Letter IEDI n. 1030–Public banks and green transition, according to UNCTAD
The role of public banks has been taking on a new meaning since the global financial crisis of 2008–2009, with the reaffirmation of their importance for promoting countries' economic and social development. This is what UNCTAD, the United Nations Department for Trade and Development, argues in its latest “Trade and Development Report: Financing a Global Green New Deal.”
This Letter IEDI analyzes UNCTAD's considerations regarding official banks, gathered in the chapter “Making Banks Work Better for Development” of that report. It seeks to emphasize the utmost importance of public banks in fostering socially and environmentally sustainable development.
The topic is likely to gain even more prominence in the post-pandemic world, due to the expansion of non-traditional monetary policy mechanisms and the actions of the various official financial institutions during the COVID-19 crisis.
UNCTAD adopts a broad concept of public development system, composed of central banks, development banks, commercial banks and sovereign wealth funds. The articulation between these institutions, as long as inserted in a development strategy, would contribute to the financing of processes to mitigate global climate change and promote the structural transformation of countries for a green transition.
The view defended in the UNCTAD report is that this articulation between public banks could become a crucial source of financing for a Global Green New Deal, understood as a major international pact based on investment projects and green technologies that would contribute to achieving the United Nations' sustainable development goals for 2030.
The basic argument is that given the high volume of resources required and the great risks involved in this strategy (including technological risks), the combined work of the different public credit institutions in each country and multilateral banks would constitute an additional source of funding for the private sector, better suited—in terms of duration/maturity, costs and profitability levels—to facing the new challenges.
Developing countries would have to make use of such sources to finance their structural transformation processes. It is worth mentioning that, if these perceptions were already present before the current crisis resulting from the COVID-19 pandemic, recent government actions, including through public banks in many countries, indicate a larger and necessary space for these institutions to take part in the national development process.
In this sense, UNCTAD highlights some ways for public development bodies to foster a pro-development agenda:
• Support from central banks for sustainable goals to be achieved, coordinating the activities of other financial institutions;
• Expansion of development banks’ guarantees and funding for loans to economic, social and environmental needs;
• Integration between national initiatives and regional and multilateral banks;
• Allocation of part of the resources of sovereign wealth funds to finance the activities of development banks;
• Revisiting credit-rating agencies' assessments of public financial institutions, given the needs they serve;
• Adoption of an explicit and coordinated public financing agenda for initiatives aimed at reversing climate change.