The International Monetary Fund (IMF) has announced that its board has approved member states’ IMF-issued international reserve assets to be utilised by multilateral development banks (MDBs) to acquire financial instruments that would expand their balance sheets.
In a statement, the IMF disclosed that this decision would enable member states to permit their Special Drawing Rights (SDRs)—international reserve assets originated by the Fund—to be utilised by MDBs for acquiring so-called “hybrid capital” instruments.
These innovative financial tools amalgamate elements of both debt and equity, facilitating MDBs to augment the amount they can allocate towards development projects.
While the board’s decision was not unanimous, it introduces an additional avenue for the utilisation of SDRs, which already serve various purposes for the IMF’s 190 members, including settling obligations and loans.
The African Development Bank (AfDB) and the Inter-American Development Bank (IDB) lauded the IMF’s decision, highlighting its potential to leverage existing SDRs up to fourfold, thereby addressing pressing global issues such as climate change and food security.
“The international community now has at its disposal an innovative approach through which development financing can be mobilised with a multiplier effect and at no cost to taxpayers,” remarked Akinwumi Adesina, President of the African Development Bank.
The IMF stipulated that the new utilisation of SDRs would be subject to a cumulative cap of 15 billion SDRs (approximately $19.9 billion).
If leveraged as suggested by the IDB and the AfDB, this could unlock an additional lending capacity of nearly $80 billion.
The IMF clarified that the 15 billion SDR cap aimed to mitigate potential liquidity risks in the SDR market. Furthermore, it announced plans to conduct a review of the new use of SDRs once cumulative hybrid capital contributions surpass 10 billion SDRs (approximately $13.2 billion), or within two years.