Under the existing architecture, fragmentation imposes the greatest costs on EMDEs. Decision- makers can improve the global financial system by changing its existing mechanics to better accommodate the needs and interests of EMDEs. For example, exempting climate finance vehicles from restrictive statecraft measures could allow EMDEs to mobilize resources more effectively. Likewise, restructuring the governance bodies of international financial institutions could afford EMDEs greater input into the system’s design. The following list highlights key areas for action. Enhance domestic capacity in governance, currencies and capital markets Strong partnerships among governments, national public financial institutions, the private sector and MDBs can create conducive investment environments, mitigate risks, improve liquidity and effectively deploy investments.87 Closer collaboration with other EMDEs and advanced economies, IFIs and multinational corporations can help strengthen regional capital markets and domestic currencies through sound fiscal and monetary policies and robust financial regulations. Supporting EMDEs’ development and sovereignty enables them to become custodians of a stable global financial system that supports economic prosperity.88 The G7 and major emerging economies, including China and India, can use positive economic statecraft to enhance the resilience and capacity of EMDEs’ economies and capital markets, among other goals. Recognized as ambitious and also debated, China’s Belt and Road Initiative provided African countries with over $20 billion in financing in 2023.89 Meanwhile, the EU’s Global Gateway programme aims to mobilize up to €150 billion in investments in Africa by 2027.90 Starting in 2025, a consortium of Indian banks is providing a $300 million syndicated loan to finance infrastructure investments in Africa.91 These initiatives demonstrate how states can leverage positive economic statecraft policies and encourage private sector-led engagement to advance their interests while fostering mutual economic benefits. Increase representation for EMDEs The current monetary architecture will likely struggle to retain its centrality without increasing EMDEs’ influence in the decision-making processes of international financial institutions. Possible reforms include: –Redistributing quotas and recalibrating voting shares –Increasing the number of EMDE-representing board chairs –Expanding G20 membership by focusing on African representation Depoliticize decision-making at IFIs Appointing top officials based on broad consensus and professional qualifications, rather than political affiliations, would be beneficial for fostering credibility and effectiveness within these institutions. Furthermore, shifting operational decision-making from the executive boards to professional management can help reduce political influence and enhance overall efficiency. By implementing these reforms, IFIs can better serve their purpose of promoting global financial stability and development.92 Enhance EMDEs’ access to capital Reforming MDBs could unlock an additional $500 billion in annual lending. Key changes include establishing more flexible lending criteria and increasing the availability of low-cost and concessional public financing. An overhaul of MDB capital adequacy frameworks would enable more low-cost loans, allow “loss and damage” facilities to support vulnerable countries and speed the disbursement of World Bank funds.93 Moreover, MDBs can increase flexibility in their support for EMDEs by developing market-based mechanisms to manage bondholder negotiations in sovereign debt restructurings and by decoupling MDB quotas and resource contributions from lending practices. Improving climate finance is another critical area for development, and IMF and World Bank deliberations could use climate vulnerability as a category of formal consideration. The G20 Common Framework for Debt Treatments could also facilitate EMDEs’ greater access to capital by including debtor middle-income countries, setting timelines for resolutions and ensuring that all creditors participate in multilateral debt negotiations.94 Strengthen the global financial safety net The GFSN requires urgent reforms to provide essential global liquidity and help EMDEs manage external financing vulnerabilities. Increasing fragmentation is already reshaping bilateral swap lines and regional financial arrangements, making enhanced coordination between emerging financial blocs even more essential.95 The IMF already plays an established role in facilitating cross-border collaboration and is positioned to lead efforts to strengthen the monitoring of financial flows, improve crisis-prevention mechanisms and coordinate responses to economic disruptions.96 4.3 Reform the global financial system Supporting EMDEs’ development and sovereignty enables them to become global custodians of a stable global financial system that supports economic prosperity. Navigating Global Financial System Fragmentation 36

Navigating Global Financial System Fragmentation 2025