Using special drawing rights for climate-resilient food systems and food security

The COP28 UAE Leaders Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action – announced on day 2 of COP28 – is the first of its kind at the United Nations Framework Convention on Climate Change (UNFCCC), marking a significant milestone for sustainable food systems processes. It calls for scaled-up financial and technical support for adaptation and resilience activities to reduce the vulnerability of farmers, fisherfolk and other food producers, and commits world leaders to speed up the integration of agriculture and food systems into the climate action agenda. 

The declaration builds on calls by leaders, civil society and private sector representatives from developed and developing economies made at the Summit for a New Global Financing Pact in Paris in June, the UN Food Systems Summit +2 in Rome in July and the Annual Meetings of the World Bank Group and the International Monetary Fund (IMF) in Marrakech in October. They stressed the importance of increasing public, private and public-private investments for food security and sustainable food systems, and of greater coherence and synergies between climate and food policy.

Investments in food security and sustainable food systems are more urgent than ever

The dramatic levels of food insecurity, which keep worsening because of the combined impact of climate change, the growing number of conflicts, inflationary pressures, and, in many developing economies, reduced fiscal space, make action more urgent than ever. Hunger statistics are shocking, with nearly 800 million undernourished people worldwide in 2022. 

This represents an increase of 120 million compared to pre-pandemic levels, highlighting the immense challenge of achieving Sustainable Development Goal 2 to end hunger, especially in Africa. Currently, however, only a modest $10 billion out of $200 billion in global official development assistance is directed towards agriculture and food security.

Food security and the systemic transformation towards more climate-resilient and sustainable food systems require adequate climate and development finance both in quantity and quality. Collaborative efforts are crucial, and hopefully, like-minded partners in Africa, the G20, the G7, Europe and beyond will join forces to align international processes and finance not only with climate but also food security goals.

Rechannelling special drawing rights

In times of tightening fiscal constraints, competing demands and increasing geopolitical tensions, we need to look at different resources. One such resource is the $650 billion worth of special drawing rights (SDRs) issued by the IMF in August 2021 to help countries deal with the financial consequences of the COVID-19 pandemic. 

The SDRs issuance was heavily skewed in favour of more advanced economies, which hold a larger share (60%) of the IMF quotas. African countries received only 5% ($33 billion) – and low-income countries 3% (U$21 billion), while they were the group of countries most in need, given their limited fiscal space and debt vulnerability.

To partly redress this imbalance, G20 countries pledged to rechannel $100 billion in SDRs to support vulnerable countries, particularly in Africa. While the pledge seems to have finally been met in terms of commitments, the actual effective rechanneling has been negligible so far (as recognised by the IMF itself). 

This led many to call for speedy and more innovative implementation of the rechannelling pledges on current SDRs or the new issuance of SDRs. Among them were policymakers during the sixth AU-EU Summit in Brussels in 2022 and the Africa Climate Summit in Nairobi in 2023, but also the G-24, the Bridgetown Initiative, civil society organisations and lead experts (such as the Center for Global Development). 

SDRs are primarily reallocated through the IMF's Poverty Reduction and Growth Trust (PRGT) and the newly established IMF's Resilience and Sustainability Trust (RST). While the first provides financial support focusing primarily on addressing the balance of payment needs, the latter provides conditional loans to developing economies related to COVID-19 recovery and climate action. 

These facilities, however, leave no or very limited space for the use of SDRs to address food security and the links between food and climate. And while the IMF’s Food Shock Window and its recent extension have provided useful support, the tool remains limited in scope and volume and does not allow for the use of SDRs.

Other innovative mechanisms for SDRs on-lending currently under consideration include initiatives from public development banks and financial institutions that are recognised by the IMF as ‘prescribed holders’ which means they are allowed to acquire, hold and use SDRs. The most advanced initiative is the hybrid capital model by the African Development Bank (AfDB) and the Inter-American Development Bank. It proposes to borrow rechanneled SDRs and transform them from static foreign reserves in developed economies into lending instruments to finance transformational development projects, with an expected leverage ratio of one to four or even five. 

Should three to five richer nations agree to rechannel a total equivalent of $5 billion of their SDRs to the hybrid capital mechanism and its accompanying liquidity support agreement (to preserve the required reserve asset and liquidity characteristics of SDRs), this could lead to $20 to 25 billion of sustainable development investments. Such a mechanism would be the most productive use of rechanneled SDRs. 

Other mechanisms to be considered include the issuance of SDR-linked bonds by prescribed holders and the on-lending of SDRs through the repurchase agreements (‘repo’) business model as adopted by the Liquidity and Sustainability Facility (designed by the United Nations Economic Commission for Africa (UNECA), with Afreximbank). Such innovative mechanisms for rechannelling SDRs could easily accommodate a greater focus on food security and food-climate nexus sustainable investments.

Towards an ‘SDR for food initiative’

There is a pressing need for a global conversation on launching an ‘SDR for food initiative’. Such an initiative would allow for a more strategic use of SDRs, which includes addressing pressing systemic food security and sustainable food system issues. 

This requires identifying concrete options, for instance:

1. including food security and resilient food systems as a thematic priority of the RST;

2. considering food-related windows in hybrid capital mechanisms by prescribed holders, such as the AfDB, but also the International Fund for Agricultural Development (IFAD), as specialised financial institutions with a unique focus and expertise on food;

3. investigating the possibility for prescribed holders to issue SDR-linked bonds for food and climate investments, and;

4. considering the new issuance of SDRs directly to help vulnerable and low-income countries finance their food security plans.

But first and foremost, addressing the dramatic impacts of the food security crisis requires a political commitment to mobilise more resources at scale. Given fiscal constraints globally, this implies focusing the use and rechannelling of SDRs on the crucial links between food and climate. Such strategic political choice needs to take precedence over possible technical complexities related to the choice of rechannelling mechanisms. 

A global ‘SDR for food initiative’ would benefit the hundreds of millions of small-scale farmers who produce a third of the world’s food and who, without targeted financial support, will risk starving, or migrate. The initiative should also pay specific attention to women, as key drivers and enablers of more equitable sustainable food systems.

An opportunity for high-level political support

The call for this initiative needs to be heard much more clearly from Africa, the continent suffering most from food insecurity, but the political choice has to be made by the leaders of countries owning most of the SDRs. Two years after the $100 billion pledge, operationalisation remains stalled, leading to a sense of disillusionment among African counterparts. 

This would also help create an alliance between Africa and richer partners, which is in the interest of both. The G7 and the EU will fulfil their commitments to assist Africa in dealing with the polycrisis, while Africa will receive more – and more concessional – resources for a sector that employs 60% of the people and is at the centre of all SDGs and the continent’s economic transformation.

Failing to do so could result in greater mistrust in Africa, particularly among poorer and more vulnerable communities, towards richer nations, and in particular G7 and EU countries’ willingness to address food security and build together global prosperity, including through international finance (just two weeks ago, the EU, US and UK voted against the Africa-led resolution at the UN to create a ‘historic’ global tax convention).

ECDPM, with other interested partners, is exploring various political and technical modalities for the rechanneling of SDRs to promote investments in food security and sustainable food systems. After COP28, first opportunities for action are the Italian presidency of the G7 – given the centrality it is giving to Africa and its track record of high-level political support for food security, exemplified by the G7 Aquila Food Security Initiative in 2009 and the G20 Matera Declaration in 2021 – and the Brazilian presidency of the G20, which now also includes the AU.

The views are those of the authors and not necessarily those of ECDPM.