Think7 Policy recommendations on sustainable economic recovery

The T7 Task Force on Sustainable Economic Recovery will develop research-based policy advise for Germany’s G7 Presidency on formulating national and global policies that will not only enable and sustain rapid economic recoveries, but also help the achievement of the Agenda 2030 for Sustainable Development and the Paris Climate Goals. The Task Force will develop policy ideas for re-establishing growth momentum for the world economy; the scaling up of green investment; for addressing the debt crisis in the Global South; for reinvigorating global trade and building more resilient supply chains; and on the role of international cooperation and international organisations in supporting these goals.
In this session during the Global Solutions Summit 2022, major policy recommendations of the task force to G7 policymakers are presented and discussed.


Keeping the World Economy on Track: Dealing with the Short-Term Emergency and Pursuing Longer-Term Objectives

As the global economy emerges from the COVID-19 pandemic in 2022, the road to sustainable economic recovery has been interrupted by the Russian invasion of Ukraine. In the short term, the G7 needs to address the crisis in Ukraine and deal with the impact of the war on lives and livelihood. At the same time, it needs to keep track of long-term objectives. A new global bargain is needed to support long-term economic growth, accelerate energy transition and the decarbonisation of the world economy, and tackle inequalities. Improved governance of this new global bargain will be essential, to preserve stability and ensure cooperative policies, to mitigate polarization, and to avoid the fragmentation of the international economic order.

Addressing the Debt Crisis in the Global South: Debt Relief for Sustainable Recoveries

A debt crisis is looming in the Global South. High levels of public debt service and insufficient fiscal and monetary space are threating recoveries and impeding much-needed investments in climate resilience and the Agenda 2030. This policy brief makes seven recommendations for the G7 to address the debt crisis in the Global South and provide all countries with the opportunity to invest in sustainable recoveries: (1) Reinforce efforts to increase transparency of public and private sovereign debt. (2) Push a reform of the International Monetary Fund (IMF) and World Bank’s Debt Sustainability Analysis (DSA) to fully include climate and sustainability risks and investment needs. (3) Encourage the IMF to create an option for all sovereign debtors to request an updated DSA as a basis for negotiations with its public and private creditors. (4) Create legal safeguards for debt restructurings and limiting opportunities for holdouts to derail negotiation processes and outcomes. (5) Increase incentives for private creditor participation in debt reprofiling and restructuring, respecting the principle of comparable treatment of creditors. (6) Initiate a dialogue with sovereign debtor groups representing climate-vulnerable nations. (7) Assure policy coherence by fostering the alignment of new debt issuance with the climate and sustainability targets.

International Partnerships for Circular Economy, Energy Transition, and Investment

A sustainable and inclusive global economic recovery following the COVID-19 pandemic faces significant unprecedented global challenges, unforeseen during COP26 and exacerbated by the recent Russian invasion of Ukraine. They reduce already-constrained fiscal spaces available for post-pandemic recovery, threaten access to and affordability of clean energy, and impede multilateralism’s effectiveness. Said unprecedented challenges, coupled with difficulties in implementing non-binding international agreements, threaten to derail the energy transitions required to achieve net-zero emissions by 2050 and hinder economic recovery. A sustainable global recovery needs universal access to clean energy, both energy security and affordability, as well as the low-carbon energy transition and a transition to a circular economy across the world, which in turn requires the transfer of appropriate technologies to the Global South and the mobilisation of private finance.  This Policy Brief calls on the 2022 Group of 7 to develop and support international partnerships and consistent domestic implementation to safeguard the energy transition and circular economy advancements to advance towards net-zero emissions targets, while advancing towards a sustainable economic recovery and global energy access. This partnership, consisting of public-private and bilateral/multilateral development organisations and national governments, should address three interdependent areas: circular economy; energy transition and decarbonization regulation and incentives; and investment and finance. Such partnership will be indispensable for achieving an environmentally sustainable economic recovery.

Looking for a Possible Locomotive to Lead International Trade

The recent COVID-19 pandemic and cross-border political conflicts have posed great risks to international trade which is vital to economic growth and prosperity. Despite the apparent benefit of international trade, the global community’s efforts to manage and expand fair trade has not been active enough to achieve a sustainable economic recovery. Many countries increasingly consider national security as an important factor when reinforcing trade policies and have become far more selective in choosing their economic partners.

