20 presidential year, South Africa will host a summit of heads of state and government. It will also be responsible for organising and chairing about 200 meetings of ministers and officials. These will come from the G20 members, invited countries and international organisations like the International Monetary Fund and the World Bank.
The meetings will focus on issues such as the challenges facing the global economy and whether the current arrangements for global economic governance are able to respond effectively.
The G20 presidency, therefore, presents South Africa with an opportunity to promote reforms in global economic governance. But there are constraints. It will inherit an agenda from Brazil, the current G20 chair. And it will have to respond to developments in the current dynamic and complex global environment.
The IMF/World Bank spring meetings held in April in the US suggest some achievable objectives for the G20 next year.
There was a great deal of discussion about the inability of current arrangements to adequately address global challenges like climate, public health, inequality, poverty and digitalisation.
There’s not necessarily agreement on how to prioritise these challenges. And, unfortunately, the views of the rich states, which prioritise issues like carbon emissions, dominate the discussions. For example, the World Bank highlighted the fact that, in the 2023 financial year, it increased the funds loaned for climate-related purposes by more than 20%, allocating 41% of all its lending to climate. But its own survey of its borrower countries shows that climate ranks number 11 on the list of priorities of its borrower states. Health, education, agriculture and food security, and water and sanitation rank much higher.
Nevertheless, at least two gaps became evident in the discussions.
The first relates to IMF reform. The second concerns the relationship between international organisations and their member states.
South Africa should aim to fill these gaps. It should encourage the G20 to commission two studies on the scale and scope of the challenges that the international community faces, and propose some responses. Ideally, it should convince the G20 to commission these studies in 2024 so that it can begin discussing policy responses in 2025.
This kind of approach has been effective. Over the last few years, the multilateral development banks have been the subject of G20-commissioned studies. This has led to proposals designed to make them “bigger and better”.
Shortcomings
The need for IMF reform is becoming more urgent. It is adapting its operations to deal with the macro-economic impacts of issues like climate, gender and inequality. The IMF has created a Resilience and Sustainability Trust that is providing financing to 18 countries, primarily for adaptation. It is reviewing its Debt-Sustainability Framework for Low-Income Countries so that it incorporates these “new” issues.
These changes are being made in an opaque and unpredictable way, however. The IMF has not made publicly available the principles and procedures it uses when deciding what aspects of these “new” issues to take on. It can’t accurately assess the full impacts of these issues unless it understands how communities, workers, businesses and civil society organisations will respond to the social and environmental impacts of specific policy and fiscal initiatives with macroeconomic implications.
It cannot gain this information without consulting these groups.
This means it must engage more with a broader range of stakeholders than it did when it focused exclusively on more traditional macroeconomic and financial stability concerns. These new issues, therefore, raise questions about the appropriate form for the relationship between the IMF and its member states.
At the spring meetings, the Development Committee of the World Bank and the IMF “reiterated the importance of accountability mechanisms in enhancing development outcomes and stimulating internal learning and feedback.”
Yet the IMF remains the only international financial institution without an independent accountability mechanism.
The second gap relates to the fact that developing countries are spending more on external debt service than on health and education. This is undermining their efforts to deal with climate change, inequality and sustainable development goals. Some discussants also regretted that there was a net outflow of funds from the global south to the global north.
As some have noted, the amount of funding committed to new development financing initiatives by rich countries is paltry compared to what’s needed. This has led, for example, economic ministers from Brazil, Germany, South Africa and Spain to call for a global tax on billionaires.
This is an important and creative idea. But the proposal raises difficult questions about state sovereignty and about the design of the institutions of global governance.
What’s needed
While multilateral development banks have been the subject of G20-commissioned studies, the IMF has not undergone a similar examination.
South Africa should commission a group of experts to study how the IMF should change to take on these new issues. The study should look at IMF governance, operational policies and practices, and its financial needs. The purpose would be to identify the current shortcomings in structures and functions.
Experts should also think of ways to make the IMF more responsive to the needs and priorities of all its member states and their citizens.
Second, South Africa should call for a study of how best to divide responsibility between states and the international financial institutions. This is particularly important when it comes to the environmental and social impacts of operations.
The purpose would be to understand how the roles and functions of these institutions are evolving and how this is affecting their relations with their member states. The study could propose ways to ensure that the structure and functions of institutions are both respectful of state sovereignty and appropriate for the responsibilities that the institutions are assuming.
Raising a global wealth tax for developmental purposes could be one example used in this study.
