Ahead of the curve – the AfDB at the World Bank-IMF Spring Meetings
OREANDA-NEWS. April 27, 2016. The African Development Bank may be smaller by numbers than other multilateral development banks (MDBs), not least the World Bank, but its voice is loud, its expertise is ground-breaking, and its local character is defining. One of the constant threads of the 2016 World Bank-IMF Spring Meetings was the acknowledgement that other MDBs can learn from the AfDB, and not just in Africa. It leads the field in three particular areas: MDB exposure exchange; support for fragile states; and using funds designated for private-sector lending, in poorer countries.
MDB exposure exchange
For instance, the meetings examined the MDBs’ ability to scale-up their development financing activities through innovative mechanisms. At the Global Infrastructure Forum, the heads of MDBs praised the benefits of the MDB exposure exchange led by the AfDB, Inter-American Development Bank (IADB) and the International Bank for Reconstruction and Development (IBRD) as an innovative way to reduce sovereign concentration risks and unlock new lending capacity. Similarly, at the G20 seminar on MDB balance sheet optimization, representatives of the Ministries of Finance acknowledged the value of the MDB exposure exchange and encouraged other MDBs to explore such measures. Both the heads of MDBs and the G20 delegates also emphasized the importance of mobilizing private capital to enable MDBs to scale-up substantially non-sovereign lending in developing countries. (The AfDB has grown its private sector lending by a factor of 10 in 10 years.) Innovations such as synthetic securitizations and programmatic syndication – already being explored by AfDB – were strongly encouraged.
Support for fragile states
The World Bank-IMF Spring Meetings also showed how the AfDB leads global development discourse and practice in the area of support for fragile states. This was recognized by partners during the forum on Conflict and Violence. The Bank approaches fragility from a risk perspective, which is good for public and private investments. The AfDB is the first development finance organization to abandon the binary view of fragile versus non-fragile countries. Under its 2014 Strategy, it recognizes that no country is immune to issues of fragility, and that these are not limited by state borders. Through a dedicated financing facility – the Transition Support Facility – the Bank has mobilized more than USD 2.1 billion of concessional financing in support of public sector investments in countries with fragile situations, since 2008. As a legally distinct entity, the Facility has flexibility in the way it operates. It is made up of three complementary financing pillars that can provide additional financing to infrastructure and governance operations, while leveraging resources for regional operations. It also provides the Bank with flexibility to engage in countries which have arrears, notably Somalia, Sudan and Zimbabwe, and to support their Governments in their efforts to normalize relationships with international financial institutions. The Facility also provides technical assistance. Meanwhile a number of the Bank’s knowledge products on fragility were cited at the Meetings, including Taking AfDB’s development impact to scale in fragile situations (EN/FR); Special Economic Zones in fragile situations – a useful policy tool? (EN/FR); and From Fragility to Resilience – managing natural resources in fragile situations in Africa (EN/FR).
Using funds designated for private-sector lending
In a year in which the African Development Fund is being replenished – alongside the World Bank’s International Development Association (IDA) Fund – a topic at the meetings was the way that the development community collectively seeks optimal ways of using scarce resources. It seeks out best practice. One way in which the AfDB leads the MDB community is in using funds allocated to private-sector lending, in countries experiencing fragility. Launched in 2015, the Private Sector Facility (PSF) is the African Development Bank Group’s credit enhancement initiative to increase private financing in low-income countries. During its pilot period, the PSF participates in the credit default risk of the ADB’s non-sovereign guaranteed operations, enabling the ADB to stretch prudently its risk capital in more risky markets. The PSF’s credit enhancement capacity is backed by the liquidity of a USD 230 million reserve pool seeded by a grant from the African Development Fund (ADF) to cover potential losses. The facility has been structured to enable a “BBB” equivalent level of credit enhancement to cover risk exposures amounting to USD 700 million. At the end of 2015, approximately USD 225 million had been allocated to exposures in 15 private sector transactions at diverse stages of implementation. Of this, more than 50% are in fragile states. Examples of approved projects include power generation projects in Kenya, C?te d’Ivoire and Sierra Leone, agribusiness and other industrial plants in the Democratic Republic of the Congo and Mali. IDA is considering following the AfDB’s path in its own replenishment this year.