(Ecofin Agency) - The African Development Bank (AfDB) believes that getting SDRs from developed countries would allow it to raise more money on financial markets at costs well below those of sovereign issuers.
The African Development Bank (AfDB) wants some of the Special Drawing Rights (SDRs) of wealthy countries. According to Bloomberg, which cited a senior executive of the AfDB, the pan-African lender will use the resources to increase its financing dedicated to climate change adaptation projects in Africa.
"As Africa is the least developed continent and its nations among the hardest hit by global warming, more funding is needed to make it resilient to the cyclones, floods, and droughts that increasingly strike, damaging infrastructure and compromising food systems," said AfDB Finance Director Hassatou Diop N'Sele.
The AfDB stressed that the bank will integrate part of the SDRs it is asking for in its equity capital, thereby increasing its capacity to finance climate change adaptation projects on the continent.
"In 2022, the AfDB allocated 63% of its climate financing to adaptation[...]. Further efforts to support the green transition involve strengthening our lending capacity", she explained, indicating that the "reallocation of $10 billion in SDRs would increase the lending capacity of multilateral development banks by $30-40 billion, at no cost to those providing the SDRs."
As an AAA-rated financial institution, the AfDB can raise funds on the financial markets at costs well below those of African sovereign issuers.
SDRs are an international reserve asset created in 1969 by the IMF to supplement the official foreign exchange reserves of its member countries. They can be exchanged for freely usable currencies at the request of these countries.
In August 2021, the IMF approved the largest SDR allocation in its history (around $650 billion) to bolster global reserves and promote economic recovery from the coronavirus pandemic.
Africa's 5% share of this allocation amounted to $33 billion, as much as France and Italy combined, and less than half what the USA received. According to African leaders, the 5% is insufficient to meet their countries' needs.
In October 2021, the G20 promised to reallocate $100 billion in SDRs to the most vulnerable countries, most of which are in Africa and Latin America, but this has not happened so far.