LONDON, Feb 23 (IPS) – It is 25 years since the 1997 Asian financial crisis led to the creation of the G20 Forum of Finance Ministers; and 15 years ago this became a leadership-level meeting after the global financial crisis. During this period, there have been significant changes in the global financial and economic landscape.
The rise of several emerging economies has seen their contribution to the multilateral financial system that supports development increase significantly. Our new report compiles these contributions over the past decade for the first time. It shows how China’s annual contribution to the UN and multilateral development banks increased twentyfold from $0.1 billion to $2.2 billion.
But it also looks collectively at a group of 13 emerging economies whose development contributions to multilateral financial institutions have increased fivefold to over $6 billion over the past decade.
These contributions now form one-eighth of the total; and has seen the creation of two new multilateral financial institutions.
In this piece, we draw out key findings from our analysis, including the balance between financing existing and new institutions such as the New Development Bank.
We consider whether continued growth of the 13 emerging players could generate enough new financing for development over the next quarter century, and even create an equal institution at the World Bank’s Fund for Low-Income Countries (IDA).
Despite recent rhetoric on the return to a bipolar world order, this report is evidence that a large group of countries already play a major role in the global economic and development system, and will continue to do so in the coming years
The transformative effect of economic growth on the multilateral system
In 1990, most people in the world lived in low-income countries; By 2020, this percentage had dropped dramatically to just seven percent of people. At the same time, the share of the global population living in middle-income countries increased from 30 percent in 1990 to 73 percent in 2020.
Such a transformation means that a greater number of countries with economic production can contribute internationally: broadened and deepened participation in the multilateral system.
And this is just what we’ve seen. In the decade to 2019, we see a group of emerging actors significantly increasing their contributions of development finance to multilateral organizations.
These include thirteen major economies outside the group of more established providers within the Development Assistance Committee (DAC), which tend to receive more attention.
Ten of these emerging players are G20 members, including BRICS—Brazil, Russia, India, China, and South Africa—but others have also grown rapidly: Argentina, Chile, Indonesia, Israel, Mexico, Saudi Arabia, Turkey, and the United Arab Emirates. Collectively, we refer to these thirteen emerging players as the “E13.”
Over the decade, the E13’s annual contribution of development finance to multilateral organizations (both core and earmarked funding) has increased almost fivefold, from US$1.3 billion in 2010 to US$6.3 billion in 2019 (up 377 percent). And their unrestricted core contributions have grown even more: rising from $1.0 billion to $5.2 billion (up 410 percent).
Of these core contributions, we see that those to UN agencies more than quadrupled over the decade, rising steadily from $0.3 billion to $1.2 billion (up 330 percent). But by far the most striking development of the E13’s core contributions has come from the creation and capitalization of two new multilateral organizations: the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB).
China’s role
Although China has recently withdrawn its bilateral financial interventions, its multilateral contributions increased steadily through 2019; and provided a third (34 percent) of the E13 total for the decade. Our colleagues have reviewed this in detailincluding how China has the second highest combined voting share after the US in international financial institutions it supports.
Nevertheless, our analysis also shows the importance of Russia, Brazil and India which each contributed over USD 3 billion during the period and together contributed another third of the total. While China’s multilateral contributions have been concentrated (59 percent) in new institutions it co-founded (see below), other providers have concentrated funding in traditional institutions: for example, Argentina, Chile and Mexico did not support the new institutions, while Saudi Arabia and UAE they were 17 percent and 21 percent respectively.
Create new multilateral financial organizations
During the ten-year period under review, almost half of the E13’s multilateral core contributions were to the two new institutions (AIIB and NDB). After 2016, funding to these institutions accounted for over two-thirds of their grants. In 2016, the first financial contributions to the AIIB and NDB actually tripled the E13’s multilateral development financing in a single year.
The E13 provided an additional US$6.0 billion in core funds to the AIIB and NDB in 2016, without reducing their multilateral contributions through other channels.
Although annual contributions fell to $3.1 billion in 2019, the AIIB and NDB still accounted for half of the E13’s multilateral development financing in that year, leaving their contributions at the end of the decade well before the beginning.
Emerging actors finance a sixth of the UN system
In addition to higher absolute contributions (Figure 1), E13’s role in the multilateral system has also increased relatively (Figure 2). As a share of the level of financing provided by the 29 high-income OECD DAC countries, the E13’s multilateral core contributions rose from 5 percent in 2010 to 12 percent in 2019 – more than doubling their relative importance.
This was largely due to the impact of the AIIB and NDB (clearly seen by the peak in 2016), but we also see that E13 core contributions to the UN system rose steadily and rapidly as a share of the DAC level over the decade: from 5 percent in 2010 to 17 percent in 2019.
A look towards 2050 – what role can the emerging economies play?
As the E13 economies continue to grow, what might this mean for their multilateral contributions in the future? Figure 3 shows how the share of economic output provided as development finance to multilateral organizations (either central or earmarked) tends to increase with higher levels of per capita income.
Although the ratio is steeper for the DAC than the E13, the E13’s current trajectory also implies a significant increase in future multilateral development financing from this group.
Ian Mitchell is co-director, development cooperation in Europe and Senior Policy Fellow at the Center for Global Development. Sam Hughes is a research assistant at the Center for Global Development.
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