IMPROVING PUBLIC FINANCE
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How multilateral development banks can bridge the climate ěãÖãØÞãÜÜÖå
MDBs are proving a power- ful force in the fight against climate change. However, their potential is not fully realised yet. Frannie Léautier, former chair, G20 Expert Panel on the Capital Adequacy of the Multilateral Development Banks
P olicymakers, investors and politicians face the signifi- cant challenge of financing the investments necessary to keep global temperatures within the Paris Agreement’s tar- get of limiting the rise to below 2°C. This challenge is particularly acute for developing countries, which must simultaneously generate jobs for their burgeoning youth populations, man- age increasing debt burdens and secure affordable capital in an environment marked by high interest rates and currency risks. This task is further com- plicated by the lingering impacts of the Covid-19 pandemic, the escalating con- sequences of climate change and the global economic disruptions stemming from conflicts such as those in Ukraine and the Middle East. Globally, economies have been severely affected by these crises, with external financing needs for develop- ing countries estimated to have surged by $700 billion annually due to the pan- demic alone. This is in addition to the $2.5 trillion per year required to sup- port the Sustainable Development Goals and the $100 billion commit- ted to climate finance. The need for unprecedented investment is clear if we are to improve livelihoods, miti- gate and adapt to climate risks, and prepare for a sustainable future beyond the mid-21st century. Focus on Africa Africa currently receives only 4% of global climate finance, despite being one of the regions most vulnerable to
the impacts of climate change. The continent faces steep challenges in securing investment for critical areas such as low-carbon energy grids, transformed transport and logis- tics networks, carbon absorption and trading alternatives, and sustaina- ble manufacturing practices. Without substantial investment in these sec- tors, achieving the dual goals of job creation and climate stabilisation will remain out of reach. Africa’s youth population is expected to grow by 42% by 2050, making it imperative to create millions of jobs annually. However, the continent’s share of global foreign direct invest- ment remains low, and public debt in sub-Saharan Africa has surged to 64% of gross domestic product in 2024, exacerbating the difficulty of financing essential infrastructure and climate initiatives. The need for tar- geted climate finance that addresses these unique challenges is more urgent than ever. Proven track record Multilateral development banks play a critical role in providing affordable, flexible and rapid financing to support economic recovery and meet ongoing development needs. Their track record in responding to crises – whether climate-related disasters or the Covid- 19 pandemic – positions them well to drive investment in sustainable devel- opment. MDBs have demonstrated the capability to focus on long-term development issues and mobilise the necessary resources to address these
MULTILATERAL DEVELOPMENT BANKS PLAY A CRITICAL ROLE IN PROVIDING ¼ÁÁÊÍ¿¼½ÇÀ FLEXIBLE AND RAPID FINANCING TO SUPPORT ECONOMIC RECOVERY AND MEET ONGOING DEVELOPMENT NEEDS.
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Financing a Just Transition
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