IMF approves largest SDR allocation in history to combat COVID-19 crisis
Many countries have entered this crisis with high levels of debt and limited resources to increase health and social spending, and access to international liquidity is “vital” to help them fight the crisis.
WASHINGTON, Aug. 3 (Xinhua) – The International Monetary Fund (IMF) has approved a new total allocation of special drawing rights (SDRs) equivalent to $ 650 billion, the largest in IMF history, in a bid to boost global liquidity amid the COVID-19 pandemic, according to a statement issued Monday.
“This is a historic decision – the largest distribution of SDRs in the history of the IMF and a shot in the arm for the world economy at a time of unprecedented crisis,” said IMF Managing Director Kristalina Georgieva.
Noting that the allocation of SDRs will benefit all IMF members, meet the long-term global need for reserves, build confidence and promote the resilience and stability of the global economy, Georgieva said it would help the most vulnerable in particular. countries struggling to cope with the impact of the COVID-19 crisis.
About $ 275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries, according to the multilateral lender.
“SDRs are a welcome financial mechanism for Zimbabwe and the rest of Africa, they are not conditional, a country can use the funds according to its own plans,” said Gordon Moyo, founder of the Institute for Public Policy and Research in Zimbabwe. says Sunday Sunday.
According to a recent update of the IMF’s World Economic Outlook (WEO), many countries have entered this crisis with high levels of debt and limited resources to increase health and social spending, and access to international liquidity is “vital” for to help them cope with the crisis.
“At a time when many of these countries are facing a difficult choice between meeting their essential health and social spending needs, supporting their economies more broadly and meeting their external borrowing obligations, the allocation of SDRs will ease some of the constraints. and will help them better manage compromises, “the report said.
The allocation of SDRs would also contribute to existing IMF and broader multilateral efforts, such as the Group of 20 (G20) debt relief initiative aimed at mitigating the pandemic impact on financially constrained economies, according to the report.
In addition, the IMF noted that the new allocation of SDRs would “meet a long-term global need” to supplement existing reserve assets.
Although uncertain, IMF officials estimate the long-term global need for reserve assets in the range of $ 1.1 to 1.9 trillion (about 0.8 to 1.3 trillion SDRs) over the next five years. The allocation of SDRs of $ 650 billion (about SDR 453 billion) would cover about 30-60 percent of the projected need for global reserves.
The proposal to allocate the SDR has been delayed by more than a year as the United States, the IMF’s largest shareholder with a unique veto, blocked it under the Trump administration early last year. The Biden administration quickly reversed its position and expressed support for the plan.
The proposal received widespread support during virtual spring meetings between the IMF and the World Bank in April, when G20 finance ministers and central bank governors, as well as officials from other IMF members, backed the plan.
Final approval by the IMF’s board of directors, which requires an 85 percent majority of the total voting rights of all IMF members, came just weeks after the IMF’s executive board approved the proposal.
The new general allocation of SDRs will take effect on August 23rd, according to the IMF.
The SDR, an international reserve asset created by the IMF in 1969 to supplement the official reserves of member countries, can be exchanged between governments for freely usable currencies in times of need.
So far, 204.2 billion SDRs (equivalent to about $ 293 billion) have been allocated to members, including 182.6 billion SDRs allocated in 2009 as a result of the global financial crisis, according to IMF data.
The Chinese currency, the yuan, officially became the fifth currency in the SDR basket on October 1, 2016, joining the US dollar, the euro, the Japanese yen and the British pound.
Georgieva said the IMF would also continue to actively engage in its membership to identify “viable” opportunities to voluntarily target SDRs from richer to poorer and more vulnerable member states to support their recovery from a pandemic. and to achieve sustainable and sustainable growth.
One key opportunity is for members with strong external positions to voluntarily direct part of their SDRs to increase lending to low-income countries through the IMF Poverty Reduction and Growth Trust (PRGT), the statement said. adds that preferential support through PRGT is currently interest-free.