IMF approves SDR-hybrid-capital solution welcomed by AfDB-IDB

The innovative SDR-hybrid-capital solution proposed by the AfDB and IDB meets the IMF’s criteria for international reserve-asset status.

The African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB) have welcomed the International Monetary Fund’s Executive Board's approval of hybrid capital as an eligible instrument for the channeling of Special Drawing Rights (SDRs).

The innovative SDR-hybrid-capital solution proposed by the AfDB and IDB meets the IMF’s criteria for international reserve-asset status. According to IMF rules, countries that lend their SDRs through this approach can still account for them as reserves. This solution is expected to unlock significant new lending by Multilateral Development Banks to address global challenges such as climate change and food security. The new instrument allows lending of at least $4 for every $1 equivalent of SDRs, through the AfDB, IDB, and other Multilateral Development Banks, to finance development projects.

In a time of multiple crises and limited development resources, this offers a valuable proposition for governments worldwide. The next step involves securing at least five investors to channel their SDRs through Multilateral Development Banks. The AfDB and IDB will continue discussions with SDR holders to advance this financial solution.

“The international community now has an innovative approach to mobilize development financing with a multiplier effect and no cost to taxpayers. These are the types of solutions we need to tackle Africa’s growing development challenges,” said AfDB President Dr. Akinwumi Adesina.

“We welcome the IMF Executive Board’s decision,” said IDB President Dr. Ilan Goldfajn. “With the new SDR-based hybrid-capital instrument, we have a cost-efficient way to finance essential sustainable development projects, boost climate resilience, reduce poverty and inequality, and lay the foundation for more inclusive growth in our countries.”

The G20 has recommended that Multilateral Development Banks optimize their balance sheets through financial innovation to create additional lending capacity to address urgent development challenges.

In April, leaders of ten Multilateral Development Banks released a Viewpoint Note and announced joint steps to work more effectively as a system, increasing 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 was in 2021, when $650 billion was issued to help countries respond to the COVID-19 pandemic.