Euro crisis threatens AfDB fund boost

25/05/2010 | John Chiahemen

The African Development Bank wants to boost the fund it uses to tackle poverty by about $4 billion this year, but the euro crisis could make that tough, its president Donald Kaberuka said in an interview

The AfDB wants to boost the fund it uses to tackle poverty by about $4 billion this year, but the euro crisis could make that tough, its president Donald Kaberuka has said.

But plans by Africa’s premier development bank to triple its capital to about $100 billion remain firmly on track, Kaberuka told Emerging Markets.

A vote on the increase on Thursday or Friday by shareholders at the bank’s annual meeting in Abidjan would be “an important formality” after the council of governors had already approved it by 80% majority, he added.

Shareholders are also expected to approve accession to the board by representatives of South Africa and the UK.

The capital increase and the board changes should give the AfDB even more clout to borrow in the capital market. Both changes met broad approval among key shareholders who met on the fringes of the IMF-World Bank spring meetings in Washington, a senior official said. He added that the capital increase is “done. We’ll be celebrating on Friday.”

The Abidjan meeting will also discuss replenishing the African Development Fund (ADF), which provides concessionary lending and is critical for the bank’s poorest members.

Kaberuka told Emerging Markets he had been hopeful of winning up to $4 billion for the ADF this year, until Greece’s financial crisis triggered the eurozone crisis.

“At the last replenishment we had a record 50%, which brought the fund to nine billion dollars,” Kaberuka said. “I was hoping that in [this year’s] replenishment I could get the same level of increase.

“This could have taken [the fund] to around $12.5-13 billion – $4 billion per year for three years”, he said. But “the issues with the euro may have their impact”.

He had no immediate revised outlook. A final decision on replenishing the fund is not due until August.

The record fundraising for the ADF in 2008 and approval for the huge capital increase are widely seen as the hallmarks of Kaberuka’s five years at the helm. He aggressively expanded the bank’s loan portfolio, taking the cumulative loans and grants made since 1967 to $82 billion.

South Africa’s accession to the AfDB board was only a matter of time, because of its weight as Africa’s biggest economy. But it was a delicate issue: South Africa only joined the bank after apartheid, in 1994, and had to take its place in the pecking order of shareholders. Its holding is around 4.5% – compared with Nigeria’s 8.7%, the US’s 6.5% and the UK’s 1.7% –but is likely to grow.

A solution likely to be negotiated between shareholders is for the two new board members eventually to pick up shares held by poorer countries that are unable to pay up their allotted capital.

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