African Ministers of Finance, Planning, and Economic Development gathered at the Africa High-level Working Group on the Global Financial Architecture meeting, held during the 2023 Annual Meetings of the African Development Bank Group. They collectively called for reforms to the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) system, aiming to strengthen the global financial safety net and increase liquidity available to developing countries.
Coordinated by the Economic Commission for Africa (ECA), the High-level Working Group comprises African ministers, the African Union, the African Development Bank, Afreximbank, the World Bank, and includes the participation of IMF staff and Executive Directors. Its purpose is to develop proposals for reforming the global financial architecture and amplify the African voice on the global stage.
During the meeting, Ms. Hanan Morsy, ECA’s Deputy Executive Secretary and Chief Economist, presented on the need to reform the SDR allocation and rechanneling mechanism. The SDR system was established in 1968 to supplement official reserves and facilitate global liquidity. However, since its inception, there have been only four general allocations and one special allocation, despite the global macroeconomic conditions that would have justified more frequent allocations.
Ms. Morsy emphasized that current SDR allocations disproportionately benefit countries that are less in need of them. This is because SDRs are distributed based on existing IMF quotas, which primarily reflect the size and relative position of economies in the world economy. For instance, during the 2021 general SDR allocation of $650 billion, high-income countries received approximately $450 billion, constituting nearly 70% of the total allocation, while Africa received fewer SDRs than Germany, despite having a significantly larger population.
The ministers stressed the importance of making SDR allocation decisions more rule-based and analytical to reduce discretionary and political influences. They called for clarifying and operationalizing the provision for “Unexpected Major Developments” to include triggers such as pandemics, natural disasters, global recessions, and significant capital flow reversals from emerging and developing economies.
Ensuring effective distribution of SDRs to countries in need was another focal point. The ministers advocated for rechanneling SDRs to Multilateral Development Banks, including the African Development Bank, as a means to achieve this objective. They supported a viable technical solution proposed by the African Development Bank and the Inter-American Development Bank, which leverages SDRs to provide much-needed liquidity to African countries. They urged SDR donor countries to participate in this proposal to enable its implementation.
Furthermore, the ministers called for reforms to the SDR rechanneling mechanism, suggesting improvements to the intermediation system and updates to the SDR’s “reserve asset characteristic” to align with contemporary use. They also emphasized the need for increased transparency in the SDR market, urging the IMF to take measures to promote transparency.
To enhance the effectiveness of SDR allocations in stabilizing the global economy, the ministers called for a reform of the SDR allocation formula. They proposed considering countries’ liquidity needs in addition to IMF quotas, ensuring that a larger proportion of future SDR allocations would reach countries with the greatest liquidity needs.
To discussions on SDRs, the meeting provided an update on the Sustainable Debt Coalition initiative by Sherine El Sharkawy, Egypt’s Deputy Minister of Finance for Economic Affairs. The coalition facilitates collaboration between creditor and borrower nations on debt, development, and climate change. Endorsed during ECA’s Conference of African Ministers of Finance, Planning, and Economic Development in March 2023, the initiative has already gained interest from over 20 countries. Deputy Minister El Shark