Reforming Bretton Woods Institutions to Achieve Climate Change and Development Goals

Countries will need to mobilize a stepwise increase in domestic resources and put in place a broad array of new policies in order to meet the targets set out under the Paris Agreement on climate change and the United Nations 2030 Sustainable Development Goals (SDGs). Delivering economic growth and prosperity in a manner that is socially inclusive, low-carbon and resilient to climate and other external shocks will require countries to transform the very structure of their economies.

To that end, the Bretton Woods Institutions (BWI) – the International Monetary Fund (IMF) and World Bank Group, as well as other multilateral development banks (MDBs) – will need to play an important supporting and coordinating role in these efforts.

In a new journal article published in One Earth, Kevin P. Gallagher, Rishikesh Ram Bhandary, Rebecca Ray and Luma Ramos outline the scale of the financing challenge for developing countries and offer a series of policy reform proposals at the BWIs that can help align developing economy growth trajectories with climate and development goals.

Policy recommendations:

• MDBs need to more explicitly align their work with the Paris Agreement and the SDGs. This includes:
  • Catalyzing a stepwise increase in the scale of MDB capital.
  • Reforming the policy mix within MDBs to be more centered on investing in national development strategies that are equitable, low-carbon and resilient while reducing poverty and providing global public goods.
  • Increasing the voice and representation of the world’s poorest countries.
• The IMF has a role to play in ensuring countries can mobilize massive amounts of financing in a manner that is fiscally and financially stable, while preventing and mitigating macro-critical risks arising from climate change and climate policies. This includes:
  • Broadening multilateral surveillance activities beyond carbon pricing as both an instrument and a source of revenue for climate finance.
  • Strengthening bilateral surveillance and capacity building.
  • Scaling up IMF resources and ensuring programs focus on green stimuli rather than fiscal consolidation.
• BWIs must increase the voice and representation of emerging market and developing economies (EMDEs). EMDES have been working to achieve this by:
  • Establishing coalitions, such as the Intergovernmental Group of 24, to work as a bloc within the IMF and World Bank.
  • Constructing their own institutions to provide the same services as BWIs but with more conducive terms.
  • Creating a network of development finance institutions – including the Asian Infrastructure Investment Bank, the New Development Bank, the China Development Bank and more – with assets totaling $18.7 trillion.

Overall, the authors note that, while countries are in high-level agreement on the need for international financial architecture reform that delivered on development and climate goals, they do not fully converge on sequence, prioritization or even the types of reforms needed. Given this, concerted coordination across countries and institutions will be crucial to reaching the full potential of reform.