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IMF approves using SDRs to finance climate, social programmes

IMF approves using SDRs to finance climate, social programmes
The International Monetary Fund (IMF) headquarters during the spring meetings of the IMF and World Bank Group in Washington, DC, US, on 13 April 2023. (Photo: Samuel Corum / Bloomberg via Getty Images)

The International Monetary Fund approved a new way for countries to channel reserve assets to multilateral development banks, part of a broader push to raise funds for challenges like climate resilience and poverty reduction.

The IMF said in a statement on Wednesday that its executive board on 10 May approved the use of the assets known as Special Drawing Rights, or SDRs, for the acquisition of hybrid capital instruments, which will be issued by lenders including the Inter-American Development Bank and the African Development Bank (AfDB).

The IMF and other multilateral institutions have been looking for solutions to “re-channel” SDRs from rich countries to poor ones. An issuance by the IMF in 2021 of $650-billion in SDRs had limited impact because of various administrative hurdles and the fact that most of the reserves were allocated to rich countries that didn’t need them.

The IMF decision will allow countries to use their SDRs to acquire hybrid capital instruments from lenders, rather than providing them as pure foreign exchange reserves, which can be restrained by domestic regulations. 

IDB chief Ilan Goldfajn told Bloomberg News that the IMF decision will help allocate $20-billion worth of SDRs to finance green and poverty reduction projects. On average, he said, development banks will be able to leverage four times that amount. 

“This is important because for every dollar that we have deposited, we can leverage more”, he said in an interview in New York on Wednesday. “Our biggest clients of course are always the large countries — Brazil, Mexico and Argentina. But the smaller countries are very important because we can take more risks.”

According to Goldfajn, the IDB and the AfDB are still working on which countries would make their SDRs available for the new channel, but some European nations and Japan have expressed support for the initiative.

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  • A Green says:

    I am not well versed in the criteria for SDR funding, but if one could leverage the funding to reduce poverty in the coastal towns in SA, that could be a nice win.

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