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COVID-19 recovery and climate action

A more ambitious financing strategy to enable the world to build back more inclusively and sustainably is feasible, says a new ILO paper

Bolder use of the existing international financial architecture could accelerate worldwide COVID-19 recovery and climate action, including in low- and lower-middle-income countries, says a new ILO research paper.

News | 07 October 2021
© Environmental Change and Security Program
GENEVA (ILO News) – Fuller utilization of the existing capital and tools of the international financial institutions could more rapidly reduce the threats to humanity posed by the pandemic and climate change, says a new working paper of the International Labour Organization.

The paper Financing Human-Centred COVID-19 Recovery and Decisive Climate Action Worldwide: International Cooperation’s 21st Century Moment of Truth, provides a concrete illustration of how the International Monetary Fund (IMF) and multilateral development banks could mobilize a tripling of official development assistance-related external flows to developing countries over the next several years to reverse the growing disparity in pandemic response and recovery between them and developed countries and to confront one of the biggest and most immediate obstacles to achievement of the Paris agreement’s goals: the burning of coal.

The paper argues that all nations have an interest in greatly accelerating implementation – including in low- and lower-middle-income countries – of the strategies that have been agreed internationally to address the universal threats posed by the pandemic and climate change, i.e., WHO’s ACT-A/COVAX initiative; the ILO Global Call to Action for a Human-Centred Recovery from the COVID-19 Crisis; and the 2030 Agenda, which includes the Paris climate agreement objectives and Sustainable Development Goals. The most feasible way the necessary resources can be mobilized is for these institutions to be deployed as imaginatively and expansively over the next several years as advanced countries have deployed their central banks and treasuries since the beginning of the pandemic. The paper outlines a set of specific initiatives to this end, including but not limited to a structured framework for the donation of recently issued IMF Special Drawing Rights (SDRs), that would:
  • fully and promptly fund the WHO ACT-A/COVAX Initiative;
  • adequately resource debt relief and restructuring, social protection floors and job-rich, SDG-related sustainable infrastructure and industry in these developing countries; and
  • finance a global effort to avoid a lock-in of greenhouse gas emissions from coal-fired power generation, which represents the single largest and most time sensitive aspect of the climate action and just transition required to achieve the goals of the Paris climate agreement.

This working paper seeks to demonstrate that the international community already has at its disposal the lion’s share of the resources necessary to meet this moment and enhance the security of every person on the planet."

Richard Samans, ILO Research Department Director
This fuller and more networked utilization of the international financial institutions to implement multilaterally agreed objectives would enable the world to shift from continued incremental to truly transformational progress on COVID-19 recovery and climate change without relying on major increases in bilateral foreign aid budgets. It would increase ODA-related external flows over the next seven years by $2 trillion to 82 poorer developing countries, the equivalent of about 4 per cent of their GDP per year during this period. This would exceed the scale of the Marshall Plan’s support of Europe’s efforts to “build back better” from World War II, while leveraging such increased external financing in a similar manner to improve domestic resource mobilization. It would also fulfil the still unmet promise by advanced countries to mobilize at least $100 billion per year in climate finance to developing countries by 2020.

All of this would be possible if wealthier countries agreed to donate an average of 60 per cent of their new SDR allocation to low- and lower-middle-income countries and if Multilateral Development Bank boards agreed to utilize two-thirds of the estimated additional room they collectively have in their capital structures to expand lending and blended finance activity without affecting their credit ratings.

The paper’s author, ILO Research Department Director Richard Samans, commented, “As the UN Secretary-General’s recent landmark report, Our Common Agenda, suggests, this is a watershed moment for international cooperation and the multilateral system. This working paper seeks to demonstrate that the international community already has at its disposal the lion’s share of the resources necessary to meet this moment and enhance the security of every person on the planet.”