As its $650 billion Special Drawing Rights (SDR) disbursement came into effect yesterday, the Managing Director of International Monetary Fund (IMF) Kristalina Georgieva, has urged wealthy nations to direct some of their allocations to countries lacking the wherewithal to cope with the COVID-19 crisis and future challenges.
The Group of Seven (G-7) advanced economies had in June endorsed a plan to reallocate $100 billion of new SDRs to poorer countries.
Reallocation was considered crucial to help countries in Africa, for which only about $33 billion was earmarked in the $650 billion SDR issuance.
France has already committed to reallocating part of its share for countries on the continent.
In a statement released by the IMF yesterday, Georgieva announced the injection of the SDR to 190-member nations of the Bretton Woods institution.
Nigeria is to receive $3.35 billion as its share of the initiative that was designed by the IMF to help bolster liquidity in member- countries.
SDR is an international reserve asset created by the United Nations (UN) specialised agency to supplement its member countries’ official reserves.
The value of the SDR was based on a basket of five currencies – the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.
The creation of the $650 billion SDR which are reserve assets, was the first since 2009, just after the global financial crisis.
The IMF disclosed that it was setting up special vehicles to assist in channeling reserves to developing countries and already has the Poverty Reduction and Growth Trust that provides concessional loans.
The fund is discussing with members the possibility of a new Resilience and Sustainability Trust, which could use channeled SDRs to help the most vulnerable countries with structural transformation, including confronting climate-related challenges.
Georgieva noted that “another possibility could be to channel SDRs to support lending by multilateral development banks.”
The record allocation aims to address the long-term need for reserves and to build confidence and foster resilience and stability in the global economy.
It comes at a critical time as the highly contagious delta variant of coronavirus wreaks havoc in some countries and threatens to set back the world’s recovery.
The reserves are allocated to all 190 fund members in proportion to their quota. Some 70 per cent will go to the Group of 20 largest economies, against just three per cent for low-income nations.
Consequently, of the $650 billion, about $21 billion would go to low-income countries and $212 billion to other emerging market and developing countries, without counting China, according to U.S. Treasury Department calculations.
Georgieva said: “Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis.”
To support countries and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation and how it might affect debt sustainability, according to the IMF statement.
The international lender will provide regular updates on all SDR holdings, transactions, and trading, including a follow-up report on the use of SDRs in two years.