To alleviate the disruption of supply chains, especially of strategically important goods, we suggest accomplishing a standstill of trade restriction policies by forming a cooperative network among like-minded countries. Strengthening the role of OECD as the supervisor of protectionist activities could help expand trust among participating countries and stabilize the GVCs. Moreover, the inclusion of additional countries with high shares of global trade to the G7 could enhance economic influence to facilitate international trade and would become a new engine for trade market growth.

Building Resilient Education Systems to Mitigate the Adverse Effects of COVID-19 and Future Disruptions of Learning

Natural disasters, violent conflicts, and health crises are becoming more frequent and severer. These events disrupt schooling, resulting in significant learning losses and larger learning disparities. Without a carefully planned scheme to mitigate the impact of these disruptions and recover learning losses, the disruptions will lead to significant scars, permanently lowering lifetime earnings and well-being of individuals and persistently depressing economic growth. Previous and current disruptions clearly demonstrate the need to build highly resilient education systems. A resilient education system can be prepared to protect students, staff and school infrastructure in the best possible way, continue learning processes in the face of school closures, and rapidly recover foregone and lost learning. The G7 and international organizations can partner with country governments to ensure high education system resilience.

Central Bank Digital Currencies: Governance, Interoperability, and Inclusive Growth

As economies have become increasingly digitalized, central bank digital currencies (CBDCs) have been at the forefront of the agenda for central banks as a means to enhance payments systems’ efficiency (both domestically and cross-border) and increase financial inclusion, and more broadly to support the effective transmission of monetary policy in the digital age (BIS, 2020; Boar and Wehrli, 2021). While the potential of CBDCs to meet these goals is clear, a secure underlying infrastructure and a credible, globally accepted system is of paramount importance. This would help to mitigate against potential cybersecurity and financial crime risks related to fraud and illicit payments. More broadly, the development of a sound, efficient and interoperable system to enable friction-free use of CBDCs across borders and national systems would help to maintain stability, enhance financial inclusion and support inclusive growth. This policy brief, recognizing the faster pace of digital transformation and innovations in digital finance post-pandemic, calls for the G7 to champion and steward widespread preparations for the introduction of a globally interoperable system for CBDCs. This includes bringing together central banks and international financial institutions to understand the cross-border dimensions in the optimal design of CBDCs and supporting infrastructures, in order to ensure that central bank issued money retains relevance as a vehicle for monetary policy transmission and global financial stability. A coordinated approach to the interoperability of CBDCs would also help to alleviate the potential misuse of CBDC systems for financial crime purposes, such as evading sanctions on financial transactions. The policy brief also proposes policy options for maximizing the potential of CBDCs for inclusive growth, notably in relation to lifting prevailing levels of digital education, financial literacy, and digital infrastructure as part of distribution.

Sustainable and Resilient Agricultural Value Chains: Addressing Multiple Vulnerabilities With a New Partnership Approach

The ongoing compound and acute crises of Covid-19 and the war in Ukraine meet longer-term but no-less pressing crises of social and environmental sustainability in and around agriculture, food and nutrition security. At the same time, they irritate existing frames on (and perceptions of) how to address trade and sustainability. External shocks must be increasingly considered when addressing food security, following the FAO’s observation that conflicts and migration have developed into major reasons for food insecurity and hunger.

Additionally, climate change, biodiversity loss and human rights are generally most challenging and partially conflicting for many developing countries. They have to address them by aiming at increased and more nutritious food production, job creation, poverty alleviation and resilience to shocks of a still strongly growing and urbanising population.

Many international mechanisms are already in place on agriculture and food systems which are almost unavoidably not (yet) sufficiently coordinated. A new generation of due diligence laws recently is added mostly by industrialised countries to that existing mix of policies in place addressing serious sustainability gaps of supply chains into these countries. However, these regulations also bear the risk of generating unintended negative consequences, particularly for smallholder farmers in poor countries.

Against this background, we conclude for proposals at different degree of specificity:

  1. Reacting to geopolitical risks: Immediate and long-term measures to safeguard food security in light of Russia’s War on Ukraine,
  2. Balancing and integrating food security and sustainability,
  3. Initiating a joint observatory on new due diligence measures, and
  4. Starting a process to improve harmonised global governance for agriculture and food systems.