The African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB) have expressed their approval of the International Monetary Fund’s Executive Board's decision to allow hybrid capital as an eligible instrument for channeling Special Drawing Rights (SDRs). The SDR-hybrid-capital based solution, proposed by AfDB and IDB, meets the IMF’s statistical criteria for international reserve-asset status. As per IMF rules, countries lending their SDRs through this approach can continue to account for them as reserves.
This innovative SDR-based hybrid capital channeling solution is set to unlock new lending by Multilateral Development Banks to address rising global challenges, including climate change and food security. The new instrument offers the opportunity to lend at least US$4 for every US$1 equivalent of SDRs, through AfDB and IDB, among other Multilateral Development Banks, to finance development projects.
In a time of multiple crises and scarce resources for development, this proposition holds unique value for governments worldwide. The next step involves securing at least five investors to channel their SDRs through Multilateral Development Banks. Both AfDB and IDB will continue their dialogue with SDR holders to advance this innovative financial solution.
“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,” said African Development Bank President Dr Akinwumi Adesina.
“We very much welcome the IMF Executive Board’s decision,” said InterAmerican Development Bank President Dr Ilan Goldfajn. “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.
In April, 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.
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