At the COP28 in Dubai on Monday, a coalition of nations and international organizations, including France, Japan, Spain, the United Kingdom, Brazil, the International Monetary Fund (IMF), and the United Nations, rallied in support of a pioneering initiative proposed by the African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB).
This plan advocates for the utilisation of Special Drawing Rights (SDRs) via multilateral development banks (MDBs) to address climate and development challenges in vulnerable nations.
The special roundtable, co-hosted by the COP28 Presidency, AfDB, IDB, the Government of France, and the Government of Japan and supported by the Rockefeller Foundation, garnered praise for its innovative proposal aimed at supplying much-needed financial resources to countries facing environmental and developmental vulnerabilities.
The discussion spotlighted the historical context of the IMF’s $650 billion SDR allocation in 2021, a measure to aid countries grappling with the global crisis ignited by the COVID-19 pandemic.
However, Africa received a mere $33 billion, representing a mere 5 percent of the total allocation, while Latin America and the Caribbean were allocated only 8 percent.
The African Union had earlier urged a higher SDR allocation, setting a target of $100 billion for the continent, with a portion to be channelled through the AfDB.
The current proposal aligns with the MDB Vision Statement issued during the Summit on the Paris Pact for People and Planet in June 2023.
Akinwumi Adesina, President of the African Development Bank, emphasised the potential impact of SDR channelling through MDBs, stating, “MDBs can multiply the channelled SDRs by at least four times their original values.”
He further elaborated on transforming these reserves into dynamic lending instruments to finance development without cost to taxpayers in SDR-rich nations.
Ilan Goldfajn, President of the Inter-American Development Bank, highlighted SDRs’ importance in advancing the climate agenda and scaling up climate-related investments in member countries.
He welcomed France’s liquidity pledges and the expressed support from Japan, the UK, and Spain for the SDR hybrid capital instrument.
IMF Deputy Managing Director Bo Li lauded the proposal’s quality, stating, “The hybrid capital instrument proposed by AfDB and IDB would meet the reserve asset quality requirements.” Li underscored its importance in amplifying the 2021 SDR allocation’s positive impact on developing nations.
Japan’s Deputy Director General in the Ministry of Finance, Tomoyoshi Yahagi, expressed enthusiasm about contributing to the proposed hybrid capital, emphasising the instrumental role of MDBs in delivering crucial financial resources for Sustainable Development Goals.
The French Treasury’s Director General, Emmanuel Moulin, highlighted France’s unwavering support for SDR reallocation through the proposed hybrid capital instrument, underscoring the joint effort’s potential to aid countries in need.
Spain’s First Deputy Prime Minister, Nadia Calvino, emphasised the importance of reinforcing multilateral institutions and developing fit-for-purpose instruments, stating that channelling SDRs is a priority for Spain.
Andrew Mitchell, UK Minister of State for Development and Africa, commended the innovative proposals by AfDB and IDB and expressed the UK’s interest in augmenting the SDR facility with liquidity support. He emphasised the need to benefit countries most in need of support.
The UN’s Under Secretary General for Economic and Social Affairs, Li Junhua, extended support for the proposal, calling upon countries with unused SDRs to contribute agreements with AfDB and IDB.
Additionally, Brazil confirmed efforts to rechannel SDRs through MDBs for climate and development finance as part of their G20 Presidency agenda.
Alok Sharma, a Climate and Finance Fellow at the Rockefeller Foundation, underscored the political will necessary to overcome technical barriers, emphasising the initiative’s impact on supporting vulnerable populations affected by climate change.
Alvaro Lario, President of the International Fund for Agricultural Development, stressed the importance of political breakthroughs following the provision of solutions to support farmers, pointing to the pressing need for action.
The roundtable marked a pivotal moment for global cooperation and commitment to addressing climate and developmental challenges, showcasing a unified effort to utilise financial resources effectively for the benefit of vulnerable nations.