A big push to boost multilateral development banks’ ability to provide cheap finance to developing countries will be one of the focus areas for the G20 finance track as it works to tackle the debt trap faced by many low-income countries.
South Africa also intended to use its presidency of the global forum over the coming year to ensure it pays particular attention to Africa’s needs and intended to establish a G20 Africa expert panel to support the G20 finance track, finance minister Enoch Godongwana said.
He was speaking as the finance track of the G20 began meetings in Sandton in Wednesday before its first summit of G20 finance ministers and central bank governors in Cape Town in February. The finance track, which runs alongside the broader sherpa track of the G20, is the original forum of central bankers and finance ministers which dates back to the late 1990s emerging markets crisis.
UN secretary-general Antonio Guterres, who made a surprise appearance at the G20 meeting, called for the G20 to lead on “financial justice”.
“We need to make a strong bet on bigger, bolder multilateral development banks,” he said, in remarks which aligned closely with the priorities South Africa has set for its G20 presidency.
Financing for development is expected to be high on the global agenda in 2025, with the G20’s February meetings in Cape Town running alongside the fifth finance in commons summit in Cape Town and before the UN’s fourth finance for development summit in Spain in July.
Emerging markets including South Africa have long pushed for reforms to the architecture of global financial institutions, such as the World Bank and IMF, to ensure a greater voice for low income and developing countries.
But with many emerging market and developing countries struggling with high and costly debt levels, there’s been a growing push in recent years to develop alternatives to aid money or expensive market financing, through expanding the role of concessional multilateral financiers such as the World Bank, African Development Bank (AfDB) and New Development (Brics) Bank that can provide finance on more attractive terms that will not cripple highly indebted countries.
Under the previous Brazilian presidency, the G20 agreed a “road map towards better, bigger and more efficient multilateral development banks”.
Godongwana said now the focus would turn to implementation and monitoring of this initiative. Scaling up multilateral development banks finance would help to wipe out the expensive market funding causing debt distress in some African countries.
“The difficulty is the multilateral development banks themselves have to scale up the borrowing on a concessional basis. That’s the key thing that has to happen so you are able to deal with other bondholders,” he said.
The difficulty is the multilateral development banks themselves have to scale up the borrowing on a concessional basis. That’s the key thing that has to happen so you are able to deal with other bondholders
— Finance minister Enoch Godongwana
One mechanism is to transfer part of the special drawing rights allocated to all IMF member countries, in proportion to their shareholding, from richer to poorer countries via the multilateral development banks.
Godongwana said the developed world did not need those special drawing rights, which must be taken back and given to the AfDB if needed to finance developing nations. There was space already, with about $60bn (R1.05-trillion) having been transferred to the AfDB, but more work and more pushing was needed, he said.
There were countries facing acute liquidity challenges which if not addressed could result in solvency challenges and the G20 would also keep its focus on enhancing debt sustainability through the common framework, he said.
South Africa has since 2020 taken advantage of more than $11bn (R194.11bn) of concessional and climate financing from multilateral development banks, which offer cheaper than market rates on long-term loans, often with lengthy grace periods before they have to be repaid.
Godongwana again responded to the attack that US president-elect Donald Trump recently launched on countries that reportedly threatened to ditch the dollar.
“There’s never been a debate about de-dollarisation in the G20, there’s never been a debate about de-dollarisation in Brics,” Godongwana said, noting that 75% of South Africa's external debt was dollar denominated.
South Africa also proposed a stock take of the G20 finance track alongside the review of the G20 itself that the country proposed to make the forum more agile and effective.
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