AfDB, Other Approve Use of Special Drawing Rights for Hybrid Capital Instruments
The African Development Bank (AfDB) and InterAmerican Development Bank (IDB) have welcomed International Monetary Fund’s (IMF) Executive Board’s approval of the use of Special Drawing Rights (SDRs) for Hybrid Capital Instruments.
The AfDB, in a statement, said the IMF approval allowed countries to channel SDRs through multilateral development banks. It said the AfDB-IDB financial instruments could leverage SDRs by up to four times their value in the form of loans to finance social and climate projects.
“The SDR-hybrid-capital based solution proposed by the AfDB and IDB meets the IMF’s statistical criteria for international reserve-asset status. As such, according to IMF rules, countries that lend their SDRs through this pioneering approach can continue to account for them as reserves.
“This innovative SDR-based hybrid capital channelling solution will help unlock new lending by Multilateral Development Banks (MDBs) to address rising global challenges, including climate and food security,” it said.
According to the AfDB, the new instrument offers the opportunity to lend at least four dollars for every one-dollar equivalent of SDRs through AfDB, IDB, and MDBs to finance development projects. It quoted the AfDB President, Akinwumi Adesina, as saying “At a time of multiple crises and scarce resources for development, this is a unique value proposition for governments everywhere.
“The next step is to secure at least five investors to channel their SDRs through MDBs. The AfDB and IDB will continue their dialogue with SDR holders to drive forward this innovative financial solution.
“The international community now has at its disposal an innovative approach through which development financing can be mobilised with a multiplier effect and at no cost to taxpayers. These are the types of solutions we need to help us tackle Africa’s growing development challenges,” Adesina said.
Dr Ilan Goldfajn, President of the IDB, expressed delight at the IMF Executive Board’s decision. With the new SDR-based hybrid-capital instrument, we have a cost-efficient way to finance much-needed sustainable development projects. To boost climate resilience, reduce poverty and inequality, and lay the foundation for more inclusive growth in many of our countries.
“The G20 has recommended that MDBs optimise the use of their balance sheets through financial innovation to create additional lending capacity to help countries tackle urgent development challenges,” he said. The AfDB recalled that in April, the leaders of 10 MDBs published a Viewpoint Note and announced joint steps to work more effectively as a system and increase the impact and scale of their work.
The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries. Its value is based on a basket of world currencies (U. S dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound).
The IMF’s most recent general allocation of SDRs to its members was in 2021 when the equivalent of 650 billion dollars was issued to help countries respond to the COVID-19 pandemic. WAEC Introduces CBT Option in Nov. 2024 WASSCE
