CANADA DELIVERS ON ITS COMMITMENT TO STRENGTHEN INTERNATIONAL FINANCIAL INSTITUTIONS
Canada PM Steven Harper & USA President B.OBAMA ,Photo by Deb Ransom
PITTSBURGH – Prime Minister Stephen Harper today announced that Canada will provide the African Development Bank more lending room to respond to the pressures of the global economic crisis. This action to temporarily triple callable capital for the Bank reinforces Canada’s London G20 commitment to strengthen and support international financial institutions.
“Canada is the first country to have responded to a critical need of regional banks in this innovative way,” said Prime Minister Harper. “Our support recognizes efforts by the African Development Bank to ensure it has sufficient resources to respond quickly to the demands of its borrowing members while it continues its poverty reduction efforts.”
Canada’s increase in callable capital, which serves as a guarantee from shareholders, will provide the African Development Bank approximately USD$2.6 billion [CAD$2.8 billion] in additional lending room. This triples the level of Canada’s shares in the Bank, allowing it to increase lending by 75 percent compared to its original planned lending for 2010, building on the innovative model that Canada introduced last April for the Inter-American Development Bank.
As leaders convene in Pittsburgh to take part in the G20 leaders’ summit, Prime Minister Harper is promoting a focused agenda, advocating the full implementation of stimulus measures, concrete action to keep our trade flows expanding and the importance of strengthening domestic financial sector regulation to facilitate a sustainable and balanced economic recovery.
Backgrounder
Canada’s Capital Investment in the African Development Bank
Canada’s initiative to temporarily make available USD$2.6 billion [CAD$2.8 billion] to the African Development Bank (AfDB) represents a 200 percent increase in its level of shares in the Bank, and is a further demonstration of Canada’s commitment to Africa. This initiative will allow the AfDB to increase lending by 75 percent compared to its original planned lending for 2010.
The AfDB is a valued regional institution in which Canada plays an active role. Established in 1964, the Bank began operations in 1966 and is a primary source of multilateral funding for economic, social and institutional development in Africa. Its mandate is to promote sustainable economic growth to reduce poverty. The Bank provides loans and grants focused on four priorities: infrastructure, governance, regional integration and private-sector development. Canada has been a non-regional, non-borrowing member of the AfDB since 1982 and is tied with France as the fourth-largest non-regional member.
Rising demand on the AfDB because of the global economic crisis has put pressure on the Bank’s lending limits. The Bank expects demand for loans and grants in 2009 to more than triple compared to last year to the equivalent of 9.65 billion UA (units of Account), or approximately USD$15.3 billion. The Bank is expected to have a funding shortfall over the next year of USD$3 billion. Increasing the callable capital on a temporary basis will help bridge the Bank’s funding gap until it finds permanent resources to meet the growing demand.
Canada’s capital investment in regional development banks, including the AfDB, consists of a mix of paid-in capital (cash contributions) and callable capital. The callable capital serves as a guarantee from shareholders that the Bank may call on that portion of subscribed capital stock, as required, to meet its obligations on borrowed funds.
By temporarily subscribing to additional callable capital shares, Canada’s initiative will increase the amount of secure guarantees, directly increasing by that same amount the lending capacity of the AfDB in the near term until the Bank finds more permanent resources to expand its capital base.
Canada currently owns 81,648 shares in the AfDB, for a subscribed capital investment of UA 816.48 million. Of that total investment, UA 81.75 million is paid-in and UA 734.73 million is callable.
As an active member of many international financial institutions, Canada has supported efforts to supply the resources and tools required to address the global financial and economic crisis in the institutions’ areas of operation, while ensuring full implementation of long-term development programs. In particular, Canada has made substantial contributions to expand the resources of the International Monetary Fund (IMF) bilateral credit arrangement and the International Finance Corporation’s Global Trade Liquidity Program. Canada has also temporarily doubled its callable capital at the Inter-American Development Bank to immediately increase the Bank’s lending capacity to respond to the effects of the financial crisis in the Americas. Canada joined other members of the Asian Development Bank in approving a 200-percent capital increase in the Bank’s capital to help it aggressively address the crisis while, at the same time, pursuing long-term development and poverty reduction. Canada continues to be engaged in ongoing discussions on capital adequacy in the other regional development banks.
The Minister of Foreign Affairs represents Canada on the AfDB Board of Governors. The Canadian International Development Agency leads Canada’s day-to-day operations at the Bank, and the Department of Finance Canada provides financial oversight.
Kal S.
