African Development Bank calls for IMF reserve funds to adapt to climate change

ABIDJAN, Côte d’Ivoire – The African Development Bank (AfDB) urged rich nations to channel their International Monetary Fund special drawing rights (SDRs) through the continental lender to help fund projects needed to adapt to climate change.

In 2022, the Abidjan-based bank allocated 63 per cent of its climate finance to adaptation, the most of any multilateral development finance institution, its chief financial officer Hassatou Diop N’Sele said in written a response to questions.

With Africa being the most undeveloped continent and its nations among the hardest hit by global warming, more finance is needed to make it resilient against the cyclones, floods and droughts that are hitting with increasing frequency, damaging infrastructure and impairing food systems, Ms N’Sele said.

Her call echoes an ambitious request by the African Union last week for at least US$100 billion (S$136 billion) of the US$650 billion of SDRs issued in 2021 to be redirected by rich nations to the continent. The African Union also proposed that the IMF consider a similar-sized issue of the instruments to tackle the climate crisis.

“Additional efforts in supporting the green transition are premised on enhancing our lending capacity,” she said. “Re-channeling US$10 billion of SDRs would increase multilateral development banks’ lending capacity by US$30 billion to US$40 billion, at zero cost to those providing the SDRs.”

Of the US$650 billion of SDRs issued in 2022, Africa received only US$33 billion, compared with US$113 billion for the US alone.

The AfDB, the continent’s biggest development finance institution, is being pushed by the African Union as the institution through which it would like the world’s developed nations, which are responsible for the bulk of the emissions causing climate change, to channel their financial assistance. 

The bank has put in place a number of initiatives to bolster climate resilience on the continent, including the strengthening of infrastructure and food systems against adverse weather, Ms N’Sele said.

The African Development Fund, the concessional funding arm of the AfDB, created the Climate Action Window, which raised US$429 million from the Britain, Germany, Netherlands and Switzerland and ultimately aims to mobilise more than US$4 billion.

The AfDB has also set up the Alliance for Green Infrastructure in Africa, which seeks to raise US$10 billion in public and private capital, including US$500 million for early stage project preparation, in a bid to generate a pipeline of projects. In addition, the lender plans to issue sustainable hybrid capital, a mix of debt and equity funding, in a first for a multilateral development bank, she said.

The Rotterdam-based Global Centre on Adaptation released a report at the Africa Climate Summit in Nairobi, Kenya, last week that estimated the continent needs US$100 billion in adaptation finance annually.

“The financing gap is staggering and resources are barely trickling in,” Ms N’Sele said. “Climate finance flows to Africa have been far too low and fall far short of what the continent needs.” BLOOMBERG