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AfDB, American Bank Support IMF’s Groundbreaking Decision

Nathaniel Irobi by Nathaniel Irobi
May 21, 2024
in News
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AfDB, American Bank Support IMF’s Groundbreaking Decision

AfDB, American Bank Support IMF's Groundbreaking Decision

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The International Monetary Fund’s (IMF) Executive Board has given its approval for the inclusion of hybrid capital as an eligible instrument to channel Special Drawing Rights (SDRs). This decision has garnered support from the African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB).

The innovative solution proposed by AfDB and IDB aligns with the IMF’s criteria for international reserve-asset status. As a result, countries that lend their SDRs through this approach can continue to account for them as reserves, as per IMF rules.

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This SDR-based hybrid capital channeling solution will play a crucial role in unlocking new lending opportunities by Multilateral Development Banks (MDBs) to address pressing global challenges, including climate change and food security. By leveraging SDRs, the AfDB, IDB, and other MDBs can provide loans for development projects at a ratio of at least $4 for every $1 equivalent of SDRs.

In a time of limited resources and multiple crises, this innovative financial solution presents a unique value proposition for governments worldwide. The next step involves securing a minimum of five investors willing to channel their SDRs through MDBs. The AfDB and IDB will continue their discussions with SDR holders to advance this groundbreaking approach.

Dr Akinwumi Adesina, President of the African Development Bank, expressed his enthusiasm, stating, “The international community now has an innovative approach to mobilize development financing with a multiplier effect and at no cost to taxpayers. These are the types of solutions we need to address Africa’s growing development challenges.”

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Dr Ilan Goldfajn, President of the Inter-American Development Bank, also welcomed the IMF Executive Board’s decision, highlighting the cost-efficient means to finance sustainable development projects, enhance climate resilience, reduce poverty and inequality, and foster inclusive growth in member countries.

The G20 has recommended that MDBs optimize the use of their balance sheets through financial innovation to increase lending capacity and support countries in addressing urgent development challenges.

In April, leaders from ten MDBs released a Viewpoint Note and announced collaborative efforts to work more effectively as a system and amplify the impact and scale of their work.

SDRs are international reserve assets established by the IMF to supplement the official reserves of member countries. Their value is based on a basket of major world currencies, including the US dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound.

The most recent general allocation of SDRs by the IMF occurred in 2021, with approximately $650 billion issued to assist countries in responding to the COVID-19 pandemic.

Tags: Akinwumi AdesinaGroundbreaking
Nathaniel Irobi

Nathaniel Irobi

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