IDB and AfDB Welcome IMF Executive Board’s Decision Approving Use of SDRs for Hybrid Capital Instruments

• IMF approval allows countries to channel Special Drawing Rights (SDRs) through multilateral development banks. 
• IDB-AfDB financial instrument could leverage SDRs by up to four times their value in the form of loans to finance social and climate projects.

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

The SDR-hybrid-capital-based solution proposed by the IDB and AfDB meets the IMF’s statistical criteria for international reserve-asset status. As such, according to IMF rules, countries that lend their SDRs through this pioneering approach can continue to account for them as reserves. 

This innovative SDR-based hybrid-capital channeling solution will help unlock new lending by MDBs to address rising global challenges, including climate and food security. The new instrument offers the opportunity to lend at least $4 for every $1 equivalent of SDRs through the IDB, the AfDB and other MDBs to finance development projects. 

At a time of multiple crises and scarce resources for development, this is a unique value proposition for governments everywhere. The next step is to secure at least five investors to channel SDRs through MDBs. The IDB and the AfDB will continue their dialogue with SDR holders to drive forward this innovative financial solution. 

“The International community now has at its disposal an innovative approach through which development financing can be mobilized with a multiplier effect and at no cost to taxpayers. These are the types of solutions we need to help us tackle Africa’s growing development challenges,” said African Development Bank President Dr. Akinwumi Adesina.

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

The G20 has recommended that MDBs optimize the use of their balance sheets through financial innovation to create additional lending capacity to help countries tackle urgent development challenges. In April, the leaders of 10 MDBs published 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 (the U.S. dollar, euro, Chinese yuan, Japanese yen and British pound). 

The IMF’s most recent general allocation of SDRs to its members was in 2021, when the equivalent of $650 billion was issued to help countries respond to the COVID-19 pandemic. 

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