The G20 Finance Ministers and Central Bank Governors, who met in Riyadh on February 22-23, discussed a range of issues affecting the global economy. They focused on forming and strengthening rules around the taxation of digital transactions, debt transparency and corporate base erosion to the mutual benefit all countries. Other things that were discussed included what impacts the coronavirus will have on global growth, as well as on combating financiers of international terrorism.
G20 finance ministers and central bank governors, at their meeting in Riyadh, said they welcomed recent progress made by countries toward reaching agreement on a coordinated update to the tax rules for multinational groups. The ministers stressed, though, that counties need to reach a political agreement on key elements of a revised tax scheme by July 2020 to achieve consensus by their agreed-to deadline of December 31, 2020.
In a communique released after their meeting, the ministers endorsed the “unified approach” as the basis for further negotiations on “pillar one.” The pillar one rules would allocate additional taxing rights over multinational group profit to the countries where a multinational group’s customers or digital users reside. The 130+ countries that comprise the “Inclusive Framework on BEPS” approved the unified approach in late January and released a statement describing the approach at that time.
The G20 finance ministers also said they welcomed the Inclusive Framework’s progress note on “pillar two,” which was also set out in the January statement. The goal of pillar two is for countries to agree to uniform rules for imposing a minimum tax on multinational groups. Finance officials from the world’s 20 biggest economies (G20) also referenced climate change in their final communique for the first time in U.S. President Donald Trump’s administration but stopped short of calling it a major risk to the economy.
The United States blocked including climate change on a list of downside risks to global growth that had won an agreement by nearly all other G20 delegates but ultimately agreed to permit a reference to the Financial Stability Board’s work examining the implications of climate change for financial stability. The final communique released by the G20 Finance Ministers and Central Bank Governors said: “After signs of stabilization at the end of 2019, global economic growth is expected to pick up modestly in 2020 and 2021.
The recovery is supported by the continuation of accommodative financial conditions and some signs of easing trade tensions. However, global economic growth remains slow and downside risks to the outlook persist, including those arising from geopolitical and remaining trade tensions, and policy uncertainty.” The communique pledged to enhance global risk monitoring, including the recent outbreak of COVID-19. “We stand ready to take further action to address these risks and we remain committed to use all available policy tools to achieve strong, sustainable, balanced and inclusive growth, and safeguard against downside risks while implementing structural reforms to enhance our growth potential,” the communique added.
It further said that the fiscal policy should be flexible and growth-friendly while ensuring debt as a share of GDP is on a sustainable path. Monetary policy should continue to support economic activity and ensure price stability, consistent with central banks’ mandates. “We reemphasize that international trade and investment are important engines of growth, productivity, innovation, job creation, and development,” said the statement, reaffirming the conclusions of our leaders on trade and investment at the Osaka Summit.
The G20 finance ministers agreed to continue to take joint action to strengthen international cooperation and frameworks. “We also reaffirm our exchange rate commitments made in March 2018,” said the communique, adding to continue to monitor and as necessary continue to tackle financial vulnerabilities. “We also reaffirm our commitment to ensure a stronger global financial safety net with a strong, quota-based, and adequately resourced IMF at its center,” it added.
The communique further said: “We are facing a global landscape that is being rapidly transformed by economic, social, environmental, technological and demographic changes.” Our collective work should strive to foster sustainable development and growth, and create the conditions in which all people can live, work and thrive, it added. An inclusive approach to growth can better harness untapped economic potential, help address inequality and empower all segments of society, especially women and youth.
Therefore, the G20 finance ministers agreed to develop a menu of policy options that countries can draw from to enhance access to opportunities for all. Infrastructure is a driver of economic growth and prosperity, which can be further enhanced through technology. The potential benefits of more widespread use of technology in infrastructure are substantial. It improves investment decisions over the lifecycle, enhances value for money of infrastructure projects, and improves the efficiency in building, operating and maintaining quality infrastructure for the delivery of better social, economic and environmental outcomes.
