India’s G20 Presidency was significant as it helped the country rediscover its true identity as a member of the Global South after many years.
This happened on the day that India took over the Presidency of the G20 on December 1, 2022 when Prime Minister Narendra Modi sent out a strong political message that “our G20 priorities will be shaped in consultation not only with our G20 partners but also with our fellow-travelers in the global South, whose voice often goes unheard.”
The prime minister repeatedly highlighted the need to address the aspirations and concerns of the “global South”. India almost positioned itself as the leader of the global South it once was.
India’s leadership role became more evident, especially through its successful efforts to secure permanent membership for the 55-member African Union (AU). The induction of AU was the most significant step that the G20 countries have taken through the first expansion of the grouping since it was formed as a finance ministers’ forum in 1999 and was later upgraded in 2008 for the summit-level meetings.
AU’s presence on the high table implies that the leaders of the most influential countries would be able to directly hear the concerns of some of the poorest countries that have been steeped in external debt problems that almost seem intractable. Forty of the 55-member AU receive support from the International Monetary Fund (IMF) under the Poverty Reduction and Growth Facility (PGRT), which lends to 70 of the world’s poorest countries.
G20 is currently addressing the debt problems of heavily indebted countries. Two items on its agenda have been particularly important in this context. First, lowering the debt burden of the 70 low-income countries receiving PGRT support, and second, urgently reforming the multilateral development banks (MDBs) so as to enable these institutions to provide concessional finance to the low-income countries, including for responding to the climate crisis.
Addressing the limitations
Although India’s G20 Presidency strongly advocated for addressing the debt problems of highly indebted countries, the New Delhi Leaders’ Declaration fell short of expectations. It failed to correct the shortcomings of the G20’s previous initiatives during the pandemic, which initially supported the World Bank-IMF led Debt Service Suspension Initiative (DSSI) for temporarily suspending debt service payments of low-income countries and then adopted the “Common Framework for Debt Treatments beyond the DSSI.” The Indian Presidency aimed to convince the G20 to adopt a fresh approach toward addressing the debt issues of low-income countries by addressing the three limitations of the existing approach.
Firstly, the ‘Common Framework’ only covers debt owed by low-income countries to bilateral official creditors and excludes debt owed to multilateral development banks (MDBs), while private creditors can voluntarily join the initiative. This approach falls short because, at the end of 2019, low-income countries owed only 25% of their total outstanding external debt, and their debt to private creditors had surged from just under $14 billion in 2010 to over $83 billion a decade later.
Secondly, the ‘Common Framework’ initially overlooked the severe debt problems of middle-income countries, such as Sri Lanka and Pakistan. Although a small step was taken during the Indian Presidency to address the timely resolution of Sri Lanka’s debt situation, but extending the ‘Common Framework’ to these countries would provide limited assistance, as bilateral official donors held a relatively smaller share of their accumulated debt. For example, in 2021, Pakistan owed 30% of its debt to bilateral official donors, while Sri Lanka’s corresponding figure was lower at 20.3%.
Thirdly, the ‘Common Framework’ suffered from poor buy-in from potential beneficiaries. Only four countries – Chad, Ethiopia, Zambia, and Ghana – have requested debt restructuring, and creditor committees established to find solutions are still in the early stages of discussions.
With such terms being offered to the debtors, even the then World Bank president David Malpass was critical of the first agreement reached under the ‘Common Framework’, involving Chad.
Malpass argued, “The agreement reached by the creditors provides no immediate debt reduction. As a result, the debt service burden of Chad remains heavy and is crowding out priority expenditures on food, health, education and climate”. Malpass’s criticism of the ‘Common Framework’ was quite appropriate as he wanted to make it clear that the G20 initiative is not designed to provide any meaningful relief to the debtors; it only ensures that they remain solvent. In effect, this initiative has created a window to ensure that even in the face of severe economic stress, the low-income countries are able to meet their debt-service obligations, preventing a repeat of the events following the 1980s debt crisis when highly indebted countries experienced a “lost decade”.
Reforming the MDBs
Reforming the MDBs is closely linked to addressing the problems of the debt-stricken countries. These countries need access to concessional finance for meeting their development needs. They also need that to respond to the challenge of realising the net-zero target.
The G20 countries, with the momentum provided by the Italian Presidency, have been addressing the ability of the MDBs to meet their financing commitments. The Italian Presidency had instituted an Independent Review of MDBs’ Capital Adequacy Frameworks for assessing the ability of the banks to meet their financial obligations. This independent review addressed the ways in which the potential of the MDBs can be unlocked to meet the financial needs of the recipients without being adversely affected by “rating” considerations.
The Indian Presidency took the next logical step to develop an agenda, based on which the MDBs can continue financing the recipients. This task was entrusted to an International Expert Group (IEG), which was established to “address the shared global challenges of the 21st century”. In its major recommendations, the IEG asked the MDBs to provide rapid and automatic concessional international assistance to countries, including middle-income countries hit by major natural disasters. The banks were also asked to change their approach to partnering with the private sector by working systematically with the private sector in sovereign and non-sovereign activities.
However, the recommendations of the IEG do not augur well for the future prospects of concessionary lending from the MDBs, given that the donor countries’ pledge for the latest three-year cycle of International Development Association funding (IDA20), the soft lending arm of the World Bank, was well below expectations. This also brings into serious question the MDBs’ ability to provide debt relief to the countries that are the worst affected by debt overhang, which, in turn, limits the ability of the debt-distressed countries to invest in development.
The crisis that the IDA20 faces is not unexpected since the US remains unwilling to contribute towards increasing the capacity of the MDBs to lend more. US Treasury Secretary Janet Yellen’s remarks at the third meeting of the G20 finance ministers and central bank governors gave a clear indication when she said that “the G20 must only explore capital increases after the [MDB] reforms … have progressed further”.
Historically, India was in the vanguard of nations seeking a more equitable multilateral trading regime, especially since the turn of the millennium. However, for over a decade now, the dynamics of the WTO has shifted completely in favour of the advanced countries who have sounded a death knell to multilateralism by initiating negotiations on issues of their interest, bypassing the views of the majority in the institution. These negotiations have already seen 67 members (out of the 164 members) agreeing to a “declaration” on services domestic regulation, while the stage is being set for concluding a similar “plurilateral” agreement on e-commerce.
As a country rightly opposing these negotiations, India, as the president of the G20, had the unique opportunity to work with the fellow travelers in the global South to initiate the steps towards preventing the degeneration of the WTO into a rich man’s club. The pressures on the countries in the South is squarely being felt by India, which has been reflected in the New Delhi Declaration as well.
In the Declaration, the G20 countries have committed not to “impose export prohibitions or restrictions” on agricultural products, which implies that India is now under a moral obligation to maintain its exports of agricultural products even if domestic supply shortages result in runaway food price inflation.
Finally, the most intriguing aspect of the New Delhi Declaration was that despite the strong commitments for addressing the concerns of the Global South that were heard in the run-up to the Summit, the term “Global South” was not mentioned even once. This may not appear surprising given that G7’s anathema for the term “South” is quite well-known and G20’s progression under the shadow of the politically powerful grouping. But more significantly, absence of any mention of “Global South” in the Declaration may well be an indication that the process of ‘G7-isation’ of the G20 is now complete.
