The International Monetary Fund (IMF) has approved a new general allocation of Special Drawing Rights (SDR) equivalent to $650 billion, the largest in the IMF’s history.
The allocation was in an effort to boost global liquidity amid COVID-19 pandemic, according to a statement released.
“This is a historic decision the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis,’’ said IMF Managing Director, Kristalina Georgieva.
Georgieva noted that the SDR allocation would benefit all IMF members, address the long-term global need for reserves, build confidence and foster the resilience and stability of the global economy.
Georgieva said that this would particularly help the most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.
About $275 billion (about SDR 193 billion) of the new allocation would go to emerging markets and developing countries, including low-income countries, according to the multilateral lender.
“SDRs are a welcome finance mechanism for Zimbabwe and the rest of Africa, they are not conditional, a country can utilise the funds as according to their own blueprints.’’
Gorden Moyo, founder of Public Policy and Research Institute of Zimbabwe, was quoted by the Sunday Mail as saying.
According to the recently released update to the IMF’s World Economic Outlook (WEO), many countries entered this crisis with high debt levels and limited resources to ramp up health and social spending.
The report stressed that access to international liquidity was vital to help them combat the crisis.
“At a time when many of these countries face difficult choices between meeting essential health and social spending needs, supporting their economies more broadly and fulfilling obligations on external borrowing.
“The SDR allocation is set to ease some of the constraints and help them better manage the trade-offs,’’ the report said.
The SDR allocation would also add to existing IMF and broader multilateral efforts, such as the Group of 20 (G20) Debt Service Suspension Initiative, directed toward cushioning the impact of the pandemic on financially constrained economies.
Moreover, the IMF noted that the new SDR allocation would “address a long-term global need to supplement existing reserve assets’’.
While subject to uncertainty, IMF staff estimates the long-term global need for reserve assets in the range of $1.1 trillion to $1.9 trillion (about SDR 0.8 to 1.3 trillion) over the next five years.
An SDR allocation of $650 billion (about SDR 453 billion) would cover about 30 per cent to 60 per cent of the estimated global reserve need.
The SDR allocation proposal was delayed for more than a year, as the U.S., the IMF’s biggest shareholder with a unique veto power, blocked it early last year under the Trump administration.
The Biden administration quickly reversed the position and voiced its support for the plan.
The proposal gained wide support during the virtual spring meetings of the IMF and the World Bank held in April, as G20 finance ministers and central bank governors as well as officials from other IMF members, backed the plan.
The final approval by the IMF board of governors, which requires an 85-per cent majority of the total voting power of all IMF members, came just weeks after the IMF executive board approved the proposal.
The new general allocation of SDRs would become effective on Aug. 23, according to the IMF.
NAN
