Gates Foundation chief: US is a ‘stumbling block’ in development finance

While much of the world focuses on the horrors unfolding in Israel and Gaza, the IMF and World Bank representatives are in Marrakech this week meeting the world’s leading central bankers in the wake of the biggest global inflation shock for decades.

These annual talks on how to improve the global financial architecture, held in Africa for the first time in 50 years, will see the institutions make the case for a bigger lending and investment capacity.

They want to tackle sky-high levels of debt distress in the developing world, alongside climate change and poverty.

We have a double bill of interviews for you today on how leading figures in the development world are thinking about these complex financing challenges.

Read on for more from the president of the African Development Bank and the head of the world’s biggest philanthropic institution. (Kenza Bryan)

The US is a ‘stumbling block’ on development financing

The Bill & Melinda Gates Foundation, the world’s largest philanthropic group, has allocated more than $70bn in grant payments since it was created by Microsoft founder Bill Gates and his then-wife Melinda French Gates in 2000. 

Since then it has supported the developing world through climate disasters, debt defaults, the pandemic and violent conflict, sometimes working in lockstep with the IMF and World Bank to distribute funds where they are most needed. 

One of the group’s biggest challenges, though, is much closer to home, chief executive Mark Suzman, a former UN adviser, told me before the start of this week’s Marrakech talks.

“US politics is a very big stumbling block right now” for unlocking the resources developing countries need to adapt to climate change and fund development, Suzman said. “The gridlock is preventing progress . . . when we don’t have the US resources coming in it reduces the pressure on other countries.”

Suzman was referring to a stop-gap funding bill passed on September 30 to avoid a government shutdown, which sidelined a budget request to Congress to increase funds for aid in Ukraine — but also for international institutions such as the World Bank and IMF.

As development officials increase their focus on pushing emerging market economies to contribute more to development and climate finance, Suzman’s warning is a reminder that the US needs to put its money where its mouth is.

Washington has in recent years pushed for the World Bank’s balance sheet to “work harder”, for example by allowing shareholders to guarantee loans or invest in bonds, rather than increasing its funding. But this was no replacement for increasing direct financing, Suzman said. 

In particular, the International Development Association, the World Bank’s concessional lender, was approaching a financing “cliff”, with its current financing cycle ending in June 2025 and stretched by payments already made to alleviate the impact of Covid-19, he added.

Financing the energy transition was important, but the body must not lose its focus on helping deal directly with the “catastrophic effect on debt distress” in developing countries of rising global interest rates, Suzman warned. This has been driven in part by the Federal Reserve’s aggressive programme of interest rate rises to try to curb inflation in the US.

The debt payments coming due in Ghana, Ethiopia and Kenya next year were a particular concern, he said. “You need a set of activities to tackle the debt issue specifically.” Suzman expected “a lot of rhetorical commitments” at this week’s meetings, but said “concrete steps” might be sparse.

Providing a glimmer of hope, the Global Sovereign Debt Roundtable will meet tomorrow, bringing together debtor countries with Chinese and other major lenders to try to break the impasse on debt crises. (Kenza Bryan)

Adding the value of carbon to Africa’s GDP

The head of the African Development Bank (AfDB) has backed one of the most potentially high-impact ideas to come out of this year’s climate conferences so far: a proposal by African heads of state to recalculate gross domestic product figures to include the value of natural assets. 

Heads of state, in a communiqué led by Kenyan president William Ruto last month, edged closer to putting a price on natural resources, with the launch of an initiative aiming to produce 300mn carbon credits on the continent annually by 2030. They presented this as part of a wider effort to reshape the way in which national wealth is calculated.

Akinwumi Adesina, a former Nigerian agriculture minister who has served as president of the AfDB since 2015, threw his weight behind this agenda in an interview with Moral Money.

“If it [the African continent] has so much carbon that it is sequestering for the world, why is that natural capital not part of its wealth?” asked Adesina. “We need to revalue the wealth of Africa . . . by taking into consideration its natural capital.”

Including the value of rainforests, mangroves and lakes in national GDP figures could, in theory, push up these wealth indicators, he argued, which would in turn lower debt-to-GDP ratios of individual countries and make it easier to obtain financing. 

Cambridge professor Partha Dasgupta, whom we interviewed in a previous edition, helped build the principle at the heart of this, by expanding and professionalising the field of ecological economics. 

Adesina emphasised the vast potential of the Congo Basin rainforest which, according to the UN, stores approximately three years’ worth of global greenhouse gas emissions. “People write about the Amazon, but I don’t know how many people actually realise the Congo Basin is much larger in terms of carbon,” he said.

Alongside longer-term discussions about creating a market for natural assets, the AfDB is still committed to raising more funds from the international community for direct investments. It has committed $12.5bn for the Africa Adaptation Acceleration Program, which focuses on food security, infrastructure and youth employment. The bank is looking to raise the same amount again for the project through different financial instruments such as grants, loans, guarantees and risk-sharing mechanisms.

It will also continue to plug its proposal to redirect special drawing rights (SDRs) — an IMF reserve asset — at meetings of the IMF and World Bank this week. And Adesina said he wanted to take the bold move of asking the IMF to start a new issuance programme for these assets that would support climate and development issues. “They can easily do new ones,” he said. “We have to get the maximum out of the instruments.”

For demands of this scale to gain traction on the international stage, the bank must continue to prove that it can be trusted with public funds. The FT’s David Pilling wrote in August that a $55mn integrity fund administered by the bank had not disbursed any money on its stated anti-corruption purpose, seven years after its launch. Discussion about how best to manage these funds was still taking place at board level, Adesina told me.

I also wanted to get a sense from him of the discussions he would be having at the UN’s COP28 climate summit in Dubai, which starts on November 30.

“COP28 is not about rich countries,” he said. “COP28 is about the poor in Africa that are suffering from climate change, from those in the small island states that are [experiencing] a deluge of cyclones.” 

Despite these bold statements, he was reluctant to criticise COP28 president Sultan al-Jaber, chief executive of the Abu Dhabi National Oil Company, who has pushed for a slower timeline, compared with the EU, for the phaseout of fossil fuels produced without the capture of emissions. Jaber “has made the point that, for the oil and gas industry, the whole issue is about phasing down”, Adesina said. (Kenza Bryan)

Smart reads

• Joe Biden’s plan to boost the financial might of the World Bank and the IMF is clearly explained in this FT Big Read. Rethinking the economic order that America and its allies spearheaded after the second world war is no mean feat — in part because of the outsized influence of China in emerging market debt deals. 

• Africa is paying more in debt service each year than the amount it needs to invest in climate resilience, Adesina wrote for the New York Times this week alongside Kenyan president William Ruto, the chair of the African Union Commission and the chief executive of the Global Center on Adaptation.

Source: Economy - ft.com