Referring to the technology, the communique said that the finance ministers agreed to develop an Infrastructure Technology (InfraTech) Agenda to support the utilization of technology in infrastructure. “We reaffirm our previous commitments and efforts, and we will advance our work towards our strategic direction and high aspiration as outlined in the G20 Principles for Quality Infrastructure Investment,” the communique added.
The finance ministers also agreed to continue to advance the implementation of the roadmap to Infrastructure as an Asset Class, including a focus on the regulatory framework for private sector participation in infrastructure investment. Accelerating efforts to develop domestic capital markets is essential to support growth and enhance financial resilience and inclusion. “We welcome the joint note of the International Monetary Fund (IMF) and the World Bank Group (WBG) on recent developments on local currency bond markets in emerging economies and welcome the stepping up of the ongoing efforts on developing domestic capital markets, especially in emerging markets and developing economies, taking into account country-specific circumstances,” explained the communique.
The G20 finance ministers and central bank governors took note of the positive note of the progress made in following up on the G20 Eminent Persons Group (EPG) proposals, recognizing their multi-year nature. “We endorse the G20 Reference Framework for Effective Country Platforms and look forward to an update by Multilateral Development Banks (MDBs) on progress achieved in implementing country-owned pilot platforms in developing countries, including in fragile states,” the communique noted. “We encourage the implementation of the cooperation agreements between the Multilateral Investment Guarantee Agency (MIGA) and other MDBs to enhance the role of political risk insurance in development finance for a stronger mobilization of private sector resources,” it added.
“In this context, we welcome the Co-Guarantee Platform between the Islamic Development Bank and the African Development Bank,” said the communique, reiterating continued support for the Compact with Africa (CwA), with enhanced roles for participating international organizations (WBG, AfDB, IMF) in implementation and strengthened bilateral engagement by G20 partners. “We reiterate the importance of joint efforts undertaken by both borrowers and creditors, official and private, to improve debt transparency and sustainability and encourage further efforts to address debt vulnerabilities,” it added.
In this regard, the ministers said that they look forward to the IMF-WBG update on the implementation of their multipronged approach for addressing emerging debt vulnerabilities, including an update on their work to deepen analysis of collateralized financing practices, in the context of the review of the IMF’s Debt Limits Policy and WBG’s Sustainable Development Finance Policy. “We urge the IMF, WBG, and other MDBs to continue their efforts to strengthen borrowers’ capacity in the areas of debt recording, monitoring, and reporting, debt management, public financial management, and domestic resource mobilization,” said the communique.
The ministers agreed to advance the discussion on the issues highlighted by the IMF-WBG note on the implementation of the G20 Operational Guidelines for Sustainable Financing. “We also look forward to an update on the implementation of Institute of International Finance’s Voluntary Principles for Debt Transparency, including on work to identify a data repository,” said the communique, pledging to support ongoing work by the IMF, WBG, and Paris Club on Low-Income Countries (LICs) debt, and the continued efforts of the Paris Club towards the broader engagement of emerging creditors.
The ministers also welcomed the recent progress made on addressing the tax challenges arising from the digitalization of the economy. They also endorsed the Outline of the Architecture of a Unified Approach on Pillar One as the basis for negotiations and welcome the Progress Note on Pillar Two, both of which were agreed by the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS). They further encouraged further progress on both Pillars to overcome the remaining differences and reaffirm our commitment to reach a consensus-based solution with a final report to be delivered by the end of 2020.
The G20 finance ministers stressed the importance of the G20/OECD Inclusive Framework on BEPS agreeing on the key policy features of a global and consensus-based solution by July 2020, which would form the basis of a political agreement. They reiterated the importance of international cooperation to complete this work and ensure tax certainty. They welcomed the progress made on implementing the internationally agreed tax transparency standards. They also took note of the updated G20/OECD list of jurisdictions that do not comply with such standards. Defensive measures against listed jurisdictions will be considered.
