The Board of Governors of the International Monetary Fund (IMF) on Monday approved a general allocation of Special Drawing Rights (SDRs) equivalent to $650 billion to boost global liquidity.
The $650 billion SDR issuance will deliver almost $400 billion in added reserves to the world’s richest economies, $230 billion to middle-income countries, and $21 billion to low-income countries, an allocation Oxfam International says “reproduces the global financial system’s gaping inequalities” with more than 60 percent of SDRs going to rich countries while low-income countries will get just 3 percent.
“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. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said.
The general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.
About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.
“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth”, Ms. Georgieva said.
IMF said one key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT). Concessional support through the PRGT is currently interest free.
“The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term,” added IMF.
Responding to the IMF Board of Governors’ approval of a Special Drawing Rights (SDR) allocation of $650 billion, Nadia Daar, Head of Oxfam International’s Washington DC Office, asserted that the new SDRs will bring much-needed liquidity to struggling developing countries without adding to their unsustainable debt burdens.
“Now that this historic SDR issuance has been approved, governments must work transparently and together with civil society to ensure these resources are used to rescue collapsing health services and bolster social protection, and to deliver a fair and climate just recovery,” Daar wrote in a statement.
According to Daar, “while rich countries have implemented multi-trillion dollar fiscal stimulus packages and fully vaccinated 40 percent of their population, developing countries are still deep in the eye of the COVID-19 storm.”
“Just one percent of people in low-income countries have been vaccinated, while emergency measures to cushion the impact of the pandemic have expired with few resources to replace them. The IMF’s quota system reproduces the global financial system’s gaping inequalities ―more than 60 percent of SDRs will accrue to rich countries while low-income countries will get just 3 percent. It is unfathomable that wealthy nations would fail to reallocate a substantial portion of their SDRs ―at least $100 billion as agreed by the G7― to provide debt free and conditionality free support to countries in greater need. This is in everyone’s interest.
“However, SDRs can’t be the only game in town, and are in no way a replacement for urgent debt cancellation for low- and middle-income countries and ramped up aid commitments. Inequality is growing day by day, and while the SDR issuance is a great boost, it’s simply not enough.”