African leaders urged to tackle impact of Ukraine war, climate with optimal use of SDRs
Adewumi Adesina, president of the African Development Bank has urged African leaders to make optimal use of their Special Drawing Rights (SDRs) to accelerate development and tackle issues of climate change, debt, insecurity and impacts of the Russian- Ukraine war.
The SDRs are the IMF’s unit of account and are the fund’s reserve assets held by the member countries. The value of SDR is pegged to a basket of currencies as follows: USD at 41.73 percent, EUR at 30.93 percent, GBP at 10.92 percent, Yen at 8.33 percent, and Yuan at 8.09 percent.
“Africa can accelerate its development and cope with other challenges such as climate, debt, insecurity, and the effects of the Russian war in Ukraine on their economies if the Special Drawing Rights are used more optimally,” he said in his opening speech at the on-going AfDB Annual Meetings in Accra, Ghana, themed ‘Achieving Climate Resilience and a Just Energy Transition for Africa,’
According to him, owing to the resolution of the African Union in February 2022, part of the SDRs for Africa should be re-allocated through the African Development Bank, which is a prescribed holder of SDRs.
He noted that challenges remain with the SDRs re-allocation through AfDB, including how to assure the SDRs reserve asset quality and ensure its liquidity with high credit quality, saying that the bank is working actively and together with the IMF to provide practical solutions to the issues.
“We should use the SDRs in more pragmatic ways, to support countries. Providing the SDRs also through the multilateral development banks has several benefits,” he said.
“First, the multilateral development banks can leverage the SDRs. At the African development bank, we can leverage the SDRs by a factor of four times. Second, the SDRs at the bank can form part of the hybrid capital of the bank, as equity paid in SDRs, through long-term loans.
“Third, the SDRs that are leveraged will be used to provide additional capital and financing to the development banks in Africa, as part of the Financing in Common. The SDRs can also be provided as concessional loans to the African Development Fund,” he added.
He announced that other multilateral development banks such as the European Bank for Reconstruction and Development, European Investment Bank, Islamic Development Bank, Inter-American Development Bank, and the Asian Development Bank are joining the AfDB in seeking SDRs.
He stated that the provision of SDRs to the multilateral development banks will be game-changers for the accelerated development of countries.
“The SDRs should become “Strengthening Development Revitalization”. That way, people on the streets will feel the effects of the SDRs on their lives,” he said.
“And we would have achieved a full optimization of the global financial architecture, with the IMF working on macroeconomic and fiscal stabilization, and the multilateral development banks using their extensive experience and specialization on sectoral lending and policies to drive sustainable growth and development,” he added.
Adesina urged the bank’s shareholders to support these efforts, noting that there is need for additional financing in low-income countries and states that rely on the African Development Fund.
Member countries can convert their SDR holdings into currencies when needed; the cost is negligible and depends on short-term interest rates, according to EFG Hermes, Investment Banking and the leading financial partner in FEMs.
Speaking also, Kenneth Ofori-Atta, Chair of the Board of Governors of the African Development Bank (AfDB), said the current local and global dynamics have made it imperative that Africa mobilize resources through innovative means, including the digital space.