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IMF Approves the Use of SDRs in Hybrid Capital Instruments

Thursday, 16 May 2024 12:16
IMF Approves the Use of SDRs in Hybrid Capital Instruments

(AfDB) - IMF approval allows countries to channel Special Drawing Rights (SDRs) through multilateral development banks. 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 African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB) today 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). 

The SDR-hybrid-capital based solution proposed by the African Development Bank and the Inter-American Development Bank 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 channeling solution will help 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.

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 Multilateral Development Banks. The African Development Bank and Inter-American Development Bank 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 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.

About the African Development Bank

The African Development Bank Group (AfDB) is Africa’s premier development finance institution. It comprises three distinct entities: the African Development Bank (AfDB), the African Development Fund (ADF) and the Nigeria Trust Fund (NTF). On the ground in 44 African countries with an external office in Japan, the AfDB contributes to the economic development and the social progress of its 54 regional member states. 

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About the IDB

The Inter-American Development Bank is devoted to improving lives. Established in 1959, the IDB is a leading source of long-term financing for economic, social and institutional development in Latin America and the Caribbean. The IDB also conducts cutting-edge research and provides policy advice, technical assistance and training to public- and private-sector clients throughout the region. Take our virtual tour.

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ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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