Authors: Titik Anas and Wempi Saputra, Indonesian Ministry of Finance
Indonesia’s G20 presidency comes at a time of great uncertainty. On 17 February 2022, the G20 Finance Track under Indonesia’s presidency held its first Finance Ministers and Central Bank Governors Meeting. This first step was part of Indonesia’s G20 agenda to reform the global health architecture, facilitate digital transformation and navigate the sustainable energy transition. It also places the G20 at the centre of coordinating the rebound from the COVID-19 pandemic.
With the Omicron variant pushing up global infections as well as uneven access to vaccines, therapeutics and testing, the global recovery is expected to be disrupted and patchy. The IMF projects weaker growth of around 3.9 per cent in advanced countries in 2022. Emerging market and developing economies are also projected to post weaker growth of 4.8 per cent. Low-income countries face a much more difficult situation, with sub-Saharan Africa expecting 3.7 per cent growth. The surge in food and energy prices, likely increases of interest rates, threat of new COVID-19 variants, supply chain disruptions, natural disasters due to climate change and geopolitical tensions will also affect recovery.
COVID-19 struck a trade system already in need of reform to fix structural weaknesses and extend its disciplines in areas of central importance in international commerce such as the digital economy. G20 reaffirmed their commitment to WTO reform. Indonesia is well positioned to lead such efforts after seizing the initiative with its strong support on world trade reform at the Osaka G20 summit. The issues of sustainable energy transition and digital economy — to which Indonesia is giving priority — also cut across all aspects of international commerce and multilateral trade reform.
Given these global uncertainties and uneven recovery trajectories, Indonesia’s presidency is operating under the theme ‘recover together, recover stronger’. As a developing country, Indonesia carries its own G20 mission as well as that of all developing countries. Many low-income and developing countries have been hit hard by the pandemic after suffering economic contraction, soaring unemployment and poverty. COVID-19 could push more than 100 million people into extreme poverty. Several countries were already facing debt distress prior to the pandemic — more still are now facing debt problems.
The February 2022 communique of the G20 Finance Ministers and Central Bank Governors supported a wide-ranging agenda for global economic recovery. G20 members agreed to smooth their economic exit strategies to recover together and recover stronger, with ‘due consideration to country-specific circumstances’.
The G20 Joint Finance and Health Task Force committed to a work program to improve cooperation between finance and health ministers on pandemic prevention, preparedness and response, and a strengthened global health architecture. Here is where Indonesia’s broader concerns about equitable access to health services complement the WHO’s goal of vaccinating 70 per cent of the world by 2022 fit in.
The Finance and Health Task Force had already tasked the WHO and the World Bank to assess the existing international financing mechanisms and modalities for pandemic prevention, preparedness and response — a task essential to ensure its adequate and sustained financing. The importance of the speedy disbursement of sufficient funds on an inclusive global scale was a lesson learnt from the first wave of COVID-19. Better global financing arrangements are crucial to ensure this happens in future pandemics.
With many countries facing potential or actual public debt risks, G20 members — who are mostly creditor countries — will need to assist eligible low-income countries through the G20 Debt Service Suspension Initiative. The estimated debt servicing costs deferred under this Initiative between May 2020 and December 2021 was US$12.9 billion, with more than 40 countries benefiting from the framework.
G20 members have voluntarily channelled IMF special drawing rights contributions to countries most in need, with pledges of US$60 billion in assistance and global ambitions to raise US$100 billion. G20 members have also agreed, in collaboration with multilateral development banks and international financial institutions, to assist low income and vulnerable countries. This will be done through mechanisms such as the Resilience and Sustainability Trust, the Poverty Reduction and Growth Trust, International Development Assistance and the Common Framework for Debt Treatment beyond the Debt Service Suspension Initiative. G20 continues to strengthen the debt-relief and financial assistance especially to low-income countries.
At the Finance Ministers and Central Bank Governors Meeting, G20 members reiterated their commitment to support global efforts to achieve the goals of the United Nations Framework Convention on Climate Change, the Paris Agreement, as well as implementing COP26 commitments. G20 members are committed to phase out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term.
G20 members also reaffirmed the commitment made by developed countries to jointly mobilise US$100 billion in climate finance annually through to 2025 to address the needs of developing countries. This taps into the broader issue of establishing sustainable finance guidelines to help markets raise private capital to fund green assets, technologies and infrastructure.
The February meeting under Indonesia’s presidency was a successful step towards tackling the world’s economic challenges. But there is still much to be done in reforming multilateral institutions, keeping pace with the evolving trade landscape and navigating a sustainable energy transition. Deeper collaboration and collective action by the G20 will be necessary for a stronger and more inclusive global economic recovery.
Wempi Saputra is the Indonesian Assistant Minister of Finance for Macroeconomy and International Finance.
Titik Anas is Special Advisor to the Indonesian Minister of Finance for Sectoral Fiscal Policy Formulation.
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