Covid-19 : Poor Countries Get $650bn IMF’s SDR Allocation
International Monetary Fund (IMF) has announced the allocation of $650 billion Special Drawing Rights (SDRs), the largest allocation in history to assist poor countries to tackle the present crisis of Covid-19.
Kristalina Georgieva, IMF Managing Director urges benefitting countries to use the allocation wisely as it presents a unique opportunity in the fight against the deadly Covid-19.
IMF Board of Governors approved the SDR early this month to boost global liquidity. This has created a fresh opportunity for Nigeria and other countries with liquidity challenges, to access IMF facilities, to enable them to fight the re-surging COVID-19, as well as strengthen their economies.
The SDR allocation is a critical component of the IMF’s broader effort to support countries through the pandemic, which includes $117 billion in new financing for 85 countries; debt service relief for 29 low-income countries; and policy advice and capacity development support to over 175 countries to help secure a strong and more sustainable recovery.”
Georgieva said the SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt.
Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis.
The SDRs which are being distributed to countries in proportion to their quota shares in the IMF means that about $275 billion is going to emerging and developing countries, of which low-income countries will receive about $21 billion, that is equivalent to as much as 6 per cent of GDP in some cases.
SDRs are a precious resource and the decision on how best to use them rests with the member countries. For SDRs to be deployed for the maximum benefit of member countries and the global economy, those decisions should be prudent and well-informed.
“To support countries, and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability” according to the IMF Boss.
The IMF will also provide regular updates on all SDR holdings, transactions, and trading – including a follow-up report on the use of SDRs in two years’ time.
To magnify the benefits of this allocation, the IMF is encouraging voluntary channelling of some SDRs from countries with strong external positions to countries most in need.
She noted that over the past 16 months, some members have already pledged to lend $24bn, including $15 billion from their existing SDRs, to the IMF’s Poverty Reduction and Growth Trust, which provides concessional loans to low-income countries. This is just a start, and the IMF will continue to work with our members to build on this effort.
“The IMF, she said, is also engaging with its member countries on the possibility of a new Resilience and Sustainability Trust, which could use channelled SDRs to help the most vulnerable countries with structural transformation, including confronting climate-related challenges. Another possibility could be to channel SDRs to support lending by multilateral development banks.
It would be recalled that Nigeria n April last year collected $3.4 billion equivalent to 100 per cent of its quota under the IMF’s Rapid Financing Instrument, RFI, to tackle the funding gaps created by COVID-19, especially when the crude oil market stagnated.
