17 July 2023
The war’s relentless continuation, now spanning almost 17 months, is exacting a heavy toll on the global economy, leading to heightened anxieties among policymakers regarding resurgent inflation and faltering growth. Against this backdrop, the G-20 nations are convening to discuss critical issues, including regulations for cryptocurrencies and strategies to secure additional climate financing.
Pressing demands will be placed on the World Bank and the International Monetary Fund (IMF) to bolster their balance sheets and address the dire consequences of climate change and potential future pandemics. These meetings build upon discussions held in Paris recently, where commitments were made by 40 world leaders to facilitate easier access to funds for financially stressed developing countries.
However, the key meetings face major challenges and negative undertones. As the G-20 president this year, India has struggled to achieve consensus among member nations, particularly concerning language related to the ongoing war. At the last finance ministers’ meeting in April, India failed to secure a statement due to objections from China and Russia. It is anticipated that crafting agreeable language acceptable to all G-20 members before the leaders’ summit in September will prove arduous, casting doubt on India’s ability to achieve its objectives.
Another major concern is the divergence of global monetary policy stances, particularly regarding inflation. While the US and European central banks are grappling with elevated price levels and pursuing tightening measures, China is contemplating further easing due to the specter of deflation. These differing approaches are likely to be a topic of intense discussion among central bankers. Moreover, the turmoil in the banking sector, highlighted by the failure of two mid-sized US lenders and the near-collapse of European banking giant Credit Suisse Group earlier this year, has raised fears of contagion, further complicating global economic recovery in the aftermath of the war.
Multilateral reforms involving the World Bank and the IMF will be on the agenda, with Treasury Secretary Janet Yellen at the forefront of these efforts. Yellen has been urging these development lenders to mobilize private capital more effectively in light of mounting global challenges. Expert panels have proposed ramping up annual loans to developing countries, tapping sovereign donors and the private sector for additional funds, and increasing market-linked financing. However, the scale of reforms required is substantial, and there is skepticism about the ability to achieve these ambitious goals.
Debt distress is another pressing issue, with the proportion of countries at high risk of or experiencing debt distress doubling since 2015, according to the IMF. While some breakthroughs have been observed, such as Zambia securing a debt deal with official creditors under the G-20’s Common Framework, the overall situation remains precarious. Negotiations to restructure debt are ongoing for countries like Ghana, Sri Lanka, and Ethiopia, and their outcomes are uncertain.
Regulation of cryptocurrencies is a topic garnering attention due to the bankruptcy of FTX Trading Ltd. and other high-profile failures in crypto-asset markets. Regulators, including the Financial Stability Board and the IMF, are actively seeking ways to implement global standards to avoid fragmented and loosely regulated crypto-asset activities. However, challenges persist in strengthening cross-border cooperation and information sharing.
While digital currencies issued by central banks are gaining momentum, with over half of the world’s central banks exploring or developing their own digital currencies, the negative sentiment prevailing at the G-20 meetings may cast a shadow over discussions related to digital currencies as well.
Overall, the G-20 meetings are fraught with challenges and negative undertones. The war’s enduring impact, diverging monetary policies, banking sector turmoil, debt distress, and the need for substantial reforms across various sectors create a gloomy atmosphere, leaving little room for optimism regarding the outcomes of these critical discussions.