Reallocating Special Drawing Rights (sdrs) To African Financial Institutions

Special Drawing Rights (SDRs) provide countries with a means to reduce dependence on domestic and external debt, fostering financial resilience. However, the allocation of SDRs is based on IMF quota shares, thus disadvantaging low- and middle-income countries in Africa. In response to COVID-19, the IMF allocated its largest-ever SDRs ofUSD 650 billion in 2021. Regrettably, the reliance on quota shares resulted in only 5%, approximately USD 33 billion, reaching the African continent. This is significantly inadequate given the economic challenges faced by African countries. Acknowledging the limitations of the quota-share approach, there is a global push for high-income countries to reallocate their unused SDRs to low- and middle-income nations. Despite the G20’s commitment to reallocate USD 100 billion, funding is still tied to IMF instruments, which have many limitations. African financial institutions (AFI), particularly the African Development Bank (AfDB), are prepared to facilitate the reallocation process. The AfDB’s Hybrid Capital Instrument (HCI) proposal offers an innovative approach, leveraging contributions three to four times without imposing policy conditionalities. However, no country has officially reallocated their SDRs to AfDB or any other AFI to date. In support oftheir newest member, G20 countries should reallocate SDRs to AFIs with a commitment to a minimum USD 25 billion reallocation to the AfDB and USD 12.5 billion to other AFIs and expanding the list ofAfrican prescribed holders of SDRs. This paper underscores the importance of SDR reallocation to AFIs, ensuring direct funding for African countries through credible institutions like the AfDB. The recommendations aim to mobilize a minimum ofUSD 50 billion for Africa, aligning with the continent’s needs. The G20, with its collective influence, can help bridge existing gaps and promote equitable development.