The United Kingdom may channel some of its International Monetary Fund Special Drawing Rights (SDRs) to Africa through the African Development Bank, revealed UK Minister for Africa, Latin America and the Caribbean Vicky Ford yesterday.
“Let me be very clear, the UK would like to channel some of our SDRs to Africa through the African Development Bank,” Ford said on Wednesday at the African Development Bank Group’s 2022 Annual Meetings in Accra. “We welcome the Bank’s efforts to develop options for these SDRs, Ford said.
Ford was speaking during a discussion seminar organized by the African Development Bank to advance a push to empower multilateral development banks to act as channels for reallocated SDRs.
SDRs are an international reserve asset –not a currency—through which the International Monetary Fund supplements member countries’ official reserves.
The seminar—titled Breaking down barriers around the use of SDRs to support Africa’s sustainable development—featured a discussion of a proposal to channel reallocated SDRS via multilateral development banks.
Currently, the IMF’s Poverty Reduction and Growth Trust and its recently approved Resilience and Sustainability Trust are the sole channels for SDR reallocation.
The African Development Bank has been working with other multilateral development banks to rally support from leaders of developing and developed nations for its proposal to channel SDRs through multilateral development banks.
Taking part in the discussion alongside the British minister were Kenneth Ofori-Atta, Ghana’s Minister of Finance, and Chair of the African Development Bank’s Board of Governors; Amadou Hott, Senegal’s Minister of Economy, Planning, and International Cooperation; Nicolas Kazadi, Minister of Finance of the Democratic Republic of the Congo; and Admassu Tadesse, President Emeritus and Group Managing Director, TDB Group.
Kazadi said: “Now we have a unique opportunity with these SDRs to make a difference, and it is so important because it is not only a matter of development or poverty reduction. It is also a matter of climate challenges, and if we do not make it for Africa, we are all lost.”
Hott said: “Africa needs to accelerate its development. We cannot do small things every year and take 100 years to do something we should do in 10 years’ time because at this current pace, we will be here in 30 years talking about the same things,” Hott added: “with the allocation of SDRs, we’ve shown that there is almost a zero cost instrument to developed countries to help developing countries.”
In his opening statement Bank President Akinwumi Adesina posited: “Providing these SDRS also through multilateral banks, will be a gamechanger for accelerated development of countries.”
President Adesina gave several reasons to support the establishment of a multilateral development bank-based option.
“We are a leveraging machine. That is what multilateral development banks are,” Adesina stressed. He said SDRs and their leverage could be used to provide additional capital and financing for regional African development banks as well as to provide concessional loans to countries.
Channelling SDRS through multilateral development banks would also foster complementarity between development institutions and the IMF, the African Development Bank chief pointed out. . He said: “The IMF will focus on macroeconomic and fiscal stabilisation, its area of comparative advantage, while the multilateral development banks will focus on sectoral programs and sectoral policies. That is our bread and butter. Then we will be able to ensure that the SDRs deliver impactful results on the ground.”
In August 2021, the IMF approved its largest ever allocation of SDRs—456.5 billion, equivalent to $650 billion—to build up global reserves and drive economic recovery from the Covid-19 pandemic.
Africa’s 5% share of the allocation amounted to $33 billion. African leaders consider this fraction of the overall allocation to be inadequate to their countries’ needs. This is because health and social responses to the pandemic have driven up debt across Africa. At the same time, hygiene measures put in place to counter the spread of the disease slowed economic activity.
In April 2021, the Group of 20 nations (G20) pledged to reallocate $100 billion to more vulnerable countries. Most of these countries are in Africa and Latin America. Since then, some countries have made public commitments to reallocate their SDRS, including the United Kingdom, France and China.