The African Development Bank (AfDB) has called for the reallocation of special drawing rights (SDRs) in Africa’s favour.
If given the go-ahead, this will mean the AfDB can help accelerate Africa’s development by helping it cope with challenges such as climate, debt, insecurity and the effects of the Ukraine war.
The AfDB said that if developed countries, which have the highest SDR allocations by the IMF, agree to the reallocation of their reserves, it will leverage the official reserves on global capital markets.
AfDB president Akinwumi Adesina said the bank will do this in a similar manner to what it did with SA’s $8.5bn that was launched as part of COP26 to support the country through just-transition interventions.
The AfDB, together with the Bank of America, announced this week that it will use the $8.5bn to raise as much as $27bn to support SA’s just energy transition.
Speaking at the bank’s annual meetings in Accra, Ghana, this week, Adesina said: “Africa needs to have reallocation of $100bn from developed economies, as agreed to by the African heads of state and at the Conference on Financing African Economies after hosted by President Emmanuel Macron [of France].”
He said this should happen in accordance with the African Union resolution in February this year, and that a part of the SDRs for Africa should be reallocated through the AfDB, itself a prescribed holder of SDRs.
The IMF on August 23 2021 allocated the equivalent of $650bn in SDRs — an international reserve asset created by the IMF to supplement the official reserves of its member countries — to help alleviate the liquidity pressures of many countries by boosting their external buffers after the Covid-19 pandemic.
Based on their IMF quotas, African countries have collectively received about $33.2bn.
The amount represents only 5% of the IMF’s total SDR allocation to African countries and a small fraction of their financing needs.
To reconcile the distribution with these needs, the IMF called for voluntary channelling of SDRs from members with strong external positions into the Poverty Reduction and Growth Trust, which is now interest-free.
Speaking during the bank’s SDR session on Wednesday, its acting vice-president for finance and CFO, Hassatou Diop N’seles, said because SDR allocations were made in proportion to countries’ IMF quota, the allocation is inversely to the needs of African countries.
“The 54 countries of Africa received $33.5bn in new reserve assets while the seven countries that form the G7 received more than $275bn,” said N’sele.
She said the value proposition made by the AfDB is a compelling rationale because the bank can significantly leverage the impact of the SDRs by “three to four times”.
“To put it in picture, $50bn of the SDRs allocated to multilateral development banks is a $150bn to $200bn of SDRs that the institutions can invest to build back the continent and also address global inequities and development challenges,” N’sele said.
She said the AfDB has designed a hybrid capital structure that will enable rich countries to lend SDRs to multilateral development banks that they can account for as equity.
“We will leverage that equity by borrowing from capital markets at affordable prices thanks to our [AfDBs] AAA rating [which allows the bank to borrow at lower costs]. And this, at zero cost to developed countries taxpayers,” she said.
Jee-A van der Linde, an Africa economist at Oxford Economics, told Business Day there is no doubt the continent needs additional funds, “not only to develop but to make up ground lost over the past two years”.
“However, the jury is still out on whether the AfDB will do a better job at allocating the money than the IMF does.
“Would we still see the strings attached that IMF funding usually carries? If not, is that really a good thing? Still, the regressive nature of the SDR allowances does suggest there is a lot of room for improvement to unlock a considerable amount of funding for a region that desperately needs it,” said Van der Linde.
• Thuletho Zwane is attending the AfDB 2022 May annual meetings in Accra, Ghana.
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