The African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB) have welcomed the announcement by the International Monetary Fund’s Executive Board approving hybrid capital as an eligible instrument for channeling of Special Drawing Rights (SDRs).
According to IMF rules, the SDR-hybrid-capital based solution proposed by the AfDB and the IDB meet the statistical criteria for international reserve-asset status and as such, countries that lend their SDRs through this pioneering approach can continue to account for them as reserves.
Experts believe that the innovative SDR-based hybrid capital channeling solution will help to unlock new lending by Multilateral Development Banks to address rising global challenges, including climate and food security.
The new instrument offers the opportunity to lend at least US$4 for every US$1 equivalent of SDRs, through the African Development Bank and, the Inter-American Development Bank, and other Multilateral Development Banks, to finance development projects.
A news report on the approved rules from African Press Organisation (APO) Group circulated on behalf of the AfDB, indicated that at a time of multiple crises and scarce resources for development, the IMF’s approval represented a unique value proposition for governments everywhere.
The report stated that the next step would be to secure at least five investors to channel their SDRs through Multilateral Development Banks as the AfDB and IDB would continue their dialogue with SDR holders to drive forward this innovative financial solution.
Commenting on the approved instruments by the IMF, AfDB President, Dr. Akinwumi Adesina, enthused: “The International community now has at its disposal an innovative approach through which development financing can be mobilized 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.”
In his remarks, the IDB President, Dr Ilan Goldfajn, said: “We very much welcome 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 Multilateral Development Banks optimize the use of their balance sheets through financial innovation to create additional lending capacity to help countries tackle urgent development challenges.
It would be recalled that in April this year, the leaders of 10 Multilateral Development Banks 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 (US 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 was issued to help countries respond to the COVID-19 pandemic.
