Bridgetown Initiative

Bridgetown Initiative

Subject : International Relations

Section: International organisation

The Bridgetown Initiative is a proposal to reform the world of development finance, particularly how rich countries help poor countries cope with and adapt to climate change.

Barbados sets out three key steps in the Bridgetown Initiative. The first involves changing some of the terms around how funding is loaned and repaid. The aim is to stop developing nations spiralling into a debt crisis when their borrowing is forced up by successive disasters like floods, droughts and storms.

Why is the Bridgetown Initiative needed?

• Development banks – financial institutions that provide loans and grants to developing countries to fund economic and social development – are outdated and need reform.
• For example, rich countries are able to borrow capital with interest rates of between 1 to 4%. But for poorer countries – which are seen as riskier investments – interest rates are around 14%.
• Without access to concessional funding – finance offered below market rates – there is “no way” developing countries can fight climate change, Mottley told the COP27 United Nations Climate Change Conference in Sharm el-Sheikh, Egypt.
• There is a need for reform of the World Bank and the International Monetary Fund, which were both set up in 1944 to repair economies and promote co-operation after World War II and the Great Depression of the 1930s.
• Barbados and other so-called “small island developing states” aren’t the only ones in the frontline of tackling climate change. There are around 3.3 billion people between the Tropics of Cancer and Capricorn are affected.

The key demands of the Bridgetown Initiative are:

LIQUIDITY SUPPORT

• N. member states should fast-track the transfer of $100 billion in so-called ‘Special Drawing Rights’, a monetary reserve currency, to programmes that support climate resilience and subsidise lending to low-income countries.
• The International Monetary Fund should also immediately suspend surcharges – additional interest payments imposed on heavily indebted borrowing countries – for two to three years.
• It should also restore “enhanced access limits” established during the COVID pandemic for two emergency financial support instruments, the Rapid Credit Facility (RCF) and Rapid Financing Instruments.

DEBT SUSTAINABILITY

• G20 creditor countries should redesign their Common Framework for restructuring the debt of poor countries in default, notably by speeding up debt relief talks and allowing middle-income countries to access it.
• The IMF should encourage the restructuring of unsustainable debt in a way that is consistent across countries, and change the way it analyses the debt to incentivise investments that create future savings, such as those for climate adaptation.
• Public and private creditors should include disaster clauses in lending deals to allow countries to divert debt payments to disaster relief; and refinance high-interest and short-term debt with credit guarantees and longer maturities.
• N. member states should agree to raise $100 billion a year for a fund to help pay for the climate-related loss and damage suffered by developing countries.

PRIVATE CAPITAL

• The IMF and multilateral development banks should offer $100 billion a year in currency risk guarantees to help drive private sector investment in projects that would help developing countries make the transition to a low-carbon economy.
• Connected to that, they should also expand their support to countries to help them create a pipeline of investable projects, and make greater use of blended finance and other structures where public lenders take on more project risk.

DEVELOPMENT LENDING

• The G20 and other shareholders of the World Bank, IMF and development institutions should fully implement the 2022 recommendations of a panel of experts aimed at boosting lending by the multilateral development banks.
• They should commit an extra $100 billion a year in fresh capital to the various institutions and move the Special Drawing Rights capital to multilateral development banks, starting with the African Development Bank by September 2023.
• Increase the leveraging of the World Bank’s International Development Association, which provides concessional finance; fully fund its emergency support facility to $6 billion by end-2023; and scale up the IDA’s funding to $279 billion.
• Raise the access limits to concessional finance through the Poverty Reduction and Growth Trust and the Resilience & Sustainability Trust.
• Assess funding eligibility in light of a country’s vulnerability and provide low-cost, 50-year loans to help them invest in areas including climate resilience, water security, pandemic preparedness and access to renewable energy.
• Simplify and harmonise the way countries can apply to access loans across the world, and provide more support in the process. The international financial institutions should also finance development plans that help protect shared resources.

TRADING

• Groups such as the World Trade Organisation and other major trading partners should work with governments to strengthen supply chains to make them more resilient, ensure they benefit countries that produce raw materials and protect the vulnerable.

GOVERNANCE

• The governmental shareholders of International Financial Institutions should change the way they are structured and run – largely by richer nations in the Global North – to make them more “inclusive and equitable