Limited resources, greater responsibility: the UK must support global financial architecture reform

On 25 February, the UK Prime Minister announced his government’s decision to slash the UK Official Development Assistance (ODA) budget from 0.5% to 0.3% of Gross National Income (GNI) by 2027 to fund an increase in defence spending.

Civil society has condemned the short-sighted decision and the false dilemma presented by the UK government, which the ONE campaign estimates may threaten the lives of 600,000 people. In a letter calling on the UK government to reverse the cuts, 138 leaders from NGOs across the UK made it clear that this move leaves Labour’s reputation as a development partner in tatters.

Instead, the government decided to implement the cuts immediately, drastically undermining the Labour Party’s vision for a ‘modernised’ approach to international development and the legal commitment the UK made to reduce poverty globally and to support the sustainable economic development of low-and-middle-income countries (LMICs).

With the gutting of USAID and the wave of traditional donors slashing their ODA budgets, debates about the future of ODA, and whether to reform or overhaul the existing system, will deepen and rage on. The political decisions taken in wealthy nations to slash ODA support do not change the reality that the needs created by poverty, conflict, humanitarian crises, climate change and biodiversity loss remain. The UK has a moral responsibility to help bridge these global inequalities, it is in our shared interest to do so. Moving forward, we must refine the narrative surrounding ODA from one of charity to justice and the UK government must recognise its shared responsibility in addressing global challenges and its role in historical injustices.

At the same time, the UK must find ways to restore its reputation and demonstrate that it can be a genuine partner in development. The upcoming the Fourth International Financing for Sustainable Development Conference (FfD4), to be hosted in Seville, Spain this summer offers a critical moment for the UK to do so.

Limited Resources, Greater Responsibility

With a reduced ODA budget, the UK government must find ways to rebuild its reputation and to demonstrate that it can be a genuine partner in development. One of the best ways the government can do so is to constructively engage with and support global financial architecture (GFA) reform proposals tabled by LMICs and civil society.

Calls for greater representation within and reform to the global financial architecture have been steadily building up for decades, and with the rapid fall in ODA, these calls are now reaching fever pitch. It’s time for the UK to take bold action to address the global debt crisis, reform the global tax system to make it more equitable and take meaningful steps toward tackling illicit financial flows from LMICs.

There’s an important opportunity to act on this agenda on the horizon. This summer, Spain will host the Fourth International Financing for Sustainable Development Conference (FfD4), in Seville, a decade since the last Conference. FfD4 is not a fundraising or pledging event, but rather a series of major global meetings focused on addressing the financial structural challenges required to achieve sustainable development.

The ultimate goal is to agree on an outcome document that will guide future efforts in global economic governance. It’s also a UN-coordinated convening, which is important because the UN offers a space for global governance to be addressed under a one country one vote model, while having the issues of climate change, inequalities and human rights at its core. This is a more equal terrain for negotiations around international financial architecture reform than the OECD-DAC, G7/20, or Bretton Woods Institutions, where decisions are based on shareholding and the priorities of a narrow set of wealthy countries.

The UK government position on the road to FfD4

So far, the UK’s offering at FfD4 has been largely unambitious. While we appreciate the UK government’s recognition that LMICs are under-represented in existing decision-making mechanisms, improving the ‘voice’ of these actors in flawed mechanisms will not be sufficient. A key thread running through the FfD4 agenda this year is the call to democratise global economic governance. Proposals from the Africa Group and G77 have included calls for a multilateral legal framework for debt relief and restructuring, a UN-centred mechanism for agreeing the future and parameters of international development cooperation and a universal, intergovernmental ECOSOC.

The UK has so far rejected proposals for a debt workout mechanism and has focused on improving the delivery through existing mechanisms, advocating for countries to step up efforts to strengthen the failing G20 Common Framework. Similarly, the UK has rejected some of the more ambitious calls for IFI reform in favour of speeding up the implementation of the G20 Capital Adequacy Framework Recommendations.

Beyond this, the UK has  focused a large part of its agenda on mobilising private finance, despite cautions from civil society, academics and even the World Bank’s Chief Economist that we need to have more realistic expectations of on the role of private finance in delivering sustainable economic development.

Of course, private finance plays an important role in many sectors, but it cannot substitute for public finance in ensuring access to quality public services, sustainable infrastructure, decent work, universal social protection and dignified livelihoods. Moreover, a substantial body of evidence now calls into question the potential for billions in public finance to genuinely catalyse trillions in private sector finance.

A chance to champion multilateralism and human rights

The upcoming FfD4 conference will serve as a major test for the UK government under Labour’s leadership. It is an opportunity for the government to show its commitment to multilateralism, solidarity, and the pursuit of justice. These principles are foundational to addressing global challenges that cannot be solved without international cooperation, including global health challenges, climate change and conflict.

In an age where isolationism is on the rise, multilateral forums like FfD4 provide a glimmer of hope for creating international agreements that can build a fairer and more equitable global financial system. The UK must rise to the occasion, not just for the sake of its own reputation, but to be a true ally to the world’s most vulnerable populations.

At FfD4, the UK must also commit to championing human rights, particularly the rights of women and the LGBTQI+ community, especially in light of the current climate of rising attacks on their rights globally. Multilateral forums like FfD4 provide a platform for the UK to reaffirm its commitment to justice and human dignity.

The Road to Seville

As the UK government grapples with the consequences of reducing its ODA budget, the upcoming FfD4 conference offers a crucial opportunity to demonstrate partnership in supporting proposals to reform and democratise global economic governance, which have been set out as clear priorities by LMICs.

The UK government must remain laser-focused on how it can support the reform of the global financial system to ensure that it promotes fairness and inclusivity. Key issues to address include how nations manage sovereign debt, foster international tax cooperation, and enhance development cooperation. These are critical steps in addressing the profound inequalities and environmental crises that the world faces today and will continue to face in the future.

Bond and its members have been monitoring the FfD4 process and are meeting regularly to coordinate ahead of the FfD4 Conference this summer. We’ve appreciated the regular engagement we’ve had with the UK government in this time and look forward to deepening our engagement ahead of the conference.

In the coming weeks, we’ll be hosting a blog series outlining UK and global civil society’s asks of the UK government on the road to FfD4. Reach out to us if you’d like to find out more about Bond’s work on FfD4.