This article evaluates the key outcomes of the recently held G20 summit, and we can say that this summit came at a crucial moment for the global political economy. Why? Let’s find here,
See, the G20 or the Group of 20 is an intergovernmental forum that was formed in 1999 involving 19 countries and the European Union. These constitute the 20 largest economies of the world and includes the countries that have been listed over here. So these 19 countries, along with the European Union, represent the 20 largest economies of the world, and they include both developed and industrialized nations and as well as developing nations. These 20 largest economies account for nearly 90% of the global GDP, and they account for 75% to 80% of global trade. They also represent two-thirds of the global population and as well as roughly 50% of the global land area.
So this grouping was formed in 1999 to ensure global financial stability, and the grouping has gained a lot of significance, especially after the 2008 financial crisis. Today, this grouping works on not just issues related to global economic growth and financial stability, but it also looks at issues such as climate change, sustainable development, etc. So just a few days back, a key summit of this grouping took place at Rome in Italy, and it witnessed the participation of the top 20 leaders of these economies, and this summit took place at a critical moment for the global political economy, as it is currently facing several challenges.
Because currently, the global political and economic stability has been disturbed and affected by the pandemic, by the impact of climate change and the lack of response against it and as well as with a weak global financial situation that has been caused by the pandemic. So as these three challenges are posing a considerable threat to global political stability and financial stability, the G20 countries got together in Rome to work out solutions so that they could deliver a globally coordinated response in order to help us tackle these pressing challenges.
First, the top focus was the global political and economic stability that has been disturbed and affected by the pandemic.
So during the Rome summit, one of the top focus areas was the COVID 19 pandemic, and the member countries have come to an agreement that the only way in which they can mitigate the impact of the pandemic and contain its further spread is by stepping up vaccine production and distribution, especially to the developing countries and to the smaller nations in order to help the World Health Organization quickly achieve its vaccination target.
See, the WHO has laid down a vaccination target for itself, and it plans to inoculate at least 40% or more of the global population by 2021, that is by the end of this year and to further scale this up to at least 70% by the mid of next year. To achieve this ambitious target, the WHO would require the support of the developed nations and the large countries which have the ability to mass, produce and distribute these vaccines. So countries like India, European countries, Australia, the United States and the others are going to play a key role in producing and distributing enough vaccines to the other countries so that the vaccination coverage, even in smaller nations, can be stepped up with the help of WHO. This ambitious target of the WHO cannot be achieved without such global cooperation, and thankfully the countries are trying to create a platform for this through the G20. So the G20 leaders have committed to cooperate and work with each other in order to help the world overcome the gaps in supply and finance with regard to vaccine production and distribution.
The next key focus of the G20 summit was the Climate Change Convention at Glasgow, and the climate action priorities and targets of the world.
During the G20 summit, which has been held just a few days before the Glasgow summit, the developing countries were using the opportunity to remind the developed nations that they failed to fulfil their commitment to climate finance, under which they are committed to raising $100 billion every year since 2020 to fund adaptation and mitigation measures in developing nations.
So at the G-20 summit, the developed nations have taken a pledge again to fulfil these earlier commitments with regard to climate finance so that they can promote adaptation and mitigation measures in the developing nations and help them adopt greener and cleaner technologies to enable their transition towards a greener economy. But despite these renewed commitments, the divide and the differences between the developed countries and developing nations was very evident at the G20 summit as well and these differences are also played out again at the Glasgow summit of the Climate Change Convention.
Even as countries like India are being forced by other countries to accept the net zero-emission targets, India has managed to do well at the G20 summit to keep this pressure away from the developed nations and this success of India can be seen in the statement that has been issued after the G20 summit. The final G20 statement thus gives a lot of focus and attention to climate change and recommit the world to the target of keeping global temperatures under 1.5°C and gives utmost focus to sustainable development and responsible consumption. But however, it doesn’t contain any direct references to net-zero emissions and doesn’t speak about any deadline or targets which had been pushed back by India.
So in this regard, India seems to have protected its interests at the G20, but the fact that the G20 could be used by developing nations to highlight the importance of climate finance and to push the developed countries to live up to their commitments highlights the significance of the G20 platform.
Then coming to the core agenda of the G20, the member countries focused on the key economic challenges that lie ahead of us in a post-COVID world.
As the pandemic crippled the global economy due to the imposition of lockdowns, it has threatened global stability and around the world, countries are struggling to stage the economic recovery. So in order to help stabilize their economies and to promote economic growth and recovery, almost every major country has announced its own national stimulus to support their industries, their farmers in order to ensure financial stability during the disruption caused by the pandemic, and also to ensure the recovery of economic growth.
But however, the question is, how long can government sustain this national stimulus? And what would be the appropriate time to withdraw the stimulus?
Because any premature withdrawal will adversely affect the nascent recovery that is going on in the economy and at the same time, if it is continued for a prolonged period, it might affect financial stability due to the rising financial burden of sustaining such a stimulus package. Parallelly countries are dealing with rising inflation, increasing energy prices as the demand are bouncing back and unprecedented disruption to the global supply chain caused by the unlocking of economies around the world.
So the top economies are struggling to find a balance between these conflicting interests because, on one hand, they want to continue the stimulus to ensure financial stability and to further promote economic growth and recovery. But at the same time, they want to manage the financial pressures as well. So any premature withdrawal of the stimulus or even the unnecessary prolonging of the stimulus can adversely affect the ongoing recovery, and governments will have to be mindful of rising inflation, rising energy prices and the continuing disruption in global supply chains.
Solution: A Global Minimum Tax
So keeping all these factors in mind, the G20 countries have resolved to continue the respective stimulus packages until an appropriate time where it can be guaranteed that our economies are overcoming the impact of the pandemic and the lockdowns. So as these economies have decided to continue the respective stimulus packages, there is a need to further boost government revenue so that the government can continue funding the stimulus package without fearing the rising fiscal burden. So in the interest of boosting government revenue, the top economies have proposed a global minimum tax and this is being worked out to the G20 platform. A global minimum tax will reduce the attractiveness of low tax jurisdictions, because currently large companies and MNCs, are taking advantage of low tax jurisdictions by locating themselves over here, thereby avoiding taxes in large countries where their business is actually focused upon.
So if a global minimum tax is adopted by all major economies, it will reduce the attractiveness of low tax jurisdictions and the large corporates, the MNCs and the big companies would be forced to pay their due taxes in the countries where their operations are concentrated in, thus boosting revenue to those governments, which in turn could be used by then to sponsor welfare programs and the stimulus package. So nearly 136 countries are backing the proposal to introduce a global minimum tax, and it is likely to enter into force from 2023 onwards. But however, on this key issue, there are still a few differences, and through the G20 platform, the top 20 economies are trying to resolve these differences so that the stability of the global economy can be guaranteed.
So if these top 20 economies work together and coordinate their action, then they can ensure global economic recovery by dealing with all the pressing challenges with the pandemic or climate change and differences over climate change targets, or even the mounting challenges being faced with the global economy as it adapts to the disruption present in a post-COVID era. That’s the reason we said that the Rome summit of the G20 came at a critical moment for the global political economy, and coordinated action amongst these countries is the only way out in order to guarantee global financial stability and economic recovery.