In September 2021, the G20 International Financial Architecture Working Group (IFA WG) gathered three times to progress on crucial matters such as capital flows, addressing debt vulnerabilities, and Special Drawing Rights (SDR).
October 5th, 2021
In September 2021, the G20 International Financial Architecture Working Group (IFA WG) gathered three times to progress on crucial matters such as capital flows, addressing debt vulnerabilities, and Special Drawing Rights (SDR). Throughout 2021, the G20 Finance Ministers and Central Bank Governors (FMCBGs) have reaffirmed their support to the most vulnerable countries in this critical juncture, while the Group has continued working to further strengthen the global financial architecture.
On Wednesday 8 September, the IFA WG discussed developments in capital flows, Central Bank Digital Currencies (CBDCs), and the cooperation between the International Monetary Fund (IMF) and Regional Financing Arrangements (RFAs). Recent capital flows trends have highlighted the need to enhance global financial resilience and to better understand the appropriate policy mix to preserve macroeconomic and financial stability. Digitalisation also poses new challenges and opportunities, and Group members explored some of the potential implications of CBDCs for the functioning of the international monetary system.
In occasion of the IFA WG meeting on Thursday 23 September, the membership discussed the implementation of the last Debt Service Suspension Initiative (DSSI) extension – due to expire in December 2021 – and of the Common Framework for Debt Treatments beyond the DSSI. The latter was endorsed by the G20 and the Paris Club in November 2020 to address debt sustainability issues of low-income countries in a structural manner. IFA WG members also discussed ongoing work by the IMF on sovereign debt restructuring involving private sector creditors. Members also examined progress made in the implementation of sustainable finance practices by G20 countries, which emerged from the 2nd voluntary self-assessment under the G20 Operational Guidelines for Sustainable Financing. Results show that this exercise has provided impetus for members to improve their own practices. As an example, a number of G20 countries now publish details of their sovereign lending operations on easily accessible websites. Italy’s own data is available at: http://www.dt.mef.gov.it/en/attivita_istituzionali/rapporti_finanziari_internazionali/crediti_aiuto/.
Debt issues were also at the center of the debate at the 5th Joint Regional Financing Arrangements Research Seminar on 24 September. The event brought together academics, policy makers, representatives from central banks and finance ministries, RFAs, and International Financial Institutions. Discussions focused on the implications of fiscal burdens on emerging markets and low-income countries and on how to design post COVID-19 growth models to establish a lasting recovery.
On 23 September the IFA WG also officially launched the Independent Review of Multilateral Development Banks’ (MDBs) Capital Adequacy Frameworks (CAF). This work, endorsed by FMCBGs in July, aims to provide a shared understanding on how capital metrics and indicators should be assessed in a consistent manner, while preserving current credit ratings, preferred creditor status and MDBs’ governance arrangements. To conduct this Review, the IFA WG selected an Advisory Panel of 13 members and appointed Dr Frannie Léautier as Expert Chair.
Finally, on Wednesday 29 September, following the new general SDR allocation of USD 650 billion implemented by the IMF in August, IFA WG members discussed options to voluntarily channel a share of their allocated SDRs to help vulnerable countries finance more resilient, inclusive and sustainable economic recoveries.
The work on the IFA WG on solutions to better support vulnerable countries will feed into the agenda of the fourth G20 FMCBG meeting to be held on 13 October and the G20 Leaders’ Summit on 30-31 October.