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Emerging Markets

AfDB seeks to triple capital base

African Development Bank president Donald Kaberuka says he will call on shareholders - four years earlier than planned - to triple the bank's capital base to $100 billion and boost its concessional window by half

The African Development Bank will call on its members to triple its capital base to roughly $98.4 billion and boost its soft concessional window by half, as the lender seeks additional firepower to combat the storm ravaging Africa’s economies, the bank’s president Donald Kaberuka has said.

In an interview with Emerging Markets Kaberuka confirmed that the proposal to replenish the bank’s capital –which comes four years earlier than expected – would see a boost on a similar scale to the recapitalisation of the Asian Development Bank, which won a 200% increase in its capital base earlier this month.

The plan, which Kaberuka acknowledged could take at least a year for governors to consider, would see shareholders paying in between 5%-6% of the total amount, or up to $4 billion, over an 8 year period. Currently 10% of AfDB’s $32.8 billion in capital is paid-in.

“Before the crisis I was not expecting the bank to go for a general capital increase before 2013. But now the instruments we are putting in place to respond to the crisis, many of which have fast disbursals, are eating up capital quickly,” he said.

The bank has already announced plans to step up lending to between $8.8 billion and $10.5 billion annually as the crisis tightens its grip on the continent. It has also set up a $1.5 billion Emergency Liquidity Facility and a Trade Financing Facility to meet the funding needs of cash-strapped firms.

Kaberuka added that he would also seek a boost of at least 50% for the African Development Fund, the soft window of the AfDB providing concessional resources to the poorest countries, bringing the total to roughly $13 billion. The hope is that this amount will be secured by the end of the year, sources add.

But he said that winning approval for such a boost would prove difficult given “the competing needs of each [member] country.

“I hope we can keep those numbers, but we are aware that jobs are being lost, homes are being lost,” Kaberuka said. “But the needs of poor countries cannot be ignored in this crisis.”

He acknowledged that securing a capital increase is “frankly more about political will” on the part of shareholders. But he said that any increased strain on member country budgets is “not outside the realm of possibilities.”

“We need strong IFIs. The signal of increasing our capital base would be a powerful one.”

His comments came as key international finance institutions operating in Africa were due to announce a $10 billion joint financing initiative to support African economies in crisis. The Joint IFI Action Plan for Africa will see the AfDB, World Bank Group, European Investment Bank, KfW, Agence Francaise de Developpement, the Development Bank of South Africa and others team up to provide trade finance and liquidity support over the next two years to projects and firms across the region.

Kaberuka noted that last month’s G20 meeting in London, while focusing on the challenges facing developed and middle income countries, failed to address the needs of poor nations, which were “very much a peripheral issue”. He added: “the concern is that the agenda of the lowest income countries that are not systemically important are not yet being dealt with.”

Aside from a commitment by some rich countries to boost overseas development assistance, “there is no new evidence of new resources for the poorest of the poor,” he said.

He noted that the region’s financing requirements for 2009 are “in the neighbourhood of $250 billion.” But he added that “[the region] has no possibility of fiscal stimulus, so the choice is between raising additional resources or fiscal retrenchment, which would be a shame since we’ve made so much progress over the last years.”

He advocated making both Special Drawing Rights, the IMF’s accounting unit, and the receipts of IMF gold sales available “by some mechanism” to low income countries.

Last month the IMF slashed sub-Saharan Africa’s 2009 growth forecast by 1.8% to 1.7%.

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