The third G20 Finance Ministers and Central Bank Governors (FMCBGs) meeting, held in Gandhinagar, Gujarat this week, navigated a broad range of economic and taxation issues, but faltered on consensus over the Ukraine war.
Some countries in the G20 grouping that includes China, the US, and Russia refrained from endorsing some contentious clauses in the joint statement that referred to the Ukraine war.
The contested clauses largely centered on a firm condemnation of the Ukraine war.
One of the clauses read: “Most members strongly condemned the war in Ukraine and stressed that it is causing immense human suffering and exacerbating existing fragilities in the global economy constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks. There were other views and different assessments of the situation and sanctions.”
“Recognizing that the G20 is not the forum to resolve security issues, we acknowledge that security issues can have significant consequences for the global economy,” the clause added.
A footnote in the outcome statement said: “China stated that the G20 FMCBG meeting is not the right forum to discuss geopolitical issues, while Russia dissociated itself from the status of this document as a common outcome because of references in paragraphs 2, 3 and 5.”
While paragraphs 2 and 3 had references to the Ukraine war and upholding international law, paragraph 5 spoke of potential volatility in food and energy markets amid uncertainties in the global economy.
Food for thought
Paragraph 5 assumes significance as several G20 member nations have condemned Russia for stopping the passage of grains from Ukraine through the Black Sea.
The Black Sea is a critical route for grain transport, connecting major grain-producing countries with global markets.
A deal allowing Ukraine to export grain via the Black Sea expired on Monday after Russia said it will suspend its participation. The deal, brokered by the UN and Turkey last July, aimed to alleviate a global food crisis by allowing Ukrainian grain blocked by the Russia-Ukraine conflict to be exported safely.
Ukraine is one of the biggest producers of grains and oilseeds. A blockade of its exports in the wake of the Russia war had pushed global food prices to record highs. Prices had cooled down after the UN and Turkey-brokered deal came into force in July 2022, five months after the war began.
The International Monetary Fund (IMF), meanwhile, has cautioned that inflation may continue to stay high, paving the way for more monetary policy tightening.
Medium-term growth prospects are weak, IMF chief Krastalina Georgieva said, while advocating the need to strengthen the global financial safety net.
Global South Focus
In meetings attended by Union finance minister Nirmala Sitharaman, India focused on topics crucial to the goals of the Global South.
The term ‘Global South’ is used to refer to developing countries, primarily located in the southern hemisphere, that face similar economic and developmental challenges.
“We have been able to take the issues to the G20 which the Global South had raised in ‘Voice of the Global South Summit’ which Hon’ble PM Shri @narendramodi had held,” Sitharaman said on Twitter.
“We have been able to push the agenda of debt distress, which is happening in the Global South as well, and that there’s a need for speedy & effective resolution. I’m glad that since February when we started talking about the issue, resolutions are now happening speedily and effectively,” the finance minister added.
The Organisation for Economic Co-operation and Development (OECD), a club of rich countries, meanwhile said in a report to the G20 FMCBG that it is making “strong progress with ongoing reforms of the international tax system”.
The OECD tax report to G20 highlights the recent agreement by 138 nations on a two-part tax plan for the digital economy.
This includes simpler transfer pricing rules for some activities and a rule letting developing countries adjust tax treaties for low-taxed group income. A public consultation on transfer pricing rules is now open until September 1, aiming to finalize the report by year-end and update the OECD rules by 2024. A multilateral convention for reassigning taxing rights over multinational companies’ profits is in the works, with its text to be released once ready and issues resolved.
OECD secretary-general Mathias Cormann told The Economic Times that the global tax deal is the biggest reform in over 100 years that seeks to cater to changes in business models and the structure of the global economy.
In the joint statement, the G20 finance ministers and central bank governors have committed to improving multilateral development banks (MDBs) to meet the needs of low- and middle-income countries.
MDBs are international institutions established by groups of countries, which provide financial support and professional advice for economic and social development activities in developing countries. The main MDBs include the World Bank, the Asian Development Bank, and the African Development Bank, among others.
An independent G20 expert group on MDBs, headed by former chairman of the 15th Finance Commission N.K. Singh and former US Treasury secretary Larry Summers, was set up under India’s presidency at the first FMCBG meeting in Bengaluru this March.
The joint statement said the risks of the fast-paced developments in the crypto-asset ecosystem, which includes cryptocurrencies, blockchain technologies, and related financial and business activities, are being closely monitored.
The joint statement endorsed the recommendations of the Financial Stability Board, which monitors and makes recommendations about the global financial system, for the regulation, supervision, and oversight of crypto-assets activities and markets.
The finance ministers and central bank governors also called upon FSB and other standard-setting bodies “to ensure timely and effective global implementation of their recommendations in a consistent manner globally to avoid regulatory arbitrage”, a situation where entities exploit differences in regulations between countries or industries for their own benefit.