"COP28: International support grows for channeling IMF Special Drawing Rights through multilateral development banks"

" COP28: International support grows for channeling IMF Special Drawing Rights through multilateral development banks \r\nThe governments of France, Japan, Spain and the United Kingdom together with Brazil (the incoming G20 Presidency), the International Monetary Fund, the United Nations, ministers from Africa and Latin America, the Asian Development Bank and other international institutions pledged strong support for a proposal by the African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB) for the channeling of special drawing rights (SDRs) through multilateral development banks (MDBs).\r\n\r\nSpeaking at a special roundtable convened at the COP28 in Dubai on Monday 4\u00a0December to discuss\u00a0 leveraging SDRs for climate and development , the participants commended the two banks for their innovative proposal that would deliver much-needed financial resources to vulnerable countries.\r\n\r\nThe meeting was co-hosted by the COP28 Presidency, AfDB, the IDB, the Government of France, and the Government of Japan, with support from the Rockefeller Foundation.\r\n\r\nThe IMF issued a historic general allocation of SDRs worth $650\u00a0billion in 2021 to help countries deal with the impact of a global crisis triggered by the Covid-19 pandemic. Africa, with a population of more than 1.2\u00a0billion, received only $33\u00a0billion representing about 5 percent of the total allocation, the smallest portion among the different regions of the world. Similarly, Latin America and the Caribbean received only 8 percent of the total allocation.\r\n\r\nThe African Union at its meeting of Heads of State in February 2022 urged wealthy nations to increase the SDR allocation to the continent to at least $100\u00a0billion and channel part of them through the African Development Bank. The channeling of SDRs through the MDBs strongly aligns with and was incorporated into the MDB Vision Statement issued at the Summit on the Paris Pact for People and Planet held in June 2023.\r\n\r\nThe African Development Bank and the Inter-American Development Bank have developed an innovative mechanism that will be structured as a hybrid capital instrument and can therefore be accounted for as equity on the AfDB\u2019s and IDB\u2019s balance sheets. It is also underpinned by a Liquidity Support Agreement between contributing shareholders, to ensure that SDR-contributing countries can still account for these as reserves.\r\n\r\nSpeaking at the roundtable, the African Development Bank\u2019s President Dr.\u00a0Akinwumi Adesina reiterated the benefits of channeling the SDRs through MDBs. He said, \u201cMDBs can multiply the channeled SDRs by at least four times their original values.\u201d This multiplier effect means that $5\u00a0billion of channeled SDRs could be transformed into $20\u00a0billion of new financing.\r\n\r\nAdesina added: \u201cThis will transform the SDRs from static foreign reserve assets into dynamic lending instruments, at affordable costs, to finance development, while preserving their reserve asset status, and be at zero cost to taxpayers in SDR-rich countries.\u201d\r\n\r\nInter-American Development Bank President Ilan Goldfajn highlighted the important progress in the discussion around SDRs channeling and said: \u201cSDRs are critical to help us advance our climate agenda, and to scale up investments for climate mitigation and adaptation in our member countries. We welcome the progress made towards rechanneling of SDRs with the liquidity pledges by France, the support expressed by Japan, the UK and Spain through the SDR hybrid capital instrument and the IMF\u2019s readiness to send a proposal to its Executive Board soon. Going forward, it will be crucial to have the commitment of at least five more investors to make this instrument a reality and start channeling SDRs through MDBs.\u201d\r\n\r\nThe IMF Deputy Managing Director Bo Li congratulated the two banks for developing a concrete proposal, saying, \u201cBased on our staff assessment, the hybrid capital instrument proposed by AfDB and IDB\u2026 would meet the reserve asset quality requirements.\u201d\r\n\r\n\u201cSuccessful implementation of the proposal would be an important contribution to amplify the positive impact of the historic 2021 SDR allocation for the benefit of developing countries,\u201d said Li. He also noted that the IMF is working at pace to finalize all required approvals, with these processes already well advanced and expected be completed and sent to the board in the near future.\r\n\r\nThe government of Japan announced that it \u201cwill be accelerating its best efforts to make a contribution to the proposed hybrid capital.\u201d\r\n\r\nThe country\u2019s Deputy Director General in the Ministry of Finance Tomoyoshi Yahagi said the proposal by the two banks \u201cis a great opportunity by MDBs to show strong partnership with their member countries to deliver the most needed financial resources to achieve Sustainable Development Goals.\u201d\r\n\r\nThe Director General of the French Treasury Emmanuel Moulin said from the beginning his country had been a strong supporter of SDR reallocation.\r\n\r\n\u201cAfDB and IDB have put forward a very solid proposal for the channeling of SDRs through a hybrid capital instrument with the help of IMF\u2026 for the benefit of countries most in need.\u201d\r\n\r\nMoulin said that \u201cFrance is ready to support the SDR hybrid capital proposal through the Liquidity Support Agreement, by providing a guarantee.\u201d\r\n\r\nSpain expressed similar support for the SDR initiative. Spain\u2019s First Deputy Prime Minister and Minister for Economy, Trade and Enterprises, Nadia Calvino who is also the chair of the International Monetary and Financial Committee of the IMF, said that her country \u201chas been in the lead to reinforce the firepower of multilateral institutions and the creation of new instruments which are fit for purpose. Channeling SDRs is one of the instruments we should work on.\u201d\r\n\r\nThe United Kingdom commended the African Development Bank and the Inter-American Development Bank \u201cfor these innovative proposals to maximize the value of SDR channeling,\u201d said Andrew Mitchell, Minister of State for Development and Africa. He mentioned the United Kingdom will be \u201cexploring the possibility of augmenting the SDR facility with a liquidity support agreement.\u201d\r\n\r\nHe added, \u201cThe UK is a firm champion and supporter of the African Development Bank and its outstanding President. And I sincerely hope that with further detailed work, this channeling proposal can be delivered, benefiting those countries most in need of support.\u201d\r\n\r\nThe UN\u2019s Under Secretary General for Economic and Social Affairs Li Junhua said the proposal by the African Development Bank and the Inter-American Development, \u201cdeserves all our support. The UN calls on countries with unused SDRs to show their support and conclude contribution agreements with the African Development Bank and the Inter-American Development Bank.\u201d\r\n\r\nThe Government of Brazil confirmed that efforts to rechannel SDRs through MDBs to expand climate and development finance will form part of the agenda for their G20 Presidency.\r\n\r\nSir Alok Sharma, a Climate and Finance Fellow at the Rockefeller Foundation and the former COP26 President, spoke with urgency in support of the proposal saying, \u201cWe can overcome the technical barriers. This event demonstrates a vital ingredient: political will. We all talk about the millions, the billions and the trillions, but that doesn\u2019t mean anything to people living on the front lines of climate change. This is about supporting the most vulnerable people in the world. Please don\u2019t fail them.\u201d\r\n\r\nAlvaro Lario, the president of the International Fund of Agricultural Development, a prescribed holder of the SDRs to support farmers, said, \u201cThe solutions have been provided and what is now needed is the political breakthrough.\u201d\r\n\r\nSupportive remarks were also made by senior government officials from Kenya, Senegal, Brazil Argentina and the Asian Development Bank.\r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n "

"COP28: International support grows for channeling IMF Special Drawing Rights through multilateral development banks"

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