The New Development Bank based in Shanghai, also known as the “BRICS” bank, is to consider Saudi Arabia’s membership on board in light of the effect of the Russian-Ukranian crisis and passive de-dollarization movements.
The NDB is a multilateral financial institution created by the BRICS countries, including Brazil, Russia, India, China, and South Africa. Its primary objective is to provide funding for sustainable development and infrastructure projects in the BRICS nations, as well as other developing countries and emerging markets. Established in 2015 by the BRICS countries (Brazil, Russia, India, China, and South Africa), the NDB was created to provide loans for development projects in emerging economies. Over the years, it has extended $33 billion in funding to more than 96 projects within its five founding member nations. By far, the NDB has expanded its membership to include the United Arab Emirates, Egypt, and Bangladesh.
Mobilization of resources has become paramount for the NDB at this point. With the aim of diversifying its sources of funding, the NDB is considering Saudi Arabia as a potential shareholder. This move comes as concerns arose about the bank’s reliance on Russia, especially in the aftermath of the Ukraine conflict. As a founding member, Russia currently holds a significant stake of approximately 19 percent in the bank. To assure investors of its compliance with Western-led sanctions against Moscow, the NDB had to temporarily suspend its exposure to Russia, which amounted to $1.7 billion or about 6.7 percent of its total assets. This suspension included halting the funding of new projects in Russia.
Besides, with the ongoing surge of de-dollarization wherein the world is looking to place reliance on currencies other than the dollar, such diversification can be helpful for hedging.
Rating agency Fitch downgraded the NDB’s credit rating to double-A from double-A plus last July, warning that “reputational risk” from its Russian stake could potentially limit access to the dollar bond market. This month, the agency revised its outlook for the bank from “negative” to “stable”, noting the steps it had taken to mitigate its exposure to Moscow.
Amid such circumstances, addition of Saudi Arabia as the ninth member of the BRICS bank can be a welcome step.