The ministers agreed to continue to support tax capacity building in developing countries, including coordinating through the Platform for Collaboration on Tax. The finance ministers called on all jurisdictions to sign and ratify the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. We remain committed to the full, timely and consistent implementation of the agreed financial reforms.
The ministers said that they will continue to evaluate the effects of reforms and look forward to the Financial Stability Board (FSB)’s evaluation of the effects of Too-BigTo-Fail reforms. “We will continue to identify, monitor and, as necessary, address vulnerabilities and emerging risks to financial stability, including those related to non-bank financing,” said the communique. According to the circumstances, macro-prudential policies can be part of the toolkit. “We will continue to work to address unintended, negative effects of market fragmentation, including through regulatory and supervisory cooperation,” the communique added.
The ministers said that they will also continue their efforts to enhance cyber resilience and look forward to the FSB’s toolkit of effective practices for cyber-incident response and recovery. “We continue to monitor and address the causes and consequences of the withdrawal of correspondent banking relationships, and issues in remittance firms’ access to banking services,” said the communique, adding that mobilizing sustainable finance and strengthening financial inclusion is important for global growth and stability. The FSB is examining the financial stability implications of climate change.
The ministers also welcomed private sector participation and transparency in these areas. “We emphasize that markets need to transition away from LIBOR to alternative reference rates before end-2021. Therefore, urgent work is needed by the private sector, supported by the public sector, to manage this transition, given the risks that may arise if parties are insufficiently prepared for the expected discontinuation of widely used LIBOR benchmarks,” the communique added. Given the short time remaining for this transition to take place, substantial progress is needed in 2020 to address the potential financial stability risks.
The ministers asked the FSB to identify remaining challenges to benchmark transition by July 2020 and to explore ways to address them. They reiterated their view that technological innovations can deliver significant benefits to the financial system and the broader economy and we support the work on framing supervisory and regulatory issues for the digital era. Accordingly, the finance ministers welcomed the inclusive approach of utilizing the FSB’s regional consultative groups, involving also the respective financial regulation standard setters, to consider the implications associated with the growing entry of BigTech in finance. The ministers also asked the FSB to report on the different approaches to technology-enabled-solutions for regulation and supervision (RegTech and SupTech).
The ministers pledged to remain vigilant to potential risks arising from financial innovations, including those risks related to financial stability, consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism (CFT) as well as their macroeconomic implications, including monetary sovereignty issues. Building on the 2019 Leaders’ Declaration, they urged countries to implement the recently adopted Financial Action Task Force (FATF) standards on virtual assets and related providers.
To that end, the ministers looked forward to reports by the FSB, IMF, and the FATF and welcome the FATF’s statement that it’s AML/CFT standards apply. We recognize the need to enhance global cross-border payment arrangements to facilitate lower-cost and swifter transfers, including for remittances. The ministers asked the FSB, in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other relevant standard-setting bodies and international organizations, to develop a roadmap to enhance global cross-border payment arrangements by October 2020. “We support the Global Partnership for Financial Inclusion (GPFI)’s emphasis on digital financial inclusion of underserved groups, especially women and youth, and small and medium-sized enterprises (SMEs),” it added.
The finance ministers welcomed the progress on streamlining the GPFI work program and structure and ask the GPFI to update its Terms of Reference as per the endorsed “A Roadmap to 2020”. They reaffirmed support for the FATF, as the global AML and CFT standard-setting body for preventing and combating money laundering, terrorist financing and proliferation financing. “We reiterate our strong commitment to tackling all sources, techniques, and channels of these threats,” said the communique. The ministers reaffirmed commitment to strengthening the FATF’s global network of regional bodies, including by supporting their expertise in mutual evaluations, and call for the full, effective and swift implementation of the FATF standards worldwide. “We support the ongoing actions by the FATF to strengthen the global response to proliferation financing,” said the communique, calling on the FATF to remain vigilant concerning emerging financial technologies that may allow for new methods of illicit financing. They said that they also look forward to the FATF’s Strategic Review.