Oxfam warns of rich country financial wizardry that puts their own interests ahead of the world’s poorest people

New Oxfam analysis describes a $27 trillion black hole - accumulating at around $3.9 trillion a year to 2030 - that low- and middle-income countries face to meet climate-related loss and damages, adaption, and mitigation measures, along with their health, education and social protection needs.

All of these investments are crucial to tackling economic and gender inequality.

Despite today’s dire reality of austerity and climate change that hit the world’s poorest people, women, and marginalized groups hardest, rich countries meeting at the World Bank Spring meetings in Washington today (April 10-16) are discussing reforms that are likely to unlock only a tiny fraction of the financing needed.

Oxfam calls for rich countries to borrow $11.5 trillion to fund an historic “climate debt swap” with poorer countries, in addition to finally honoring their aid commitments, of which they are in arrears to the tune of $6.5 trillion.

Progressive wealth taxes and Special Drawing Rights (SDRs) would be enough to fund these common-sense policies and more, with enough left over for rich nations to make inequality-busting investments at home. Just one measure – a progressive net wealth tax of up to 5% – could add around $1.1 trillion to donor (OECD DAC) country budgets each year.

“To anyone who would dismiss an $11.5 trillion climate debt swap as radical, remember that rich countries raised about as much in response to Covid-19,” said incoming Oxfam International interim Executive Director Amitabh Behar.

“To anyone who would dismiss meeting aid promises as unrealistic, remember that rich countries could raise more than $1 trillion each year if they were willing to tax the rich. It all comes down to political will.”

“Our economic system continues to shovel trillions of dollars into the hands of the wealthiest elite. Billions upon billions of windfall profits, riding on a cost-of-living crisis, have filled the pockets of rich shareholders,” Behar said.

“Capital Adequacy Framework” (CAF) reforms would allow Multilateral Development Banks to increase the volume of their lending without government shareholders having to pay in more money. Oxfam says that while this is a good idea that should be implemented quickly, it is a long way from being a magic bullet.

Even the most expansive CAF reforms would unlock just $1 trillion, which is a long way from $27.4 trillion needed.

However, a less ambitious – and far more likely – reform on the table would raise as little as 0.1% of the annual climate and social spending needs of low- and middle-income countries between now and 2030. Oxfam is concerned that rich countries could be attracted to this CAF reform as an excuse not to meet their aid commitments that the poorest nations are owed and urgently need.

“Of course, it’s convenient for rich countries to prioritise options that don’t cost them a cent,” Behar said. “But the CAF reform is no magic bullet – it will deliver the proverbial drop in the ocean of what’s really needed, and risks distracting from aid commitments.”

Other initiatives on the Springs table – such as suspending debt repayments should a country suffer a natural disaster like a hurricane or earthquake, or “green bonds” to encourage environmental projects – might all be welcome, but they too will also nowhere near enough meet the need.

“If rich countries were serious about investing in people and planet, they would go beyond financial wizardry. It’s time for governments to find their moral fibre and tax the richest, so we can stave off climate catastrophe and lift everyone out of poverty,” Behar said.

The proposed reforms in the World Bank ‘Evolution Roadmap’ process will be another hot topic at the Spring Meetings.

Oxfam points out that an Inequality Goal, committing the World Bank to closing the gap between the poorest 40% and the richest 10%, is long overdue.

“The World Bank’s own analysis shows that extreme economic inequality is a barrier to poverty reduction – yet the current goal on “shared prosperity” is weak and ineffective. We need to see far more ambition from a global body tasked with fighting poverty,” Behar said.

“The IMF also needs a radical overhaul in its approach to inequality. They must stop pushing austerity policies that hit the poorest hardest and increase the gap between the rich and the rest.”

“For the first time in 25 years, extreme wealth and extreme poverty have risen at the same time. 71 million more people were forced into poverty in just four months last year because of food and fuel price hikes,” Behar said. “In response, the IMF throws austerity policies at poorer countries’ drowning economies that hit them not as lifelines but as lead weights,” Behar said.