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When world leaders meet in Paris later this month to discuss a New Global Financing Pact, they urgently need to find ways of channeling more resources to the poorest of the poor—the 3 billion rural dwellers who live on the frontlines of climate change.
The global financial rules we have now, conceived 80 years ago to meet the challenges of a different epoch, are long past their sell-by date. Intensifying climate change, hunger, war, and pandemics keep low-income countries trapped in poverty. And with dollar interest rates rising, these countries now face impossible choices between repaying debt or paying teachers and health workers.
At the summit convened by French President Emmanuel Macron, leaders from the Global South are expected to plead for debt relief. They will also ask high-income countries to make good on promises of billions of dollars in climate finance—dollars that have not come, even as the world's poorest countries experience some of the worst impacts of climate change.
Paris offers an overdue opportunity to revisit the rules of international finance, which are stacked against the world's poor, and which ignore their enormous contribution to global food security and global stability.
The 3 billion at the bottom of the global wealth pyramid, are in the main, small-scale farmers who grow up to 70 percent of the food produced in low- and middle-income countries.
With the right investments in climate-smart techniques, infrastructure, training, and financial services, these rural communities could adapt to climate change, grow their businesses, and escape poverty.
But many developing countries can't afford these investments today. At least 54 developing economies, including 28 of the most climate-vulnerable countries on Earth, are currently experiencing severe debt distress. Without additional funding for climate adaptation and sustainable development, these countries will fall into a downward spiral of growing hunger, poverty, and forced migrations.
At present, rural populations have just three options: adapt to a changing climate, migrate in search of better economic opportunities, or starve. Without funding for climate-smart investments, the first of these options remains out of reach.
To succeed, the summit must first rebuild trust between the Global North and South. That means wealthier countries should at last deliver the $100 billion per year for climate finance that they promised back in 2009.
Second, they must fully replenish existing international financial institutions. Properly funded, agencies such as the International Fund for Agricultural Development (IFAD) can leverage significant additional financing and turbo-charge their impact on the ground. Since 1977, IFAD has turned every donor dollar into $6 of investment in rural areas to strengthen food security and fight poverty. It makes no sense to withhold funding from such demonstrably effective institutions.
Third, world leaders need to fast-track action to bolster struggling economies and reverse the recent upsurge in hunger and poverty.
One way they can do this is by redirecting excess Special Drawing Rights (SDRs) via international financial institutions from wealthy countries to poor ones. The SDRs were designed by the International Monetary Fund (IMF) in the late 1960s to support countries with liquidity challenges. The instrument should now be used for climate challenges. Developed countries have reallocated part of their excess SDRs, but we need to raise our ambitions, reallocate more SDRs, and turn this monetary instrument into one for development. Channeling SDRs through international financial institutions does exactly that and ensures that some of the SDRs can be invested in rural areas.
We also need a more effective process for restructuring the obligations of debt-distressed countries. Few governments have applied to the existing G20 Common Framework, set up at the end of 2020 to provide debt relief. This is because the framework lacks agreement on the comparable treatment of public and private creditors, meaning that its use could trigger a downgrade of a country's credit rating and hence even higher borrowing costs.
We need to put an end to this Catch 22 situation. Countries should not have to face penalties for seeking to restructure debt under the current extraordinary circumstances. Low-income countries in particular urgently need debt relief and additional funding to finance climate adaptation and rural development. Let's not forget that investment in agriculture is two to three times more effective at reducing poverty than investment in any other sector.
Lastly, the Summit for a New Global Financing Pact must find a way to catalyze private-sector investment on a massive scale. Public funding alone cannot provide the $330 billion needed to eradicate hunger by 2030, let alone contain global warming and mitigate its effects. We need to create an environment that incentivizes private firms to invest in rural Small and Midsize Enterprises (SMEs) and small agribusinesses, creating jobs and growth where they are most needed. This requires improved financing options and stronger collaboration between public and private sectors to create an enabling environment and reduce the risks for private investors.
The Paris summit must address the most glaring shortcomings of the current global financial order. It's a chance for our leaders to build the fairer world we all want.
Alvaro Lario is president of the International Fund of Agricultural Development (IFAD).
The views expressed in this article are the writer's own.
