Work in progress

G20 agenda needs sustained engagement

As widely expected, the third meeting of the G20 finance ministers and central bank governors (FMCBG) ended on Tuesday with an outcome document and chair summary. A joint communique could not be issued because of the differences over the Ukraine issue. China argued that the FMCBG meeting was not the right place to discuss geopolitical issues. However, as Union Finance Minister Nirmala Sitharaman clarified, the statement has been derived from the Bali summit, and it must be left to the leaders to take a call in September. Besides this valid technical reason, the issue perhaps cannot be overlooked because the Ukraine war also poses a considerable risk to global macroeconomic and financial stability. Russia, predictably, disagreed with the communication document because of the reference to the Ukraine war.

Despite the differences, the group made some progress on crucial issues, although the actual outcome will depend on how the negotiations move forward and how different members position themselves on various issues. The group, for example, re-emphasised the need to address vulnerabilities related to debt in low- and middle-income countries. This is crucial for ensuring growth and stability in such countries. There has been some progress in the context of countries such as Zambia and Ghana. But the actual resolution of the debt issue will depend on the extent to which the lenders are willing to take a hit. It has been reported that China, which is a big bilateral lender, is still not in agreement with the common understanding of the issue. Similarly, the group discussed the strengthening of multilateral development banks (MDBs). In this context, a G20 independent expert group has submitted one volume of its report, and the second volume is expected to come in October. To be sure, the issue of reforms, along with increasing the lending capacity of MDBs, has been on the table for some time without making much progress, primarily because of the reluctance of the developed world. US Treasury Secretary Janet Yellen, for example, noted that an increase in capital must be explored only after reforms have progressed. It remains to be seen what the expert group recommends and how it is perceived by the G20, particularly the developed countries.

Similarly, the group reaffirmed the commitment by developed countries to mobilise climate finance worth $100 billion per year. But the flow of funds to vulnerable countries has not been as desired. Thus, while it’s encouraging that the group has reaffirmed its commitment, it needs to develop a mechanism to enable the flow of both funds and technology to low- and middle-income countries that are more vulnerable to climate change. In terms of macroeconomic management, the group reiterated the need for well-calibrated fiscal, monetary, and other structural measures to promote growth and maintain financial stability. Central banks are expected to clearly communicate their policies to help limit spillovers. Similar points have been made in the past, but central banks are guided by their domestic mandates. Better communication alone cannot contain policy spillovers. Several countries are facing macroeconomic challenges because of policy choices made in the developed world, and its implications on the cost and availability of capital. What is perhaps needed is to find ways to help such countries deal with big policy transitions. Overall, while the group made progress in Gandhinagar, continuous dialogue will be needed to address some of these complex and layered issues.