Kristalina Georgieva, the IMF Managing Director disclosed that the International Monetary Fund (IMF) has approved a record general allocation of $650 billion in reserve assets, known as Special Drawing Rights (SDR). The fund is aimed at helping member countries, especially emerging and developing nations, cope with the economic fallout from the coronavirus pandemic.
Meanwhile, the IMF Director christened it as a “shot in the arm” for the global economy during this unprecedented crisis.
“The Special Drawing Right 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.”
Kristalina Georgieva
Undoubtedly, IMF noted in a statement that the injection of SDRs is the biggest in the fund’s 77-year history and is meant to help boost global liquidity. The allocation of SDRs is expected to become effective on August 23.
Moreover, Georgieva stated that out of the $650bn allocation, about $275bn will go to emerging markets and developing countries, including low-income nations.
Additionally, the Washington-based lender indicated that the fund will continue to engage actively with its membership to identify viable options for voluntary channelling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth.
Too, the IMF hinted that it is 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 sustainable growth in the medium term”.
Furthermore, the SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries. The SDR is the fund’s unit of exchange and is made up of a basket of the world’s five leading currencies – the US dollar, euro, yuan, yen and the UK pound.
While the SDR is not money in the classic sense because it cannot be used to buy things, it is an accounting unit for IMF transactions with member countries and a stable asset in those countries’ international reserves.
Meanwhile, the last time the fund took a similar measure but on a smaller scale was in 2009 when it distributed $250bn in SDR reserves to member countries amid the global financial crisis.
According to the IMF website, the reserves are allocated to 190 members of the IMF in proportion to their quota. About 42.2 per cent corresponds to the share of emerging market and developing economies, of which 3.2 per cent corresponds to low-income countries.
Thus, the funds are needed to help countries free up resources for health care and social spending during the Covid-19 pandemic that has resulted in the worst economic crisis in 2020 since the Great Depression of the 1930s.
Meanwhile Ghana as a lower middle income country is also expected to benefit from the funds. The fund will help Ghana to deal with rising debts and fallout from the Covid-19 pandemic on the country’s economy.
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