The African Development Bank (AfDB) Group has created a financial innovation scheme to encourage developed countries to redirect their Special Drawing Rights (SDRs) to African nations.
The Bank intends leveraging on the SDR from the developed countries to provide additional capital and financing, as well as concessional loans, to accelerate the development of African countries.
Dr Akinwumi Adesina, president of AfDB, who disclosed this at the Reception for African Ambassadors in Japan on Tuesday (25 April) said the bank had met the International Monetary Fund (IMF) reserve asset status for redirection of the SDRs.
Delivering a speech on “Mobilising Financing for Africa,” he said the AfDB’s quest to see developed countries redirect their SDRs into Africa came at a point of global economic crisis, where many African economies had been locked out of the international capital market for funds, whilst battling with debt issues.
SDRs are supplementary foreign exchange reserve assets by the International Monetary Fund (IMF) designed to bolster government reserves, ease liquidity crunches during crises and allow receiving countries to reduce their reliance on more expensive domestic or external debt for shoring up reserves.
“We have been spearheading innovations to make this happen. I am delighted to inform you that the financial innovation developed by the African Development Bank to receive rechannelled SDRs has now met the IMF staff criteria of reserve asset statuses required for the SDRs to be rechannelled.
“What is needed now is to have five developed countries that will form a pool to re-channel SDRs for Africa to the African Development Bank,” Dr Adesina said.
The AfDB Group President noted that the UK government had indicated that it could redirect £500 million to the AfDB, and Japan was positively considering also rechannelling SDRs to the Bank.
“The bank will give value for money for the use of Japan’s SDRs, as every dollar will be leveraged by three to four times,” he said.
The IMF issued US$650 billion in SDRs in 2021, with Africa receiving US$33 billion, adding up to just five per cent of the amount. The G7 countries received 43% of the allocation, while members of the G20 received 68%.
Ghana, Algeria, Angola, Benin, Nigeria, Rwanda, South Africa, Tanzania, Togo, Zambia, and Zimbabwe got SDR allocation from the IMF in 2021.
African Heads of State have called for a rechannelling of at least US$100 billion of the SDRs to Africa from developed countries that do not need such interventions. Some of that allocation should go through the African Development Bank.
“The reason is clear. SDRs allocated to the African Development Bank will be leveraged by three to four times,” Dr Adesina said.
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