How to Make Crisis Finance Work for Development: Crafting a Global Financial Safety Net Fit for Purpose

In recent years, emerging market and developing economies (EMDEs) have faced successive waves of external shocks, including the COVID-19 pandemic, interest rate hikes in developed countries and commodity price fluctuations. These shocks have severely limited their ability to prioritize anti-cyclical spending while maintaining external stability. The Global Financial Safety Net (GFSN)—comprising institutions like the International Monetary Fund (IMF) and regional financial mechanisms as well as central bank currency swaps—provides short-term emergency finance to help countries navigate turbulent times with a size of about $3.5 trillion. However, the GFSN has proven inadequate in addressing current challenges, primarily for EMDEs. For instance, IMF lending is often disbursed slowly and burdened with conditionalities. Other sources of liquidity, such as swap lines, are unequally accessible and influenced by the geopolitical and geoeconomic priorities of provider countries, while regional financial arrangements are not utilized to their full potential, especially when tied to IMF programs.

In a world of recurring shocks and open economies, having a fit-for-purpose GFSN for all is fundamental for a global financial architecture that can overcome global financial divisions. The GFSN is key to supporting the long-term development strategies of EMDEs and to ensuring that external disturbances do not threaten the development prospects of millions. The international community should consider evidence-based analysis and concrete policies to improve the GFSN.

On Monday, December 2 from 11:30-12:45PM, join us for a panel event at the Financing for Development Dialogues: From Evidence to Action on making finance crisis work for development. This panel will present the most recent empirical findings on the key flaws within the GFSN and explore policy recommendations on how these deficiencies can be effectively removed in order to make the GFSN fit-for-purpose for all, particularly for EMDEs.

Speakers:

- Jayati Ghosh, Professor of Economics, University of Massachusetts Amherst (virtual)

- Ilene Grabel, Professor, University of Denver

- Marina Zucker Marques, Senior Academic Researcher, Boston University Global Development Policy Center

- Laurissa Mühlich, Freie Universität Berlin

- Daniel Bradlow (Moderator), SARCHI Professor of International Development Law, University of Pretoria